Kommersant
Russian Court Cracks Down on Foreign Banks Operating Illegally

A $21 million claim has been filed against Latvia’s Parex Banka by Russian clients. The Supreme Arbitration Court found that the bank had been operating without a legal Russian office in order to avoid Russian banking legistation.

On Tuesday, the court’s presidium will hear a suit filed by Olympia to recover $21 million from Latvia’s Parex Banka and Citadele Banka. Parex Banka, which was on the verge of bankruptcy in 2008, was reorganized after its founders, Valery Kargin and Viktor Krasovitsky, transfered their stakes to the government. The ailing bank’s liquid assets were spun off as Citadele. Parex Banka ceased trading in 2010, announcing on its website it was being reorganized as the problem asset management company Reverta.

Reverta, 83.07% owned by Latvia’s Privatization Agency and 13.61% by EBRD, still holds the money deposited with Parex Banka before the reorganization, and is currently facing dozens of lawsuits from Latvian clients. In January 2011, Kargin sold his debt claim against Parex to Olympia, which filed a claim in March. The court said the case could not be heard in Russia because Parex Banka does not have any local subsidiaries, branches or representative offices.

The case went to the Supreme Arbitration Court, whose board believes that both Parex Banka and Citadele Banka were operating in Russia illegally, running their business from an office operating on their behalf. Although their Russian clients were convinced the offices in Moscow and St. Petersburg were legitimate, they were formally accredited to third parties, Citadele Asset Management and Parex Asset Management. However, both offices de facto delivered the banks’ services in Russia, giving their clients the opportunity of performing transactions locally without direct contact with the head office in Riga. The Russian judges believe that Citadele Asset Management and Parex Asset Management were established as part of a scheme to evade Russian banking supervision laws, and that the banks were operating in Russia through affiliates.

Under Russian law, a representative office is not a legal entity and cannot operate commercially. But that did not apply to the two offices because they were not registered as bank representative offices, and could not be controlled by the Russian Central Bank. The Latvian banks’ ads were not regulated by the antimonopoly service because they are not residents. The police never interfered because no Russian clients complained.

“The Latvian bank has invented a very intricate scheme in Russia,” a Russian official said, adding that it could be perfectly legal from the Latvian perspective because laws are more liberal there. This situation shows that there are loopholes in Russia’s laws on international banking services.

If the court presidium agrees that the Latvian banks have been operating illegally, its decision will have political repercussions, lawyers say. It is Russia’s way of warning investors that they need to observe Russian laws, set up subsidiaries that are regulated by Russian jurisdiction and pay taxes.

Olympia could not be reached for comment. Parex Banka lawyers declined to comment.

Moskovsky Komsomolets
Retirement Age in Russia to Be Raised to 63

The need for pension reform is recognized by everyone from the authors of Strategy 2020 to Healthcare Ministry officials. And employers, who have to spend 30% of their revenue on insurance payments, are not happy at all. So, like the authors of Strategy 2020, the Finance Ministry is suggesting a later retirement age. In 2015 the age would be increased annually by three months for men and six months for women.

Former Finance Minister Alexei Kudrin formulated the idea in an interview with Moskovsky Komsomolets on October 12, 2010. Today women have the right to retirement pensions at 55 and men at 60, unless they are allowed to retire sooner. The number of “early retirees” is estimated at up to 40% of Russia’s workforce. They include law enforcement staff, employees of hazardous facilities, the residents of the Extreme North and comparable regions, and teachers. As a result, the average actual retirement age for men is 53-54 years, but almost all of these pensioners continue working while drawing a pension. Although pensions are notoriously small in Russia, this is rapidly increasing the deficit of the Pension Fund (to 1.5 trillion rubles or over $50 billion this year) even though employers’ insurance payments were raised from 26% in 2010 to 34% in 2011 (they were cut to 30% in 2012).

In addition, the country’s demographic trends are presenting new challenges for the system. There are currently 600 pensioners per 1,000 working people, but the ratio will be 1,000 per 600 in 2030. Russia’s workforce is decreasing by 400,000 a year.

One solution suggests transferring “early retirees” from the pension to the insurance system, under which it would not be the government but employers who would pay pensions. Debates on this issue have just started, while discussions of the retirement age have come to a head.

The authors of Strategy 2020 have proposed increasing the retirement age to 63 for both men and women for many reasons, but above all for demographic reasons. The retirement age in industrialized countries has been increased to 65-68 years.

The transition to a new retirement age in Russia should proceed gradually until 2030.

The Ministry of Healthcare and Social Development, which, according to some media outlets, proposed increasing the retirement age to 65 years, is citing Vladimir Putin’s election pledge not to raise the retirement age.

But the Finance Ministry has openly taken a tough stance. It has written to the Healthcare Ministry in support of the 63-year retirement age proposed by the authors of Strategy 2020 (which they clearly borrowed from Kudrin).

Starting in 2015, the retirement age is to be increased annually by three months for men and six months for women, until the retirement age officially becomes 63 in 2027-2028.

Is there an alternative to increasing the retirement age? No one except the Healthcare Ministry seems to see any option, that is, apart from raising taxes.

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