By John Helmer, Moscow
When His Holiness Patriarch Kirill of Moscow and All Russia (lead image, left) made a speech to the State Duma last week, it was both more, and less, than a case of preaching to the converted.
This is because investigations by the Central Bank, the Deposit Insurance Agency of Russia, a handful of Russian reporters and whistleblower churchmen have revealed evidence that the Church has been operating elaborate schemes for converting state funds into private profits, causing a string of Church-controlled banks to go into bankruptcy, and then into state-funded bailouts. Taxpayer and state budget funds, and cash belonging to state corporations, have been moved through deposits in these banks, supervised by the patriarch himself, into political donations to United Russia and other groups of parliamentary deputies; into construction contracting at church properties; and into related-party loans and investments which have disappeared offshore, never to be recovered or repaid.
Of six Russian banks in which the Church has large shareholdings and control stakes since 1995, five have gone bust; been delicensed by the Central Bank; or been charged with criminal fraud, embezzlement and money-laundering offences. In three of the most recent Church bank insolvencies, Vneshprombank (VPB) in October 2016, Peresvet in December 2016, and Ergobank two weeks ago, the gap between assets and liabilities is already believed to be at least Rb 300 billion ($5.1 billion). State auditors are expecting to count more money lost in the black hole. That is more money than Kirill is asking the State Duma to refinance for the Church from the 2016 budget, Central Bank reserves, and capital of the Deposit Insurance Agency (DIA).
The deputies of United Russia, the majority party in parliament, aren’t saying no; they aren’t inquiring either.
Making his first speech to the Duma since the present parliament was elected on September 18, 2016, Kirill said last week: “I hope that the new composition of the State Duma under the direction of Vyacheslav Viktorovich [Volodin, the Duma Speaker, below left] will work productively and responsibly.”
“I welcome,” Kirill told Volodin, “measures to improve the internal mechanisms of functioning of the State Duma, which helped to make the legislative process more open to participation by members of the public. Feedback from those who were the addressees of the laws that you pass, including religious organizations, is a precondition for improving the efficiency of Russian parliamentarism.” Kirill explained that by opening the Duma to “members of the public”, he meant the Church. He did not mean the Church should be open to members of parliament.
“Of fundamental importance is the fact that having been built over more than two decades in Russia, the system of state-religious interaction is in full compliance with the principle of a secular state enshrined in the Constitution. Following this principle, it is equally important for the government and for the Russian Orthodox Church [ROC] — the state and religious associations do not interfere in the internal regulations of each other.”
Kirill then laid out an agenda “of topical issues [which], in my opinion, require immediate action”, plus outlays from the state treasury to pay for them. Money should be spent on schools to teach the “science to maintain impartiality in relation to any historical character or period, and [combat the] Amateur [who] will try to subordinate history to their control, under the prevalent clichés and stereotypes, even when they directly contradict the historical facts” – that is, more state money for more church schools. And not only church schools, but also culture clubs, summer camps, seminaries, convents, monasteries. “Of great importance,” Kirill added without identifying the Soviet welfare system, “is the issue of increasing the availability of educational institutions and organization of the educational process, not only in secondary schools. I remember a time when the country had free clubs, sports clubs, which distracted children and youth from evil deeds on the street, from the effects of an adverse environment. We need to do more and make more available the extracurricular employment of our children.”
Abortion is to be banned, and the Duma requested “not to leave the phase-out efforts to overcome this terrible phenomenon”. Instead, Kirill proposed the state should fund the Church to run clinics for pregnant women and orphanages for unwanted babies, with tax relief from the treasury for larger families. Interest rate caps should be introduced on micro-finance and small loans to people of low income, whose extra cash will be sought to fill parish collection plates and prayer-boxes. Banks lending on mortgages, as well as defaulting borrowers, should be indemnified against foreclosure for recovery of loan defaults.
Laws already on the books to deter violence within families should be removed because they represent, said Kirill, “the invasion of nihilistic and openly anti-religious policies configured in the domain of personal and family morality”. For more on the Church’s campaign to allow the beating of children and spouses, read this.
The ideological justification for spending taxpayer money by Church management, according to Kirill, is that the Church’s role as guardian of Russian morality places it, and the patriarch, above the law. “Morality is always primary and the law secondary. If it were not for this sequence, if the law is not conditioned by morality, we would live in a terrible system of interpersonal relations. The law is just or unjust only when it meets the moral sense of the people. And the crisis, including legislation, which now affects some countries, separating law from ethics or morality, and provides dependence on the law, forces citizens into certain actions because of the law passed contrary to the moral sense – this is a challenge to the development of civilization.”
The Church, Kirill added, is also above financial transparency and generally accepted accounting principles. “Corruption is a severe spiritual disease. It is impossible to be truly faithful, to go to Church, participate in the parish and even live in the Church and to take bribes or to profit at the expense of unfair financial transactions. God expects from us [the determination to] change your life, not a formal donation for the Church. God cannot be bought with alms. He needs the correction of the person that his victim was a symbol of true repentance for their sins.”
