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Snoras, Krajbanka shine light once more on dozing regulators

  • 2012-06-06
  • By Ramunas Bogdanas, Ieva Martina, Lidija Liege

The Baltic Times cooperates with the investigative journalism organization The Baltic Center for Investigative Journalism Re:Baltica, in ongoing cross-national investigative journalism projects. This story, the first in a 3-part series, looks at the collapse of Lithuania’s Snoras bank and Latvijas Krajbanka, events that triggered the demise of Vladimir Antonov’s empire.

The massive fraud at the collapsed Snoras bank and Latvijas Krajbanka will cost the taxpayers in Lithuania and Latvia hundreds of millions of euros before the cleanup is complete. Bankruptcy administrators have only just begun to sift through the debris. While Vladimir Antonov was playing a big shell game, building an empire of financial institutions, sports enterprises and car interests, propped up by bank customer deposits, regulators in both countries not only were slow to act on growing warning signs reaching them, but missed supposedly clear signals they sent to each other.

Officials at the Bank of Lithuania (LB) received a shocking message from Swiss banking authorities in the summer of 2011. It was in a reply from the Swiss banking supervision institution to a request sent by LB. After the Lithuanian central bank’s new chairman, Vitas Vasiliauskas, took office in the spring of 2011, with strong support from state President Dalia Grybauskaite, one of his efforts was to force the fourth biggest bank in the country, Snoras, to become more transparent, to meet Western standards. But neither he, nor his close aids, could believe that the fraud committed by the bank owners had gone so far.

Pieces of the puzzle in Switzerland
The many documents in LB’s Snoras file included two appraisals from two Swiss banks. They were presented to LB by Snoras in a routine asset declaration procedure. These appraisals, from Swiss bank ‘A’ and Swiss bank ‘B’ (the banks’ identities are classified), were Snoras’ balance sheets giving a snapshot of the value of all Snoras assets in the two banks as of an earlier date. The appraisals showed that the assets totaled around 1 billion litas (290 million euros). The new leadership at LB wanted to know if these securities still had the same value, so they asked their Swiss colleagues to check into it.

The answer they received was not what they had expected. The Swiss banking supervision institution determined that Snoras had no securities at the stated value in these banks. Bank ‘A’ had no account of Snoras at all, and in bank ‘B’ the Snoras account was empty.

During the summer, on July 19, a concerned Vasiliauskas met with the main shareholders of Snoras, Vladimir Antonov and Raimondas Baranauskas, who was also the director of the bank, and asked, so as to get the accounts in order, that the securities of interest be moved to the Lithuanian Depository of Securities. Though he already had the bad news from Switzerland, he didn’t betray this knowledge to the Snoras owners. The two agreed with the proposal. In actuality, this was a last chance given to the bank owners to correct the discrepancy.

After the meeting LB sent a document, a ‘pro memoria,’ to Snoras advising it to deposit the securities by September 15 (the annual inspection had to start on September 14). Snoras deposited only 56.7 million euros of the amount requested. The owners apparently were not eager, or able, to return the missing amount, and even the 56.7 million euros was withdrawn after a week.

The next step was to ask the Swiss colleagues to investigate where the missing securities were. A formal request was sent on September 15. If the Swiss answered the request officially, then - according to law - they would have to inform Snoras about the inquiry, and the full procedure would last about four months. It was agreed that at this first stage of the investigation would be done without formal procedures, keeping it unofficial, and quiet.

LB soon heard from the Swiss, who said they found the securities in the private Swiss accounts of “persons connected to the bank.” These individuals would be identified as Vladimir Antonov and Baranauskas.
This led to the conclusion that the bank not only falsified the documents, but also transferred the assets in a way that was in contravention to the law. As bank assets consist of customer deposits, the two owners were effectively playing with customer money as if it was their personal funds.

Bank supervision officials, if they do their job, make sure this doesn’t happen.
By the end of September the leadership at LB found itself dealing with two criminal cases against Snoras: the two Swiss appraisals, which turned out to be false, and the substantial amount of bank property that was secretly transferred for the personal use of the owners. In everyday vocabulary, this is called theft.

