RUSSIAN SUSPECT BEHIND CENTRAL BANKER'S MURDER

C O N F I D E N T I A L MOSCOW 000103

SIPDIS

SIPDIS

STATE FOR EUR/RUS, EB/ESC/TFS
USDOC FOR 4231/IEP/EUR/JBROUGHER
TREASURY BAKER AND GAERTNER
NSC FOR GRAHAM AND MCKIBBEN

E.O. 12958: DECL: 01/12/2017
TAGS: KTFN EFIN ECON RS
SUBJECT: RUSSIAN SUSPECT BEHIND CENTRAL BANKER'S MURDER
ARRESTED

REF: (06) MOSCOW 10603

Classified By: ECON M/C Quanrud, Reasons 1.4 (b/d).

Summary
--------------


1. (SBU) Russia's Prosecutor General Yury Chaika announced on
January 11 the arrest of a Russian citizen believed to be the
mastermind behind Central Bank First Deputy Chairman Andrey
Kozlov's murder in September 2006. Chaika's statement did
not mention Aleksey Frenkel by name, but Frenkel's attorney
contacted a number of news outlets to report that his client
and another person had been arrested in connection with the
charge. Frenkel, 35, had been the CEO of Sodbiznesbank,
whose license revocation on suspicion of money laundering in
May 2004 sparked a short-lived controversy over the Central
Bank's authority. Frenkel had also been the CEO of VIP-Bank,
whose license was revoked in June 2006. Initial reaction to
the arrest has been low-key and mixed, ranging from disbelief
that Frenkel could have orchestrated the murder to optimism
that the arrest of a Russian citizen indicates a genuine
commitment to clean up corruption. End Summary.

Eight Now Arrested in Kozlov Case
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2. (SBU) In December 2006, Chaika announced without
elaboration that the murder of Central Bank of Russia (CBR)
First Deputy Chairman Andrey Kozlov had been solved. Media
reports and comments by financial sector observers dismissed
the claim since only Ukrainian suspects had been known to be
detained for the killing. Critics relegated these arrests,
along with the apparent bust-up of a Georgian
money-laundering ring in October 2006, to the category of
convenient ethnic scapegoats. On January 11, however, Chaika
reported, without revealing any names, that the mastermind
behind Kozlov's September 2006 murder had been arrested. The
suspect's attorney, however, began contacting media outlets
such as The Moscow Times and business daily Vedomosti to
explain that his client, Aleksey Frenkel, and another unnamed
individual had been arrested in connection with the Kozlov
case.

Frenkel's Banking Background
--------------


3. (SBU) Frenkel served as CEO of both Sodbiznesbank and
VIP-Bank. Sodbiznesbank lost its banking license in May 2004
when the bank failed to address CBR concerns about money
laundering issues, which were the primary target of Kozlov's
reform efforts. The license revocation came at a time when
the CBR was evaluating banks for participation in the deposit
insurance program. Sodbiznesbank's violations and refusal to
take corrective action ultimately put the bank out of
business with some depositors not receiving the full value of
their accounts upon liquidation. VIP-Bank, which SmartMoney
magazine once considered part of "Frenkel's empire," lost its
license in June 2006. Evroprominvest, which later took on
many of VIP-Bank's clients and operations, lost its license
in November 2006 "for laundering proceeds in excess of RUB 38
billion (USD 1.4 billion)."

Mixed Reaction on the Arrest
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4. (SBU) Many financial sector players and observers were
pessimistic that law enforcement officials would find and
successfully prosecute those responsible for Kozlov's
assassination (reftel). On the news of Frenkel's arrest,
Duma Deputy Pavel Medvedev expressed doubt that Frenkel, a
former student of Medvedev's, was capable of orchestrating
the murder. Association of Regional Banks President, and
Duma Deputy, Anatoly Aksakov echoed Chaika's statement that
more suspects may be arrested in connection with this case.
Aksakov suggested that investigators would probably take a
closer look at Frenkel's associates and the heads of other
banks.


5. (C) The Frenkel arrest seems to indicate that finding
those responsible for Kozlov's murder was a priority for the
Prosecutor General's office. United Financial Group Chief
Economist Yaroslav Lissovolik shared his views on the
significance of this development: "This is the first time
that authorities went after not just the ones who committed

the crime, but the ones who ordered it and paid for it.
Importantly, it is also the first time that a Russian, not a
Ukrainian or a Georgian, was found responsible. It sends a
forceful signal that such horrible crimes will not be
tolerated. This also might be a sign that Putin's
anti-corruption campaign and pledge to clean up the banking
sector is not just words."

Comment
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6. (C) Kozlov's assassination stands as the only murder of a
senior federal government official in the post-Soviet era.
Arresting the head of banks that were closed as a result of
Kozlov's efforts seems an obvious step for law enforcement
officials. Since the number of suspects has reached an
apparent critical mass, and because the name of the suspected
mastermind is now in the public domain, the focus will soon
shift to the quality of the evidence Chaika and his team have
gathered in the four months since Kozlov's death.
RUSSELL