Saturday, 20 March 2010

Russian bank secrecy under threat

A new draft law designed to help the introduction of a customs union between Russia, Kazakhstan and Belarus is being criticised for allowing authorities unprecedented access to private bank accounts, and possibly compromising secret information.

The modifications to existing customs law were placed on the Federal Customs Service website last week and are now being examined by anti-corruption experts.

The three-country union is expected to become a full-fledged "single economic space" by 2012. Updating their joint customs regulations is seen as aiding the trio's bid to join the World Trade Organisation as a single union, as decided by the leaders of three countries in 2008. The customs union already functions in part: since January of this year all tariffs of the member-countries have been unified.

But some experts say that the new law as drafted might infringe on the interests of the three countries' banks. The stumbling block is Article 168, which challenges the bank secrecy of individuals and companies involved in international trade. Specifically, the article says that "Banks and other credit organizations must submit, upon customs inquiry, all data related to monetary traffic in the accounts of organizations, including bank secrecy information."

According to Article 26 of the Federal Law on Banks and Banking Activity, information on bank clients' accounts and correspondent accounts, as well as deposits, operations and private information about clients, is confidential.

Anatoly Aksakov, president of the Association of Regional Banks, said the draft law represented "a dangerous tendency" that "may scare potential and existing bank clients." And it is through such customs inquiries, said Aksakov, "that such information, as practice has shown, may get into the hands not just of officials but of criminal elements as well."

"Beyond this, the draft law will mean an additional burden on banks. We have to watch such initiatives very carefully and keep them within bounds," said Aksakov.

"The customs service reliably protects state and commercial secrets," insisted FCS representative Dmitry Kotikov. "We have all the technical means necessary to keep secret information out of the reach of third parties; these mechanisms have been working for a long time."

Maria Medvedeva, head of the Banks Analysts Club, called the FCS initiative "unpleasant news" for the Russian banking community and noted that banks have been already providing law enforcement and tax authorities with the information they required.

"It wouldn't be proper to deprive the FCS of the opportunity to get information [on suspects], but customs have to obtain such data through court procedures," said Medvedeva.
Medvedeva added that banks are already in charge of preparing the so-called "transaction passports" of export-import deals. "The FCS wants to expand the scope of [this] information. And law-abiding companies, clients of Russian banks, might not like it," said Medvedeva.

Leonid Slipchenko, a banking analyst at Uralsib, said that it may take time to pass the bill.

"Article 168 of the new FCS law is too tough in its current draft form," said Slipchenko.

The draft "represents operational and reputational risks for banks and should be additionally coordinated with other customs union' member-countries."

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