Early ties to the criminal world
Snoras bank was born 20 years ago, as Siauliai Regional Bank (Siauliu krasto bankas), in the Lithuanian town of Siauliai. Baranauskas, a clerk working in the Siauliai municipality, joined the bank at the start. He brought his links with the local government, but his usefulness extended further. At that time a criminal mob, called the “Princes of Siauliai,” had strong influence on all business in and around town. These gangsters enjoyed body-building, as physical strength, for them, commanded respect. Baranauskas participated in this activity too; he even won the Siauliai title of “Mister Biceps.”

More importantly, he worked out together with one of the founders and leaders of the “Princes,” who was nicknamed ‘Stallone,’ according to the Mantas Dubauskas book “Snoras for Dummies: How to lose a billion”.  
These two features, a proximity to official institutions and links to the criminal world, would remain characteristic of the bank. These features grew with the bank, from its days as a regional operation, then at the state level and finally to the international stage.

In 1993 the bank changed its name to Snoras and moved its headquarters to Vilnius. Looking for a niche in the banking sector, it adopted the concept of creating a network of small kiosks all over Lithuania, to attract customer deposits in remote places, specifically where the big banks didn’t go. By 2004 Snoras had 200 kiosks around the country, and about 500,000 depositors.

The same scheme was to be applied when buying Latvia’s Krajbanka, in 2005. Though the Latvian bank was only no.11 out of 23 banks in its market, Krajbanka had 43 branches and was the leader of banking services to private clients. Snoras obtained new ground to attract deposits. The first “mini Snoras” was opened in the coastal city Liepaja, with the goal of expanding to 100 kiosks within the near future.

Helpful friends in the East
From the beginning Snoras was oriented towards Russia, making big investments in Russian government securities. This was a risky strategy, which almost destroyed the bank. It was hit hard during the 1998 Russian crisis, when the government defaulted on its bonds. Snoras faced bankruptcy.
One of the Snoras owners, Sergej Klimuk, went to Moscow prepared to sell the bank. He was accompanied by David Kaplan, an Israeli citizen who had connections with the biggest criminal gang in Lithuania, the “Vilniaus brigados” (Brigades of Vilnius).

An agreement with buyers was reached in September. At first it was rumored that it was a Swiss investor that would rescue Snoras. Then it appeared that Incorion Investment Holding Company, a company registered in Luxembourg, was the buyer. Its owner, Alexandr Gliklad, had Russian and Israeli passports. During the buyout process his company was represented by a solicitor from Australia, Yuri Rapoport. Rapoport is the son-in-law of Yosif Kobzon. The latter is alleged to have relations with the Russian mafia and has for years been refused the entrance to the U.S.
Gliklad has worked closely with Kobzon in Moscow, though at present they are rivals. Gliklad, who has refugee status in Canada, is also in disagreement over millions of dollars with another Russian oligarch, Michail Chernoi, the former king of Russian aluminium.

The Lithuanian authorities approved the Snoras purchase; Yefim Borodulin emerged as the bank’s chief figure. He arrived from Israel, but was born in Lvov. He knew little about banking, according to Ausra Maldeikiene, who met him many times as a leading financial journalist, but was talented on the social circuit.
Baranauskas survived the ownership change. In 2000 he admitted that there were very influential shareholders, especially in Ukraine, who had helped the bank during the difficult times around the Russian crisis.
Management at other banks in Lithuania blessed this change of ownership, though obscure, as rejection by the authorities would have meant the collapse of Snoras.

The seeming passiveness by the authorities during the deal, however, laid the foundation on which Snoras finds itself today, in bankruptcy with its owners facing criminal allegations.
By the spring of 2003, Snoras had 695 shareholders. The biggest was Incorion with 49.9% ownership. The other big shareholders were Hoffman Development and Axcol Properties Ltd. with 9.9% each, and Skeppy Shipping with 8.3%. Hoffman Development was registered in New Jersey, USA, and Axcol Properties, along with Skeppy Shipping, shared the same address in Cyprus. No one worried who was behind those shell companies.

