A CLOSER LOOK AT THE MURDER OF RUSSIA'S #2 BANKER

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 010603 SIPDIS SIPDIS STATE FOR EUR/RUS TREASURY COX/ALIKONIS/BAKER COMMERCE FOR 4231/IEP/EUR JBROUGHER NSC FOR MCKIBBEN AND GRAHAM E.O. 12958: DECL: 09/20/2016 TAGS: EFIN ETTC ECON PTER PREL RS SUBJECT: A CLOSER LOOK AT THE MURDER OF RUSSIA'S #2 BANKER REF: MOSCOW 10248 Classified By: Ambassador William J. Burns, Reasons 1.4 (b/d). ¶1. (C) Summary. One week after the brutal murder of First Deputy Central Bank Chairman Andrey Kozlov, there have been no apparent breaks in the case, and few believe the perpetrators will ever be caught. In contrast to the cynicism surrounding the criminal investigation, a wide swath of the economic elite believe that the Government is taking Kozlov's murder seriously and is intent that his death not set back bank reform in Russia. The only murder of a senior federal official in the post-Soviet era also has many questioning the depth of what they had come to feel as a certain degree of normalcy, and wondering if corruption has risen to the point where it could unravel ten years of economic institution building. Certainly opponents of bank reform have acted boldly -- many hopes are now pinned on the GOR's response being equally bold. End Summary. ¶2. (SBU) Despite President Putin's September 15 invocation of a law enforcement task force headed by Procurator General Chaika himself to look into the September 13 murder of First Deputy Central Bank Chairman Andrey Kozlov, there have been no big breaks in the case to date. Over the past few days, details of the investigation have leaked out, including the suggestion that someone inside Kozlov's staff may have tipped off the assassins to his whereabouts the night of the 13th -- an allegation that has shocked the closely-knit reformist community. Unsurprisingly, none of our contacts believe the killers will be brought to justice, but most, including Elvira Nabiullina (former Deputy Economic Minister and Advisor to G-8 Sherpa Shuvalov) and Former Economics Minister Yevgeniy Yasin, steeply discount the possibility that the murderers enjoyed senior GOR-backing. It seems to be more the case that the crime was committed cleverly, in a place without video surveillance, and by professionals. ¶3. (C) Kozlov's death has seriously shaken a wide swath of Russia's economic elite -- both in an out of government. Kozlov was a charter member of that layer of bureaucrats from the 1990's who were rarely in the headlines, but who nonetheless were the worker-bees of early reform efforts. Like Arkadiy Dvorkovich, Oleg Vyugin, Mikhail Zadornov, Alexander Zhukov, and others, Kozlov learned market economics on the job -- writing and then implementing the laws and regulations that formed the backbone of Russia's initial economic transformation. Like them, he quietly rose to prominence -- unconnected to any clans or regional power bases (like those from St. Petersburg) or private sector patrons. Their reform work continues under the radar, but Kozlov's death is a reminder that they are nevertheless successfully grappling with the hard nut of remaining reform agenda in Russia. Indeed, as Anatoliy Chubays pointed out recently to Ambassador, Kozlov's murder is a tragic reminder that tangible headway is being made in cleaning up the banking sector -- with the murderers lashing back at reform efforts that have in recent years closed 108 banks. ¶4. (C) The murder is seen by many as a signal that the bad days of the early 1990's are coming back, or that they were never really that far away -- both of which are unnerving revelations. "It is back" was Zadornov's comment to us at Kozlov' wake. "Before it was the mafia . . now it bribe-taking bureaucrats," commented Sergey Skaterchikov, the founder of Russia's first financial new service (later sold to Bloomberg). Corruption is seen as a playing a significant role in Kozlov's death, as his work involved the tracking of suspicious bank transfers. Recent technology upgrades had made it easier to spot patterns of transfers that might otherwise not individually break the $10,000 transaction threshold. ¶5. (C) Western bankers are worried how the system they have come to know will hold together going forward. Citibank reps in Moscow note that Kozlov had been an important cog in the machine that allowed them to expand their business in Russia free of the bureaucratic delays common in so many other spheres of the economy. It was not that Kozlov did them any favors, they note, it was more that he allowed the system to work without any special discrimination against foreign banks. Likewise, USG and other assistance programs closely tied to Kozlov in the AML and bank supervision realm are, at least for now, up in the air. MOSCOW 00010603 002 OF 002 ¶6. (C) The USG has lost a particularly close interlocutor. Kozlov, who served as head of the Financial Services Volunteer Corps (FSUC) in the late 1990s, was a strong supporter of continued USAID assistance to the Central Bank on deposit insurance, harder supervision and anti-money laundering. He had recently endorsed a two-year AML program with USAID, FSUC and Citibank support. We will be watching developments at the Central Bank closely to see whether the program can continue to go forward. ¶7. (C) Central Bank Chairman Sergey Ignatiev (who canceled his trip to the G-7/G-8 meetings in Singapore to stay for Kozlov's wake) is reported by close colleagues to be particularly distraught over the killing, and personally determined to carry Kozlov's work forward. The vast majority of the CBR and financial contacts we polled this week (perhaps out of wishful thinking or maybe just sheer determination) say they believe Putin is serious about continuing bank reform and clamping down on illegal bank activities. Chubays told Ambassador the same thing. If this is true, Putin's new law enforcement task force -- which for the first time brings together both the civil and law enforcement authorities under one efforts -- needs to show some early victories, and Ignatiev needs to find someone with both skills and political gravitas to replace Kozlov and give his work new direction. BURNS