{"text":[[{"start":6.784,"text":"Four executives at the last major Russian bank still operating in Europe exploited the market chaos unleashed by EU sanctions in 2022 to make millions on their personal accounts."}],[{"start":17.853,"text":"As Moscow reeled from western sanctions imposed to help defend Ukraine, many of state energy giant Gazprom’s foreign currency bonds became stuck in Europe and their price plummeted. To support Russian investors and borrowers, President Vladimir Putin decreed that the bonds could be replaced by new ones at full price in Russia."}],[{"start":38.32,"text":"The most senior bankers at Gazprombank’s outpost in Luxembourg spotted an opportunity. They received millions of euros in personal loans from their employer and embarked on a spending spree, buying up the cut-price bonds and exchanging them for full-value equivalents in roubles, according to documents seen by the FT."}],[{"start":56.48,"text":"They made more than 50 transactions that could have netted profits in excess of €9mn according to FT calculations based on the documents."}],[{"start":65.147,"text":"Gazprombank Luxembourg is the main conduit for European countries’ payments to Gazprom, which founded the bank but is a separate company."}],[{"start":72.32,"text":"The trades have raised questions about whether the four bankers may have circumvented EU sanctions and used insider information, according to lawyers, financial experts and EU officials consulted by the FT."}],[{"start":84.866,"text":"The bond swaps involved a key Russian entity under EU sanctions, the National Settlement Depository, according to Gazprom’s announcements. “It sounds like circumvention” of sanctions, said one EU official presented with the findings who was not authorised to speak publicly. “This needs to be subject to a criminal investigation in Luxembourg.”"}],[{"start":103.764,"text":"The four directors regularly co-ordinated, buying the same amount of the same bond on the same day, often before they were announced as eligible for replacement on Gazprom’s website. People familiar with the trades say it was not widely known which bonds would be up for swaps and when, as Gazprom gave very little notice and short windows of about two weeks to make the swaps."}],[{"start":null,"text":""}],[{"start":124.422,"text":"The findings put fresh scrutiny on Luxembourg’s light-touch financial regulation. Its regulators inspected the trades following a tip-off but only told the bank to update its employee handbook, according to an audit report."}],[{"start":137.85,"text":"Gazprombank Luxembourg denied wrongdoing, telling the FT it “strictly” complied with the “laws, rules and regulations both of the EU and the Grand Duchy of Luxembourg”. The bank “was never involved in violation of the EU sanctions neither in general nor in relation to the alleged transactions that were conducted by those individuals in their personal capacity”, it said."}],[{"start":161.92,"text":"Dmitry Derkatch, Gazprombank Luxembourg’s former director who initiated the trades, also strongly denies wrongdoing and said the regulator “found no material irregularities”."}],[{"start":169.794,"text":"Gazprom, which used to supply gas to large swaths of Europe, was spared from the sweeping EU sanctions launched against Russia after the full-scale invasion of Ukraine in February 2022."}],[{"start":180.97,"text":"But the price of its foreign currency bonds nonetheless plunged, with some trading at half their initial value, as western sanctions on key nodes of Russia’s financial system made it difficult for Gazprom to send interest payments to creditors."}],[{"start":195.12,"text":"The bonds became de facto stranded."}],[{"start":197.352,"text":"Internal communications at Gazprombank Luxembourg show issues quickly arose with settling Russian securities trades. “There is quite high likelihood that the settlement [of trades] will not occur and the funds/securities will be blocked,” states an internal email from March."}],[{"start":212.56,"text":"The Kremlin’s fix was to let investors replace their European bonds with new ones in Russia, tradeable in roubles at their original value. Demand for these bonds was high and the price gap was “real and substantial”, said Alexandra Prokopenko of the Carnegie Russia Eurasia Center."}],[{"start":229.072,"text":"Western financial players were highly suspicious. “This whole environment created, indeed, opportunities for abuse,” said one person familiar with Clearstream, the Luxembourg-based central securities depository that settles bond trades."}],[{"start":null,"text":"

"}],[{"start":242.633,"text":"The programme caught the eye of Derkatch, who travelled to Moscow in June 2022. Upon his return, he opened a private account with Gazprombank Luxembourg — even though the bank’s internal policy was not to offer personal accounts to employees — and received a personal loan from Gazprombank’s Moscow office."}],[{"start":261.04,"text":"Putin launched the swap programme in a decree signed on July 5 and, nine days later, Derkatch began buying Gazprom bonds."}],[{"start":267.578,"text":"He started by paying around €65,000 for a bond due in 2024 — less than half its nominal price of €150,000, according to documents seen by the FT. The bond was replaced in December, potentially earning Derkatch a profit of about €85,000 if he sold it at full price on the Russian market."}],[{"start":288.8,"text":"When Derkatch bought the bond, Gazprom had not publicly detailed which securities would be swapped or when — it did not announce a replacement for Derkatch’s bond on its website until November."}],[{"start":null,"text":""}],[{"start":300.215,"text":"The first swap round — for a different bond to the one bought by Derkatch — was announced on its site in September, and Gazprom said it would announce plans for other foreign currency bonds outside Russia going forward."}],[{"start":313.567,"text":"The “risk of uncertainty” in buying the bonds so soon after Putin’s decree was “great”, particularly for someone taking out a loan for the transactions and paying interest, said Sergey Aleksashenko, former deputy chair of Russia’s central bank and head of economics at the Nest Centre in London."}],[{"start":332.64,"text":"The timing of Derkatch’s purchase suggests that “maybe . . . he was aware or he had some connections with the top management in Moscow who confirmed that [a specific bond] will be part of the transaction”, Aleksashenko said."