Though Snoras grew, the road was not always smooth. In 2002 LB rejected a move by French citizen Jean Phillip Ilyesco de Grimaldi to invest, by buying shares in the bank. At first he claimed to be from the family the Dukes of Monaco, but was later exposed to be from Romania. The State Security Department (VSD) considered this to be an attempt to launder money of unknown origin, which might have been connected to Russian criminal activities.
After this attempt to gain a new investor failed, within a few months another attempt was begun. This time it would prove successful.

The year 2003 was one of political turbulence in Lithuania. On January 5, Rolandas Paksas won the presidential election. On October 30 the director of VSD, Mecys Laurinkus, delivered a document to the General Prosecutor’s Office which said that Paksas was connected to international criminals, and that this had an impact on national security. Paksas was impeached and removed from office in 2004.

Persistent Antonov gets his prize
Antonov’s takeover of Snoras takes a winding path. In February, 2003 Academchimbank, which belonged to Alexandr Antonov and his son Vladimir, bought 85% of Conversbank for $65 million from MDM group. Conversgroup was established.

In March an anonymous report was received by Seimas, Lithuania’s parliament. It was about attempts by Conversgroup to buy Snoras, and warned of possible consequences, if it happened, including money laundering and the siphoning off of huge amounts of money from the bank, ending up in bankruptcy.
Among those behind the ownership of Conversgroup was mentioned the Russian oligarch Oleg Deripaska. Today, it is said that after the nationalization of Snoras, Deripaska, or his companies, was the biggest depositor, and that he lost $200 million in the collapse.

On March 20, 2003 Conversbank, represented in Vilnius by Vladimir Antonov, informed LB that it had bought Incorion, Snoras’ main shareholder. On October 23, LB confirmed the purchase, agreeing that “the group of persons, consisting of Conversbank of Russia and Incorion of Luxembourg, shall own […] the amount which puts Snoras under their control.” Thus, Incorion finally fell under Conversgroup’s yoke.

After the Antonov family bought Snoras, the bank saw its assets grow by an average 35% a year, until the world financial crisis ended the streak in 2008. Sensing trouble, however, LB had called for a reduction in Snoras’ risk-taking activities after the annual inspections already in 2003 and 2004. The international rating agency Fitch, too, stated its worries in 2002, referring to the geographic allocation of the loans: 44% of the loans were granted to companies registered in U.S. offshore zones.

Snoras was the first Lithuanian bank which was fined by LB, after its 2004 inspection. The key demand was for Snoras to reduce the loan portfolio weighting of non-residents down to zero. But these demands were soon softened: the next year LB’s board extended the time allowed to comply.

Local boy makes good
Baranauskas rose in importance under Vladimir Antonov. In March 2005 he bought 8.67% of the shares “from another shareholder” to add to the 0.2% he already had. He also exuded his own personal, petty style. Baranauskas loved not only expensive things, but also the feeling of power: at the bank he introduced the habit that all employees had to stand up when he, the director, entered the office.
Part of his business strategy was to have close relations with important people, such as Kazys Ramonas, the head of the bank surveillance department at LB. Ramonas and his wife were among the select guests at Baranauskas’ son’s wedding.

At the same time, influential individuals were invited to work in the bank. The former Minister of the Interior Romasis Vaitekunas was a member of the board. The director of the bank’s internal surveillance department, Vizgirdas Telycenas, became the chief of Lithuanian police. The former Minister of Finance Eduardas Vilkelis served as advisor to Baranauskas for relations with state institutions.
Nepotism didn’t seem to bother former Lithuania’s president Algirdas Brazauskas. One of his daughters, Audrone Usoniene, has two daughters: one, Guste, was employed in the marketing department at Snoras.

