Who's Taking over Djem Bank?

UNCLAS MINSK 001146

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV PGOV BO
SUBJECT: Who's Taking over Djem Bank?

Ref: Minsk 955


1. Summary: Since late July the GOB has been exerting heavy
pressure on foreign owned Djem Bank. The National Bank of Belarus
admitted it misused the law to take control of the bank. It then
revoked a number of Djem's licenses, demanding the bank return USD
16.5 million it loaned abroad to Belarusian territory. Two senior
Djem officials have also been arrested, one for the fourth time.
While this appears to be a simple case of the GOB taking over
another business, Djem Bank blames its problems on a shadowy
western conspiracy. Meanwhile a Russian buyer has appeared, who
wants to purchase a controlling stake in the embattled bank, adding
another layer of confusion. End summary.


The State Takes Control
--------------


2. On July 25 the National Bank of Belarus (NBB) invoked a clause
of the Law on Economic Insolvency to take control of Djem Bank and
temporarily pass management of the bank to a rival, BelGazpromBank.
After Djem Bank filed an appeal with the Supreme Economic Court
(which was denied September 8),the NBB admitted that Djem Bank was
not bankrupt or facing financial difficulties, but that this was
simply the easiest means of gaining control of the bank (reftel).
On August 9 the NBB passed management back to Djem Bank, but
implemented restrictions preventing the bank from: conducting
banking transactions in rubles, clearing foreign currency
transaction, receiving deposits from corporations, opening
accounts, offering banking guarantees, managing trust capital, and
issuing new bank cards. On August 10 the NBB announced it would
immediately drop all restrictions if Djem Bank returned USD 16.5
million it had lent abroad (to unnamed U.S. and Kyrgyz firms) to
Belarus. The NBB argued it was protecting Djem Bank's shareholders
after the bank made high-risk loans with their deposits. NBB
Chairman Pyotr Prokopovich told a press conference August 29 the
NBB had been asking Djem Bank to increase its deposits in Belarus
since 2001, but that the bank had instead been moving its money
from Montenegro, to Russia, to Kyrgyzstan's AziyaUniversalBank. On
September 4 the Belarusian Securities Committee revoked Djem Bank's
license for securities trading.


3. The State Control Committee arrested Djem Bank CEO Aleksandr
Tatarintsev on August 10 for abuse of power (article 424 of the
Criminal Code). The independent BelGazeta newspaper wrote
September 5 its sources claim Tatarintsev was arrested for
disbursing USD one million in dividends to share holders July 25
and 26, immediately after the NBB took control of the bank. Acting
Director General Sergey Bliznyuk was arrested September 12 and
charged with exceeding his authority/abuse of power (Article 426
Part 2 of the Criminal Code). Both remain in detention.


Western Plot or GOB Nationalization?
--------------


4. Representatives of Djem Bank declined to meet with Econoff,
stating all their views are included in recent press releases. The
releases complain the bank's problems are all politically
motivated. The bank claims a number of government officials and
others are attempting to overthrow Lukashenko by forcing Djem Bank
into illegal activities that would destabilize the economy. The
bank accuses these people of being connected with unnamed western
institutions opposed to Lukashenko that seek to privatize
Belarusian state property by selling it to Baltic and Polish
interests. Djem Bank speculates this is being done to aid Belarus'
political opposition. As part of this long reaching plot, the bank
announced GOB officials have conducted 141 searches of the bank
since 1998, and provides pictures of armed and ski-masked
government officials raiding the bank. Djem also complains CEO
Tatarintsev has been arrested three other times since 2003, with
all other charges being dismissed.


5. A reliable economic contact who claimed to have inside knowledge
told Poloff that the GOB's actions against Djem Bank are an attempt
to control easy credit in Belarus. He said that previously only
two Belarusian banks, Djem Bank and Golden Taler Bank - both
private and majority foreign owned, provided easy access to lines
of credit to local and foreign companies. The GOB did not like
this, as this credit remained outside GOB control. On June 22
Minsk police arrested Alexander Nelin, Chairman of the Board of
Golden Taler Bank, on embezzlement charges (Article 210 Part 3 of
the Criminal Code). According to our contact, since then Golden
Taler has been more amenable to the GOB's wishes. Djem Bank did
not surrender control to the GOB, so it is facing the current
difficulties. [Note: according to NBB information, Golden Taler is
listed as a "Belarus-British" bank, which is 74 percent foreign
owned.]


And Djem Bank has a Buyer?
--------------


6. Djem Bank is a private bank, owned 37.23 percent by Canadian
interests, 33.12 percent by Latvian holders, 19.65 percent by
private Belarusian individuals, and 10 percent by Russia's
Institute of Economic Strategies. On September 6 Russian investor
Alexey Senin, CEO of the Slavia Charity for Support of Orthodox
Programs and editor of the weekly journal Russian Messenger,
announced his plan to purchase a controlling stake in the bank.
Under Belarus law a foreign investor needs permission from the NBB
to by more than 10 percent of a Belarusian bank. Djem Bank
subsequently announced it was helping Senin prepare the necessary
documents.


7. Comment: This story is unusual on many levels. In the
Belarusian context, the most logical explanation is that the GOB is
trying to control access to credit as well as the local banking
sector. This certainly fits with other recent GOB actions
(reftel). In that vein, it is possible Djem Bank's press
statements are simply an attempt to curry favor with the Lukashenko
regime by jumping on his "blame the West" bandwagon. However, as
this story of persecution by a mysterious cabal also has the ring
of the sorts of conspiracy theories often believed in the former
Soviet Union, Djem Bank's management may believe it to be true.
Even stranger is that anyone, let alone a foreigner, would decide
to buy this bank as it faces such problems. It would make some
sense if a Lukashenko crony suddenly appeared as a buyer, but in
the past the GOB has been extremely reluctant to sell any assets to
Russian buyers, unless the Russian buyer is a front for other GOB
interests. In the murky world of Belarusian banking, it remains
unclear for now it is unclear what is happening.

KROL