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.


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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