Snoras ownership grip tightened
In 2006 LB gave approval to Antonov and Baranauskas to own, in total, 93.75% of Snoras’ shares (68.65% for Antonov and 25.1% for Baranauskas, who by now had 9.99% of the shares). LB evaluated this as a step towards greater transparency, at least greater than there was with the offshore company control structure. And though they were supposed to bring in an institutional investor, one who would balance corporate decision-making through control of a blocking package of shares (legally, this would be at least 34%), LB gave the two owners three years to accomplish this.
The period in which to find an institutional investor was prolonged in 2008 because of the global financial crisis: the deadline was now the end of 2011. The owners did present a list of six investors after Vasiliauskas reminded them of their obligation during the July 19, 2011 meeting. Of the six, only two came to meet with LB: the Jubilee Fund and the hedge fund Omada Capital. The latter never appeared after the first meeting, and LB suspected that the Jubilee Fund might have been closely connected to the Snoras owners.

Snoras’ practice of giving out risky loans and playing cat and mouse with LB was nothing new. On January 18, 2011 the central bank’s board urged Snoras to reduce its loan portfolio in Russia by half, with a July deadline. Snoras, therefore, sold these loans to Cypriot companies and invested the 156 million euros (550 million litas) it received in the Cayman Islands. The new LB chairman took this as evading demands.
Real trouble for the Snoras owners was stirring under the surface, with the Swiss-held information about the 290 million euro balance sheet gap, and would soon surface.

Regulators miss signals
On October 4 in Stockholm, the Forum of Macroprudence of the Nordic and Baltic States was under way. Each participating country was represented by the head of its central bank and by the banking supervision institutions. But Ramonas, the director of the supervision department at LB, was not in Stockholm. Vasiliauskas no longer trusted him. He was too closely connected to Baranauskas. The full investigation on the missing Snoras assets was now in the hands of the director of the economics department, Mindaugas Leika. It was Leika who accompanied Vasiliauskas to Stockholm.

They planned to drop a hint to their Latvian counterparts on their worries concerning Snoras, as Snoras owned Latvijas Krajbanka. A few discussions with the Latvians ensued, in which they asked the Latvians about the situation at Krajbanka.
The first hint was delivered. Now, the Latvian authorities would begin to wonder about why the Lithuanians were so interested in the situation at Krajbanka.
Or so they thought. The simple reply from the Latvians was that Krajbanka had 200 million euros in liquid assets. Nothing more.

Later, Leika had a meeting with Irena Krumane, head of Latvia’s securities watchdog, the FCMC (Financial and Capital Market Commission), and mentioned again the concerns about Krajbanka’s liquidity. The Lithuanians’ thinking was that it would have been obvious, to any professional, that something was wrong at Krajbanka, due to their twice raising, albeit indirectly, the issue in Stockholm.

Krumane maintains as of today that the Latvians had not been warned by the Lithuanian side about their investigations or suspicions about Snoras bank, not in September, when there was a meeting of the Latvian and Lithuanian monitoring officials, nor in October. Krumane explained to Re:Baltica that during a meeting of Scandinavian and Baltic State monitoring institutions, “this hint” was expressed as a question from a representative of the Bank of Lithuania as to Krajbanka’s liquidity, which up till then had always been high, exceeding 60%, rather than the required 30%.
In addition, in the October 2011 official letter to LB, signed by Krumane, the FCMC asked LB to provide additional information about changes connected with Snoras bank’s capital and its structure, which could also have potentially affected Krajbanka. The FCMC also asked for information to be provided as soon as possible about the results of on-site checks at Snoras, which would provide information about the quality of risk control at the bank. In the opinion of the FCMC, LB’s response was general and didn’t provide specific answers to the questions asked, and this information, consequently, couldn’t serve as an additional instrument in the implementation of the FCMC’s monitoring measures. Re:Baltica wasn’t able to verify this, as the FCMC said: “We can’t give you the letter itself.”

