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Friday, March 16, 2018

VTB will pay a fine due to defects of American justice

One of the largest Russian banks – VTB, was fined $ 5 million by U.S. authorities for allegedly fictitious transactions three years ago on ruble futures. The amount of the fine for the Bank group is not terrible. However, at stake is the reputation of the Russian Bank, which came under EU sanctions.

The Commission on trade in commodity futures of the USA has demanded from VTB Bank and investment Bank “VTB Capital” payments of $ 5 million fine, accusing them of committing for three years for alleged fictitious transactions in futures contracts, reported on the Agency’s website.

“Representatives of VTB are trying to emphasize that the situation occurred through no fault of the Bank, but because of defects in the American justice system”

The Commission finds that from December 2010 to June 2013, VTB and “VTB Capital” held at the Chicago Mercantile exchange for more than a hundred trade transactions on futures contracts the ruble to the dollar in the amount of about 36 billion dollars. Futures on currencies, like the ruble to the dollar, are contracts for the future exchange of a specified amount of currency at an agreed rate.

The Commission has specified that speech, in particular, on insurance of currency risks the Bank, as well as the prices specified in the contracts, which did not correspond to market realities at the time of the deal, Prime.

Due to the lack of capital itself VTB could not hedge their currency risks through swaps in the OTC market. Therefore, the Russian Bank shifted its foreign exchange risks for subsidiary company “VTB Capital” with the help of deals on the Chicago exchange, which was hedging its risks in the OTC market via swaps at more favorable rates than third party company. The Commission found the futures trading between affiliated banks fictitious and non-competitive.

“VTB Capital” is registered in the UK and 94% owned by the same holding company, and that is 100% owned by VTB.

In a statement, VTB issued on Tuesday, noted that the fine was imposed despite the fact that at the time of the transaction, the Bank acted within existing practices. These transactions are carried out according to the rules of the Chicago stock exchange and no complaints from regulatory agencies until recently did not cause. About a year ago, the Commission filed a lawsuit against one of the Western banks, imputing to him the serious charges when conducting transactions.

“Most likely, this precedent forced the Commission to reconsider the practice of engaging in such transactions on the stock exchange and subsequently to introduce a ban on targeted operations within a single group. The ban affected all banks operating in the United States. Thus, we are talking exclusively about the regulation of banks in the American market”, – explained the press service of VTB.

The credit organization said that after a series of meetings with VTB Capital in new York, Kansas and Washington, the Commission concluded that the Bank acted entirely within the framework that existed at the time of market practice. However, due to the revision of the rules of concluding transactions on the stock exchange, the regulator decided not to recognize the correct operation of the civil VTB on previously concluded contracts.

“Taking into account the fact that the Chicago stock exchange has previously allowed such trades, and VTB actively cooperated with the Commission, the Bank was fined the minimum amount possible”, – said VTB.

In General, the amount of the fine of $ 5 million or 325 million rubles is insignificant for VTB, so this incident is unlikely to have a negative impact on the financial condition or operations of the Bank. This is not comparable with the profit of the Bank in the first quarter of 2016, the group’s net profit amounted to 0.6 billion rubles in the second quarter, it increased significantly – up to 14.8 billion rubles.

By the way, as much – $ 5 million – VTB will invest in an international project on the conservation of populations of large cats in the Russian regions (snow leopard, Amur tiger, Amur leopard and peredneaziatskogo leopards in the Caucasus).

However, such a scandal could negatively affect the reputation of the Russian banking group. And it makes VTB to defend.

Managing partner at Law Office of Fedor Kozlov & Associates Fedor Kozlov believes that in this case we are not talking about that in 2015 has been revised the rules for conducting such transactions. It’s about the fact that a year earlier was only recorded the first case a Bank violates the relevant provisions of the law.

And which Bank was this thing, unknown. “The report which took place a year ago, a similar episode at the moment is present only on the website of VTB and the media voiced the official position of the Bank. In the public domain other information about it is missing,” says Kozlov.

According to him, in the course of commercial operations, VTB has made a number of steps that are contrary to the provisions of Dodd-Frank, enacted in 2010. “The nature of the violations in this case was to ensure that the Russian company that originally made the futures contract with its subsidiary British origin. These operations were carried out on obviously better terms than other market participants. Having received these benefits, “VTB-Capital” gain a competitive advantage over other players of the Chicago stock exchange that violate the equality of conditions for present on this platform companies” – explains Fedor Kozlov.

In VTB assure that a precedent has forced the Commission to prohibit the address operation in one of the groups working in the United States. The Russian Bank trying to protect itself from reputational risks. “Perhaps the representatives of VTB are trying to emphasize that the situation occurred through no fault of the Bank, and due to defects legal practice in the American justice system. This approach to coverage of the situation allows the Bank to minimize the damage to business reputation,” agrees the lawyer.


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