By answering questions the way he’s been doing, the Chairman of the Central Bank of Russia, Viktor Gerashchenko, has unfortunately aroused people to ask whether he’s a good man, or bad.
A good man is good inside, they say in Russian villages — a good horse is good outside.
No one investigating the Central Bank at the moment is able to find out, and no auditor or prosecutor need care, whether Gerashchenko is good on the inside. What concerns us all is whether he’s good on the outside — whether, like the village horse, he is carrying the burdens that are his duty, or not.
In the case of the Central Bank, the legislation that governs its operations was enacted in such a way as to make the Bank accountable on many matters to itself alone. Gerashchenko told a television interviewer last week that he and his bank report to the Duma. He didn’t elaborate on all the topics, records, transactions, and accounts which are not reported to the Duma, or withheld from the Accounting Chamber, according to the interpretation of the law which the Bank holds.
1. Personnel compensation. According to the recent audit of the Central Bank by the Accounting Chamber, more than 50 per cent of the Central Bank’s annual operating expenses (about $1.6 bil lion) was spent on compensation for staff. This proportion, the Central Bank told the Accounting Chamber, was comparable to what investment banks pay their employees in the West. Investment bankers say that’s a misleading comparison, and much too large to be justified. Around 20 percent is standard for Western commercial banks, they say; less than 10 per cent for central and reserve banks. Gerashchenko hasn’t claimed the Central Bank is an investment bank. But he did try to classify the compensation report of the Accounting Chamber to prevent the details becoming public. According to the Accounting Chamber, he had no legal right to do that.The Chairman of the Central Bank must not be above the law.
2. Central Bank investment banking. The Procurator-General last week revealed the Central Bank conducts private investment operations with billions of dollars of national currency reserves. So far just one of the investment agents for these operations has been publicly identified. Gerashchenko has explained this was a creation of one of the Central Bank’s foreign subsidiaries. Those offshore affiliates and subsidiaries have never been audited before, though it’s now clear that without tracking Central Bank operations through them, the Bank was not accounting for its currency operations truthfully before parliament. Gerashchenko has acknowledged the concealment, but gave differing reasons for it.They add up to his admission that concealment was the policy, not account ability.
He has told the Accounting Chamber that the law under which it operates limits its audits to budget resources and state debt transactions, not to currency dealings. Even if the chairman believes the law allows him to keep parliament and the Accounting Chamber in the dark, the Procurator-General lias reminded Gerashchenko he has higher legal duties than the letter of the Central Bank and Accounting Chamber laws. Slipping between the two with a definition of feder al property that defies common sense, doesn’t relieve Gerashchenko of the requirement that he and his subordinates obey the criminal code. Hiding what they do fuels the suspicion they do not. The Chairman of the Central Bank must be above suspicion.
3. Central Bank precious metals dealing. A succession of Duma budget committee chairmen have acknowledged that transactions with state stockpiles of gold, platinum, palladium,and diamonds have been a black hole. Attempts at auditing them by the Accounting Chamber have been frustrated and blocked, although the law on the Accounting Chamber clearly means to include them as federal property subject to audit. But when the Chamber recently attempted to audit the Central Bank’s platinum and palladium stocks, worth more than $2 billion last year, the Central Bank refused.
According to the Bank, the Accounting Chamber had the right only to audit the precious metals that are included in the International Monetary Fund’s definition of reserves. Since that counts gold, but excludes platinum and palladium, the Bank blocked the auditors. They are thus able to hide from parliament what happened to the profits from last year’s upward revaluation of platinum and palladium.
They are also hiding details of the attempts by the Central Bank — over Finance Ministry opposition — to place the metal in banks abroad in circumstances that threaten a price collapse. Everyone in the precious met als business in Russia knows about this — except the par liament and the Accounting Chamber.