Snoras’ final days
The Lithuanians, in their view, believed that they couldn’t give anything more explicit than these hints, as the annual inspection of Snoras had just started. In addition, the information from Switzerland was only informal at this point. On top of all this, there was probably a dose of mistrust of the Latvians, that the information could have been leaked to the Snoras owners.

The annual inspection usually lasts four weeks. In the middle of October this inspection was prolonged for another three weeks, till November 9. The report was produced, and a board meeting at LB was held on November 10 to review its results.
The question over the missing securities in Switzerland was one of the concerns; LB already had written confirmation on it from the Swiss. On November 11, LB appealed to the General Prosecutor’s Office to bring charges against Snoras.
No notice was sent to the Latvians.

During the November 14 evening news program ‘Reporter’ on Lietuvos rytas TV (34% of the media group Lietuvos rytas belonged to the daughter company of Snoras, Snoro media investicijos), the next day’s issue of the daily Lietuvos rytas was, as usual, presented. The main cover story for the next day’s edition was to be about the police. Nothing was mentioned about banks.

The next day’s newspaper - the November 15 edition - hit the newsstands, but the cover story was not the one expected: the front page, instead, had a photograph of President Dalia Grybauskaite, with an article titled “The order: trample Lithuanian banks.” The police story was replaced by an anonymous text which declared that the authorities of Lithuania had planned to put the Lithuanian banks on their knees, and then destroy them. Snoras was not mentioned specifically, but a red line was drawn between Scandinavian banks and all the rest, the ‘Lithuanian’ banks. It seems quite strange to call Snoras a ‘Lithuanian’ bank, though, since the main owner has Russian citizenship.

Baranauskas had called LB on November 14 to ask for a meeting with Vasiliauskas. The appointment was for 11:30 a.m. the next morning. But on November 15, around 10 a.m., a call from Snoras said that Baranauskas would not be coming because he was away on a scheduled business trip. Apparently, he had fled.
LB on November 15 set out to closely monitor Snoras’ liquidity levels. In the course of the day the central bank observed unusual and large transactions. By the end of the day, 31 million euros (110 million litas) remained in the Snoras correspondent account with LB. Usually this would have been 70.8-85 million euros (250-300 million litas). The front-page article in Lietuvos rytas apparently acted as a catalyst for the massive outward money flows, Baranauskas’ escape, and the rush to call in the hounds - Zolfo Cooper.

Zolfo Cooper, an international firm based in the UK which works with corporate restructurings was called that day, having been referred by the Swedish bank authorities.
Latvia’s FCMC on November 15 asked the Lithuanian side, in an email, for more accurate information. They received a message only early on November 16, mentioning possible problems at Snoras, but problems which were dismissed as “rumors.”

Then Leika called Krumane, who was in Frankfurt, on November 16 to inform her that there would be a government meeting that day on the nationalization of Snoras.
Snoras’ nationalization was announced at 5 p.m. Business turnaround specialist Simon Freakley, at Zolfo Cooper, was now on his way, to act as temporal administrator. He is considered one of the best in chasing down money: among previous successes was an investigation into the missing treasures of Saddam Hussein.
Once the decision by LB to initiate bankruptcy proceedings on Snoras was made, on November 24, the bankruptcy administrator chosen was cross-border insolvency expert Neil Cooper, also at Zolfo Cooper. His experience includes major cases including administering the bankruptcy of British billionaire Robert Maxwell’s pension fund empire, the Mirror group.

According to Zolfo Cooper, more than 283 million euros (1 billion litas) were pumped into accounts linked with Antonov and Baranauskas, though the company says that they are chasing at least 567 million euros (2 billion litas) in assets that have disappeared from Snoras.
Today, with Snoras closed, many interest groups are questioning LB’s decision to nationalize the bank. At the same time, the defense team for Antonov and Baranauskas, in London, is working to save them from extradition back to Lithuania. The main line of defense is to show that this is a political issue and that the court system in Lithuania is politicized. All the bank officers linked to the case remain cautious and refrain from making any public comments. It may be a year before many details are made available to the public.