The patriarch did not mean that the state’s donations to the Church should be audited. According to a source at the Accounting Chamber, the independent state spending watchdog, payments for the Church’s hospital in Russia, the Central Clinical Hospital of St. Alexis, go direct from the federal treasury, and have not been checked or audited, incoming or outgoing. First built in 1902, renamed the 5th Soviet Hospital in the 1930s, then the 5th Moscow Hospital after the war, this institution was privatized by then-President Boris Yeltsin into church management and financial control in May of 1992. With 250 beds, it appears to be the only Church hospital in the country.
Its budget, says the director, Alexei Zarov, is financed by patient charges on the state medical insurance system; by charitable contributions; and by a Rb36 million ($610,000) subsidy this year from the federal Health Ministry budget .
“In 2016,” Zarov (right) said this week, “we came into a difficult situation and ROC helped us to get out of it. Patriarch Kirill has taken our problems under his own control. The amount of private donations was also raised. We managed to change our medical equipment to the newest available, and upgrade the hospital’s infrastructure. Unfortunately, I can’t give you the exact sums of money from all sources. The other part of financing for the hospital consists of payments for services according to the compulsory health insurance policies. But we also provide medical care to the people who do not have them. We don’t refuse people who need medical help just because they don’t have this policy; charity donations financially cover help to such people. All medical services we provide are free of charge according to the Christian rules. This year the Government of Moscow included the building of our hospital into the programme of reconstuction of old and historical buildings. That was also made with help of the ROC and Patriarch Kirill.”
As of October 2016, the Church lists under its control 10 post-graduate or university-level educational institutions; 52 seminaries for the training of priests and nuns; and 19 religious schools.
In 2013, the Church reported running 90 orphanages, home to more than 1,500 children. How many the Church operates today is not known. From 2015, when the Church said it was operating 27 women’s shelters, the plan was to add another 50.
How these institutions, plus the churches themselves, are paid for is unclear. This is because the Church parishes are constituted legally as separate organizations, and the system of parish funding to the Church hierarchy subject to internal rules, but unaccounted for and unreported in public. This is the only major report on the Church’s finances to have appeared in the public domain from a year ago. Its conclusion: “The welfare of the Orthodox Church rests not only on considerable state aid, the generosity of sponsors, and the donations of the faithful. There is also the Russian Orthodox Church [РПЦ, ROC] and its business. But where the money is earned and spent remains a secret”.
Read the full report (in Russian) at http://www.rbc.ru/investigation/society/24/02/2016/56c84fd49a7947ecbff1473d The principal journalists for this story, Svetlana Reiter, Anastasia Napalkova, and Ivan Golunov, have not been employed by the RBC media group since last September.
A handful of financial statistics appears in the RBC report. In 2014, for example, the Federal Tax Service disclosed that declared Church income which was not taxable came to Rb5.6 billion (about $150 million). Average annual income until then, including taxable sources as well, has been estimated at $500 million. For the patriarchate at the top of the Church hierarchy, which decides how and on what to spend the annual income, 5% reportedly comes from contributions from the regional diocesan administrative units of the Church; 40% from donors and sponsors, both individual and corporate; and 55% from the turnover and earnings of commercial businesses owned and run by the Church.
The diocesan cashflow is generated by charges by local churches for religious ceremonies, such as baptisms, weddings, exorcisms, blessing ceremonies for private property, and funerals; plus parishioner payments for individual prayers, along with donations; plus sales of candles, crucifixes, icons, coffin decorations, and other religious artifacts produced in local workshops, or distributed from Sofrino, the main ROC production complex at Sergiev Posad (below), near Moscow.
“Our hand-made creations will mesmerize you with the superiority of their aesthetics” -- http://www.sofrino.gr/en/home The Sofrino manufacturing and trading enterprise reportedly generated revenues in 2014 of Rb436 million ($11 million), with a declared profit of Rb64 million ($1.6 million).
Since the economy-wide recession started in 2014, RBC reports that the flow of individual and corporate donations has dwindled, while the flow of ceremonial, prayer and trade earnings from the dioceses has grown. The state budget contributions have also been cut back, though counting federal, regional and municipal sources altogether is difficult.
Real estate owned by the Church is a major source of expense, and also of business income. Across Russia, between the end of the Soviet period in 1991 and 2009, about 5,000 churches had been built from scratch or restored, financed by state subsidies as well as by private donations.
Since a new ROC property law was passed by the Duma in 2010 and the end of 2014, the Federal Property Management Agency transferred legal title for 270 state-owned properties to the Church in 45 regions. In 2015 the Church applied to take 1,971 new properties from the state, but only 212 were approved by the start of 2016. A Church lawyer told the RBC reporters: “When the  law was discussed, we made a compromise [sic] – we did not insist on restitution for Church property lost [since the 1917 revolution]. Now we usually do not ask for [return of] any of the normal buildings in large cities, but only for ruined objects that are costly [to restore]. We took a bunch of ruined churches in the 90s, and now, of course, we have wanted to get something better.”
