Four Gazprombank Executives Could Have Made €9 Million Buying Discounted Bonds Before Swap Announcements: Report

Four senior executives at Gazprombank Luxembourg could have made more than €9 million by buying deeply discounted Gazprom bonds after Western sanctions disrupted Russia’s financial markets in 2022.

The executives used personal loans from Gazprombank to buy the bonds in Europe and later exchange them for replacement securities in Russia at their original value, the Financial Times reported Wednesday.

Russian Bonds Became Stranded

After Russia’s full-scale invasion of Ukraine in February 2022, Western sanctions disrupted payments involving Russia’s financial system. Gazprom was not subject to the broadest EU sanctions, but its foreign-currency bonds became difficult to settle in Europe and some traded at about half their original value.

Internal communications at Gazprombank Luxembourg warned that Russian securities trades might not settle and that funds or securities could become blocked, according to documents reviewed by the FT.

EU sanctions had restricted payments through Russia’s National Settlement Depository, or NSD, while U.S. restrictions also affected Russian debt payments. The NSD is part of Russia’s securities-settlement system.

Russia Creates Bond-Swap Program

President Vladimir Putin signed a decree on July 5, 2022, allowing eligible foreign-currency bonds to be replaced with new Russian bonds traded in roubles at their original value.

That created a large difference between the depressed market price of the bonds in Europe and the value of the replacement securities in Russia. Alexandra Prokopenko of the Carnegie Russia Eurasia Center told the FT that the price gap was "real and substantial."

Executives Start Buying Discounted Bonds

Dmitry Derkatch, then a director at Gazprombank Luxembourg, traveled to Moscow in June 2022. After returning, he opened a personal account at the bank despite an internal policy against employee personal accounts and received a personal loan from Gazprombank’s Moscow office.

Nine days after Putin’s decree, Derkatch bought a Gazprom bond for about €65,000. Its nominal value was €150,000. The bond was later replaced, potentially creating an €85,000 gain at full value.

Gazprom had not publicly identified that bond for replacement when Derkatch bought it. Former Russian central bank deputy chair Sergey Aleksashenko told the FT that the "risk of uncertainty" was "great" for an investor borrowing money to make the purchases.

Aleksashenko also said the timing suggested Derkatch may have had connections in Moscow that confirmed which bond would be included in the program.

Derkatch denied wrongdoing and said the Luxembourg regulator found no material irregularities.

Four Bankers, More Than €17M In Transfers

Three other Gazprombank Luxembourg executives, Sergey Nekrasov, Sergey Belousov and Pavel Bolshakov, began buying discounted bonds in September.

The four executives often bought the same bond for the same amount on the same day. Their purchases were also frequently made shortly before Gazprom announced replacement plans.

In one case, the executives bought a dollar-denominated bond trading at about 50% of its value in Europe. Gazprom announced its replacement on Oct. 7, and the swap window closed Oct. 24. The Russian replacement later rose to 120% of its value in December.

The four bankers received transfers totaling more than €17 million between July and November, according to documents reviewed by the FT. The publication calculated that their combined potential profit exceeded €9 million.

An internal email said the executives had received separate personal loans and bought Gazprom Eurobonds because the replacement securities "theoretically should be higher" in value.

Trades Raise Insider Trading Questions

The timing and coordination of the purchases raised questions about whether the executives had access to information that was not publicly available.

One person familiar with the trades told the FT that it would have been difficult to complete the purchases so quickly without knowing which bonds would be swapped because the securities were illiquid.

Some employees raised concerns about potential insider trading. Gazprombank Luxembourg private banking head Dmitry Galkin defended the transactions in an internal message, saying, "No inside trading or market manipulation are identified."

Gazprombank Luxembourg denied wrongdoing, telling the FT it "strictly" complied with EU and Luxembourg laws and was not involved in sanctions violations related to the personal transactions.

Regulator Found Internal Rule Violations

The trades were halted inside the bank after an internal inquiry at the end of 2022, according to people familiar with the matter. It is unclear whether similar trades continued through other financial institutions.

Luxembourg’s financial regulator, the CSSF, inspected the bank in March 2023 after receiving a tip. According to an inspection report seen by the FT, the regulator found violations of internal rules covering employee personal accounts and found that the four executives had not been properly vetted despite being classified as high risk.

The CSSF did not find other wrongdoing or impose fines. It declined to comment, citing professional secrecy. Gazprombank said it provided requested information and made key people available to the regulator.

EU Sanctions Questions Remain

EU officials and sanctions lawyers also questioned whether the trades could have circumvented sanctions involving the NSD, which was involved in settling the bond replacements.

EU sanctions prohibit transactions that directly or indirectly result in a fee being paid to the NSD, according to the FT report. Sanctions lawyer Jason Hungerford told the publication that the prudent approach would be to assume a Russian securities transaction could result in funds becoming available to the NSD.

"It sounds like circumvention," one EU official told the FT and said the matter should be considered for a criminal investigation in Luxembourg.

The U.S. Senate advanced a separate Russia sanctions bill in August that could impose tariffs of up to 100% on major buyers of Russian oil and gas, including China and India.

All four executives have since left Gazprombank. Derkatch remains in Luxembourg, while Belousov and Bolshakov run an investment firm there. Nekrasov returned to Russia and runs Spartak Moscow football club.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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