Focus on Gazprombank, the Bank That Allows Vladimir Putin’s Russia To Resist Western Sanctions.
How long will Gazprombank escape Western sanctions?
This Russian bank is the conduit that the West has set up for itself to continue paying for gas deliveries imported from Russia. Gazprombank, the financial arm of Russian energy giant Gazprom, Russia's third-largest financial institution, has been largely spared the waves of financial sanctions taken by the West to weaken Moscow in retaliation for the invasion of Ukraine in February 24, 2022.
The European Union (EU) did not hide the fact: when the twenty-seven member states and America took the unprecedented decision to disconnect seven Russian banks from the international financial system SWIFT, in early March 2022, they did not include Gazprombank on their list, because of the strong dependence of several European countries on Russian gas.
Gazprombank is keeping a low profile. It does not advertise too much, it is not listed on the stock exchange, and its shareholding is not readable. Its boss, Andrei Akimov, has not had a political career and stays away from the media. In the shadow of the gas giant Gazprom, the bank nevertheless serves the interests of the Kremlin and the first circle around Vladimir Putin.
The bank has developed rapidly to become a central player in the Russian economy. It finances companies in the mining, chemical, and energy sectors, from oil exploration and the nuclear industry to equipment manufacturers.
Numerous foreign subsidiaries for Gazprombank
A financial tool at the heart of the country's major industrial projects, the bank is notably the co-lender of the Yamal-Europe project for the construction of a gas pipeline linking Siberia to the Old Continent. It also has a small-scale retail banking activity (with nearly 5 million individual clients) to collect deposits and build a network of branches throughout the country.
The institution has also opened several subsidiaries and offices abroad, including one in Switzerland. Gazprombank was able to work with all international banks, through syndications, to finance its projects. It also recruited foreign bankers to learn the business of international banking and bond issues.
The rise of Kirill Shamalov illustrates the close ties between the establishment and the Kremlin. In 2005, this young man of 23, a law graduate from the University of Saint Petersburg, joined the legal department of Gazprombank. He will become, in 2013, the son-in-law of Vladimir Putin, marrying his youngest daughter, Katerina Tikhonova. He does not linger in the company, but his immense fortune, he owes it to Gazprombank.
Kirill Shamalov was born in a family close to the Russian president. His father, Nikola Shamalov, co-founded a dacha real estate cooperative called Ozero, with Vladimir Putin and other friends from Petersburg. The man subsequently became richer after obtaining a stake in Bank Rossia, the personal bank of Russia's top officials and elite (now under sanctions), which boomed after Vladimir Putin came to power.
Kirill Shamalov's older brother, Yury Shamalov, became, in 2003, president of Gazfond, a powerful pension fund created, among others, by Gazprom. However, in 2007, the Gazprom group decided to transfer the control of its banking subsidiary Gazprombank to Gazfond. The idea was to attract customers, to allow the bank to do business outside the historical shareholder, including with competitors of the gas group. In this small world, Yury Shamalov became a director of Gazprombank, while Bank Rossia, where the father of the Shamalov family has interests, temporarily took indirect control of Gazfond.
Gazprombank is considered the pocket bank of Vladimir Putin's relatives
It was under these circumstances that in 2014, a few months after his marriage to Vladimir Putin's daughter, Kirill Shamalov managed to borrow more than $1 billion from Gazprombank to buy a 17% stake in Sibur, the Russian petrochemical giant. The seller is billionaire Gennady Timchenko, then targeted by US sanctions and a long-time friend of Vladimir Putin.
The deal made Vladimir Putin's son-in-law the youngest billionaire in Russia. Former Russian deputy energy minister Vladimir Milov, now an opposition activist and close to opposition figure Alexei Navalny, said at the time that the Russian president's friends had acquired large assets with the help of state-linked lenders such as Gazprombank. They see Gazprombank as their pocket bank, he told Reuters.
They seek to pass on their power and privileges to a new generation. This proximity of the bank to the Kremlin is also reflected in the choice of Gazprombank's directors. In addition to Yury Shamalov, the board includes, for example, Sergei Sergeyevich Ivanov, boss of the Russian public diamond mining company Alrosa and son of Sergei Borisovich Ivanov, who would be, according to the United States, one of Putin's closest allies.
As for the boss of Gazprombank, Andrei Akimov, if he is not a known figure of the Russian oligarchy, he was however the owner of at least eight shell companies registered in the British Virgin Islands between 2007 and 2018, according to secret documents examined by the International Consortium of Investigative Journalists (ICIJ), as part of the investigation on the “Pandora Papers” on the secrets of offshore finance.
All these elements have led the United States and the United Kingdom to sanction Gazprombank. Despite this, the financial institution remains the only channel through which European states can obtain Russian gas, on which they depend. On March 31, Vladimir Putin signed a decree instructing buyers from Europe and other countries deemed unfriendly to pay him in rubles.
Since current contracts are in euros or US dollars, Russian gas buyers will open special accounts (one in euros and one in rubles) at Gazprombank, to allow the conversion of foreign currency into rubles for payments. Instead of paying Gazprom for their gas in a foreign account, they must now pay in euros or dollars in Russia, at Gazprombank, which will exchange these hard currencies for rubles at the Russian Central Bank. This clever arrangement should support the ruble. Russia has just won a battle in the ruble war against America and the European Union.
For the moment, all this allows Putin's Russia to protect the third Russian bank from heavy European sanctions. The big question is until when?
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