}],[{"start":343.68,"text":"Derkatch told the FT that “the absence of any material findings by the Luxembourg banking regulator following a very detailed inquiry . . . shall conclusively settle that there was nothing unlawful in connection with this matter.”"}],[{"start":661.063,"text":"He said he could not comment further because he did not have access to the bank’s “detailed internal information”."}],[{"start":661.563,"text":"In September, the other three members of the Luxembourg outpost’s management board also began buying the discounted bonds: Sergey Nekrasov, Sergey Belousov and Pavel Bolshakov."}],[{"start":662.063,"text":"The four directors appeared to be “hunting the market” for the right bonds, which were difficult to find, said one person familiar with the trades. While they did not participate in every replacement round in 2022, they bought four specific bonds that were all replaced by the end of the year. The purchases were often made shortly before Gazprom announced on its website that the bond in question would be replaced."}],[{"start":662.563,"text":"For example, the four managers bought a dollar-denominated bond beginning in late September and through October. Its replacement was announced on the Gazprom website on October 7, and the swap window ended on October 24. The bond had been trading at around 50 per cent in Europe, but its Russian replacement regained full value and even rose to 120 per cent in December."}],[{"start":663.063,"text":"It would have been “impossible” to do the transactions in a short amount of time without prior knowledge of which bonds would be swapped, suggested one person. “You have to find these bonds, they are illiquid, and you have to understand which bank or broker has such bonds,” they said."}],[{"start":663.563,"text":"It is unclear how much money the four borrowed from Gazprombank Moscow to fund the transactions. But between July and November the four bankers received transfers of more than €17mn converted from roubles, which they used for dozens of purchases, according to the documents seen by the FT."}],[{"start":664.063,"text":"Their combined potential profit was more than €9mn, according to FT calculations based on how much they paid, the bonds’ nominal prices and historical exchange rates."}],[{"start":664.563,"text":"Senior bankers at Gazprombank Luxembourg were aware of the arrangement. In an email to the head of compliance that October, private banking head Dmitry Galkin outlined how the four “received separate personal loans . . . and bought different Eurobonds of Gazprom”. He noted their “economic rationale”: the price of the rouble replacements “theoretically should be higher” than that of the bonds in Europe."}],[{"start":665.063,"text":"They used Swiss bank Compagnie Bancaire Helvétique (CBH) as a broker and also routed funds through Cypriot bank Veles International."}],[{"start":665.563,"text":"Belousov, Bolshakov and Nekrasov were approached for comment by email, and Belousov and Bolshakov were also approached via the website of the company they run together. Gazprom, Gazprombank Moscow, CBH and Veles did not respond to requests for comment."}],[{"start":666.063,"text":"Gazprombank Luxembourg denied having “been engaged in market abuse or otherwise participated in any unlawful conduct”."}],[{"start":666.563,"text":"The trades quickly became controversial inside the bank, and some employees raised concerns about potential insider trading, according to the people familiar with the trades."}],[{"start":667.063,"text":"But others at the bank defended the trades."}],[{"start":667.563,"text":"“The conditions and risks of the transactions of Gazprom bonds are the same for all clients on the market. No inside trading or market manipulation are identified,” private banking chief Galkin wrote to the compliance head in October 2022."}],[{"start":668.063,"text":"The transactions were halted inside the bank following an inquiry at the end of 2022, according to two people familiar with the trades. It is unclear whether trades continued after that period via other financial institutions."}],[{"start":668.563,"text":"Following a tip-off, Luxembourg’s financial regulator CSSF inspected the bank in March 2023. But it did not interview some of the people who had information about the transactions, according to two people familiar with the trades."}],[{"start":669.063,"text":"“The CSSF was . . . blind,” said another person."}],[{"start":669.563,"text":"The CSSF found the bank violated its internal rules that did not allow employees to open personal accounts and found that the four directors had not been vetted despite being deemed “high risk”, according to an inspection report seen by the FT. But it did not find any other wrongdoing or impose fines."}],[{"start":670.063,"text":"The CSSF declined to comment, saying it was “bound by professional secrecy”."}],[{"start":670.563,"text":"Gazprombank said it had “always provided all the requested information in full transparency” to the CSSF and made “the key people” available for interviews."}],[{"start":671.063,"text":"EU officials consulted by the FT said the findings raised questions about whether the trades circumvented sanctions on the nerve centre of Russia’s financial system, the National Settlement Depository (NSD), which settles bond trades."}],[{"start":671.563,"text":"EU sanctions ban people or entities in the bloc from making any transaction that directly or indirectly results in a fee paid to the NSD."}],[{"start":672.063,"text":"According to the swap announcements on Gazprom’s website, the NSD was involved in settling the bond replacements, which legal experts say could result in payment to the institution and therefore breach sanctions."}],[{"start":672.563,"text":"“Certainly the prudent approach would be to assume a transaction that involves a security [in Russia] results in funds being made available to the NSD,” said Jason Hungerford, a sanctions lawyer at Mayer Brown."}],[{"start":673.063,"text":"Luxembourg’s finance ministry, which is responsible for enforcing sanctions, declined to comment."}],[{"start":658.663,"text":"All four directors have left Gazprombank. Derkatch said he lives “a private life in Luxembourg”. Belousov and Bolshakov run an investment firm called B&B Capital Partners in Luxembourg. Nekrasov has returned to Russia and runs Spartak Moscow football club."}],[{"start":674.88,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1787742542_2131.mp3"}