In the middle of December, President Donald Trump’s son-in-law Jared Kushner met the CEO of Russian Vnesheconombank (VEB), Sergei Gorkov, in New York. He had kept this meeting secret, but in March the New York Times revealed that it had in fact happened. Some of the speculation in the media focuses on the possibility that Kushner met with Gorkov in order to procure investments or loans for the redevelopment of an over-leveraged property on Manhattan’s Fifth Avenue. In that context, VEB is usually presented as a state bank. But in truth, VEB is not really a bank. In truth, it operates as Russian President Vladimir Putin’s personal slush fund.
VEB is a strange creation. Its website states: “Vnesheconombank is not a commercial bank…. VEB does not compete with commercial credit institutions and participates only in those projects that cannot receive funding from private investors.” It used to be the Soviet foreign trade bank, but that changed in 2007, when it was re-established as a “state corporation” through a federal law.
It is regulated through one specific law, which underscores its official status: “Vnesheconombank is one of the key instruments of government investment policy.” Its international credit rating equals that of the Russian government, since it is fully covered by state guarantees. It is exempt from profit tax. Yet legally it is a non-governmental organization, and Putin controls it himself.
VEB has been closely linked to Russia’s foreign intelligence, and has a senior foreign intelligence officer as CEO— Sergey Gorkov, whom Putin appointed in February 2016. His official CV acknowledges that “in 1994, [he] graduated from the Academy of the Federal Security Service of Russia.” His predecessor, Vladimir Dmitriev, served as a diplomat in Stockholm, but the Swedish authorities expelled him for espionage in 1993. A recent example of VEB engagement in intelligence is the case of VEB employee Evgeny Buryakov, who was arrested for spying in the United States in 2015 and sentenced to 30 months in prison. He was accused of having tried to recruit the Carter Page, who would later become foreign affairs adviser to the Trump campaign.
VEB is completely non-transparent. It has no outside shareholders, no shareholders’ meeting, no public annual reports, and no external auditing. It has a supervisory board with nine members, including the CEO, all appointed by Putin. By law the Prime Minister serves as its chairman; Putin did so when he was Prime Minister, from 2008 to 2012. Six other board members are Ministers, and the last member is Putin’s economic aide. In practice, VEB appears to take direct orders from Putin. Gorkov is not considered to be “close” to Putin—he is his obedient servant.
VEB has issued financial statements to raise international bond issues. Its assets are sizable, amounting to $60.1 billion in January 2017. Its loan portfolio at the time was $33.2 billion. Its dominant activity is giving loans to large investment projects, acting as an agent of the state. It also provides export credits and offers government support to large enterprises. A minor side activity is giving credits to small and medium-sized enterprises. Its export credits tend to be linked to major projects of big Russian state corporations, such as Rosatom’s nuclear power station in Hungary, for which it received a VEB credit of $11 billion.
In the past decade, VEB has carried out three major government operations, the bailout program of Russia’s big companies in 2008-09, enterprise investments in Ukraine in 2010, and the financing of construction for the Sochi Winter Olympics. They all bear Putin’s fingerprints.
The 2008-09 bailout program of $50 billion was directly financed by the Russian government but managed by VEB. The government also funneled $12.5 billion in financial support to VEB for capital replenishment from one of its two sovereign wealth funds, the National Welfare Fund. The Central Bank allocated $50 billion of gold reserves to VEB for refinancing the foreign loans of Russian companies and banks. It bailed out state corporations as well as large private strategic companies.
In the first half of 2010, after Viktor Yanukovych was elected President of Ukraine, VEB spearheaded a mysterious Russian investment campaign in the country. It bought one big private commercial bank, Prominvestbank, and financed the purchase of half of each of the two big metallurgical companies, the Industrial Union of Donbas and Zaporizhstal. No known owner of the bulk of the Russian shares ever emerged, arousing speculation that the ultimate Russian owner was Putin. However, Rinat Akhmetov, Ukraine’s dominant businessman, blocked the Russian expansion in Ukraine by winning Ukrainian court cases, reportedly enraging Putin. Whatever VEB’s design was, it failed: VEB lost up to $10 billion dollars in Ukraine.
Strangely, Putin used VEB rather than the state budget to finance the Sochi Olympics, spending another $50 billion. Once again VEB received money from the National Welfare Fund for its capitalization, but this time only $9 billion, which was far from enough for the job at hand. Putin effectively financed the Sochi Olympics with the balance sheet of VEB, bringing it to the brink of bankruptcy. VEB reported a net loss of $4.5 billion in 2014, and in late 2015, a capital infusion of $20 billion was discussed, though that number shrank with time. In the end, the government bailed out the non-governmental organization VEB for $2.2 billion.
On July 16, 2014, the U.S. government sanctioned VEB, depriving it of access to international debt markets, and thus tightening its financial constraints. It was an obvious target, since it did little for the Russian people while providing Putin with a vast source of discretionary state funding.
In the March report, New York Times noted that Gorkov “said in a statement…that he met with Mr. Kushner in his capacity as the then-chief executive of Kushner Companies.” Kushner has played it down, and the White House has said that Kushner attended in his capacity as a transition official. It’s important to remember that the Trump International Hotel in Toronto was saved due to $850 million of VEB funding to a Canadian-Ukrainian partner of the Trump Organization. The only bank that has given the notoriously bankruptcy-prone Trump Organization credits is Deutsche Bank—to the tune of some $400 million. The German publications Die Welt and Die Zeit now demand to know whether this funding comes from Russia in some way. And according to its statutes VEB “participates only in those projects that cannot receive funding from private investors.”
As Jared Kushner hires high-powered defense attorneys in what is likely to be a protracted investigation by Special Counsel Robert Mueller, keep the details of just what VEB is in the back of your mind. If there was talk of any kind of loan, it wasn’t really with a “Russian bank,” but with “Putin’s banker.”