Antonov’s strategy comes up short
We can see two main trends in Snoras’ development as a bank. One of them recalls the so-called pyramid, or Ponzi scheme, where old liabilities are covered with new deposits. It falls apart when new financial injections disappear. Snoras targeted small depositors around the country, who were seduced with high interest rates to make deposits. Snoras was creating a network to attract money from the general public all over Lithuania, and then in Latvia. The Czech Republic was also in the future Snoras plans.

A former chief analyst at DNB bank in Lithuania, Rimantas Rudzkis, told Re:Baltica that banks such as Snoras can survive if they receive financial injections from the outside. In Snoras’ case this might have been money from Russia. A large number of Latvian banks rely on Russian money flows, though it is difficult to call them “transparent.”
Another clear strategy by Vladimir Antonov was to create an international network of banks, which enabled the owners to transfer money from bank to bank, according to their needs, while no one would know the real capital level of the group. As one of the Lithuanian professional investigators told Re:Baltica, if one looks just at the figures, everything seems in good order, and extra effort must be taken to find out if bank deposits are not pledged elsewhere. If payments go to certain companies or individuals, they are subject to money laundering prevention investigations. But bank-to-bank payments avoid such supervision.

Lithuanian warning insufficient
When asked about the mistakes made by LB in dealing with Snoras, LB vice-chairman Misevicius gave a picturesque comparison: though traffic rules exist, accidents do happen. He notes that banks of different sizes go bankrupt all around the world, and that there are no rules which can make the banking sector 100 percent safe.
This may be true, as banking and money flows in today’s world, one in which moving billions of euros from one account to another can be done with the click of a mouse in just seconds, define an extremely complex and challenging environment for regulators. But this is not an impossible task. As is clear with the Snoras case, collapse didn’t happen all of a sudden; there were warning signals leading up to its final days, signals that gave the regulators sufficient time to act.

What is also of concern is whether the Lithuanian and Latvian banking regulators acted and cooperated closely enough when they recognized trouble mounting. Antonov’s business practices were well known even before he purchased Snoras. And why, one could ask, were the first warning signals received from the Swiss, in early summer, not passed on to the Latvians?

The section titled ‘Cooperation in Crisis Situations’ in an August 17, 2010 cooperation agreement between Lithuania and Latvia, among other countries, reads “The Party that first identifies a potential cross-border crisis shall: a. inform the Relevant Parties of the situation; and… b. [...] The Party will, in parallel, activate the respective DSG [a group that includes relevant parties including the financial supervision authorities], with the purpose of information sharing and, inter alia, to reach a joint assessment of the impact of the crisis on the domestic financial system.”
The agreement goes on to say additional actions needed include “ensuring that the Relevant Parties aim at a coordinated response to the financial crisis.”

Ultimately, the Latvians were not informed, officially or fully, on the Lithuanians’ growing concerns, despite what the Lithuanians may have thought. It seems that the problem was handled in a typically bureaucratic fashion: no formal notice on paper, no action taken. Accountability is still unclear, though Ramonas was later fired, with one of the reasons cited being his “bureaucratic attitude to the job.”

With Snoras, it may be that only the criminal case on the non-existing securities in the Swiss banks allowed for making the decision to nationalize the bank. There is still a battle to be fought, in the courts, in spite of the obvious fraud. However, without such strong evidence as was uncovered in Switzerland, the Lithuanian regulators had little more to go on, and would have had difficulty justifying closing the bank only because it lacked transparency.
A lack of transparency doesn’t automatically present a criminal case, though it creates a reason for further investigation. Concrete evidence of illegal operations is what’s needed to shut down a bank. But a country can refuse non-transparent banks from entering a country, and this, it may be argued, is where the Snoras story really started, and where mistakes were made by both the Lithuanians and Latvians.

The UK rejected this same Snoras’ attempts to open shop in its jurisdiction. The Bank of Lithuania has recently done the same with another Russian bank. This refusal may be the hard lesson that LB has learned from the Snoras debacle.