This has included an application for the Church to take over St. Isaac’s Cathedral in St. Petersburg, the most prominent church in the city, free of charge. A petition of 85,000 city residents opposed the handover by the Governor of St. Petersburg, Georgy Poltavchenko (below, right), the former KGB general in charge of Leningrad.
Poltavchenko and the St. Petersburg government decided to disallow the transfer. A diocesan archpriest, Alexander Pelin, counter-attacked: “Everything is going on in the spirit of the best Soviet traditions. The church is used as a museum; the museum leadership is behaving like real atheists!”
Poltavchenko compromised with an offer to authorize a 33-metre statue of Jesus Christ to be commissioned from the notorious Moscow sculptor Zurab Tsereteli, paid out of public money, and installed on a 20-metre pedestal to be the tallest Jesus Christ statue in the world. Pelin rejected the offer. A Church spokesman added, renewing the demand for St. Isaac’s: “For the Orthodox, the monument of Christ is God’s temple.”
Tsereteli has admitted trying to get his Jesus Christ accepted in Sochi for the Olympic Games, but it was rejected there too.
According to the RBC report, in the 4-year period of 2012-2015, the Church took in from the state budget and associated government entities a total of Rb14 billion ($424 million at the pre-devaluation exchange value), for an average each year of Rb3.5 billion ($103 million in 2013). The new federal budget for this year, approved by the Duma, allows only Rb2.6 billion ($43 million); that represents a rouble cut of 26%. About one-tenth of this outlay is usually spent by the Church on its schools.
Kirill has been threatened by the decline of the state’s subsidies because he has come under sharp criticism from the diocesan bishops and regional parishioners for trying to extract more money out of their churches and parishioners, raising the price of prayers and candles. “”Under Patriarch Alexei II,” RBC reports an anonymous Church official as admitting, “the exaction [of funds by the patriarchate in Moscow from the diocesan takings] was 10%; this is now 27%. This is due to the fact that after the arrival of Patriarch Kirill, the number of dioceses has increased three times, and the load on the wards has greatly increased.”
The RBC reporters say the financial administration of the patriarchate in Moscow refused to respond to their questions. A spokesman for Kirill was also quoted as saying that how much the Church receives in income from the federal budget, and how it spends the money, are “closed articles” for the Church to dispose of, without public disclosure.
Sofrino also loaned its name, through related parties controlling the manufacturing business, to a bank. The Central Bank intervened to revoke its licence in June 2014. At the time it was discovered, publicly, that a group of Church insiders had been taking state budget cash through the Church and into the Sofrino bank, officially for construction contracts awarded without competitive tenders. A prime commercial property for the Church, the Danilovskaya Hotel (pictured below), also benefited from these state featherbed contracts; banked its takings through Sofrino; and exported its profits elsewhere.
Since 1991 the Church has operated with six Russian banks. Before Sofrino Bank collapsed, Alexander Bank failed in the second half of the 1990s; its licence was revoked in 1997. The International Bank of the Cathedral of Christ the Saviour was the target of several criminal investigations, and was forced to change shareholders, trading name and clientele in 2006 For details, read this.
Vneshprombank (VPB) and Peresvet were ordered into Central Bank and DIA administration last October and December. On present publicly disclosed estimates, Rb210 billion is missing and unaccounted for at VPB; at least Rb72 billion is missing from Peresvet. The financial operations of Peresvet, including the attraction of large deposits from such state enterprises as Transneft, Rosneft, Gazprom, Inter RAO, RusHydro and Russian Railways, have been reported to have occurred at the personal direction of the patriarch himself, at the same time, he directed large ROC bank deposits elsewhere. Kirill also directed the investment of the Peresvet depositor funds through a scheme of venture capital funds. For more details of how the money disappeared into thin air, read this recent report by Ivan Golunov (right).
Of the six Church banks only one remained in operation at the start of last month. That was Ergobank.
However, on January 11, the bank announced it was having “liquidity problems”. In fact, its entire capital had disappeared. On January 15, the Central Bank announced the revocation of Ergobank’s licence. “With poor quality assets Ergobank inadequately assessed accepted credit risks. The proper assessment of the credit risk at the request of the supervisory body showed complete loss of the bank’s equity. Furthermore, due to the loss of liquidity Ergobank failed to timely fulfill its obligations to creditors or deposit holders.”
Eleven days after this announcement, the patriarch presented his prospectus to the Duma with his admonition against “profit at the expense of unfair financial transactions.” His spokesman was asked today whether Kirill can explain the collapse of all three Church banks over the past four months, and what personal responsibility he feels for the financial injury suffered. There is no reply.
At least Rb6.5 billion ($110 million) in Ergobank assets have disappeared. No estimate of the liabilities has been published yet.