(continued from Further episodes in the story of how a bank was ruined)

"L'état c’est moi!" said French sovereign Louis XIV. Four centuries later, officials in Armenia are trying to be like Louis.

“The notion Central Bank of Armenia means the chairman of the Central Bank…” Where do you think this line comes from? Not, of course, from the proposed constitutional amendments. It comes from the program to restructure one of our banks that was drafted at the Central Bank. And since according to this document, the Central Bank of Armenia means the chairman of the Central Bank, Tigran Sargisyan, when you come across the notion of the Central Bank in this article you should understand Tigran Sargisyan. Naturally the document is a banking secret too. We have at our disposal a number of other documents containing banking secrets, and we are prepared to publish them if necessary.

Generally, it is a custom within the banking system to stamp any bank document as secret. But as what is taking place within the banking system shows, bank officials do so just to insure their abuse of authority.

In Armenia banks do not go bankrupt -- they are made bankrupt. As a rule, as soon as a bank in Armenia becomes insolvent, talk about its restructuring begins. But in recent years, more than a dozen banks have become insolvent, and none has been restructured in accordance with the program approved by the Central Bank. Hence, either these programs are empty, or the restructurers cannot implement them, or they simply don’t want to implement them. Our examination leads to the conclusion that banks in Armenia don’t go bankrupt -- they are simply taken away from their shareholders. We will look at the practice of depriving shareholders of their bank and leaving hundreds of depositors empty-handed through the example of the bankruptcy of Credit-Service Bank.

It was in this bank that the classical model of appropriation was put to use, but the job was left half done -- they didn’t get away with it, this time to the credit of the Office of the Prosecutor General. Before the adoption on October 6, 2001 of the Law on Bankruptcy of Banks and Financial Institutions (hereinafter -- the Law), issues concerning banking failure were regulated by the 1996 law of the same name. And in 2001, in a number of violations of the old law, the head of the supervision department of the Central Bank, Artashes Davtyan, appointed his relative, Tigran Mirzoyan as a trustee of Credit-Service Bank. The appointment was made in secret in order to prevent the creditors (founders, depositors and others) from challenging the decision in court. The decision was to be kept secret until the new Law was adopted, Article 2 of which would state that the Central Bank’s (i.e. Tigran Sargisyan’s) decisions on the bankruptcy of banks were not subject to challenges in court.

After getting away with the decision appointing the interim administration, the Central Bank, in its secret Decision # 050.0001 BG of January 9, 2002, approved a program to restructure Credit Service Bank. The decision was secret so that the depositors, the founders of the bank, and the citizens of Armenia could not by any chance learn that the Central Bank was implementing this latest technology in bank restructuring.

The first paragraph of Chapter 1 of the program to restructure Credit Service Bank states: “…this program is aimed, through the actions of the administration, at restoring the bank’s financial stability and solvency, …the term for program implementation is set at two years.” Part 2 of Article 7 of the Law states: “…on the expiry of the term defined by the program, the Central Bank may prolong the term for another three years.”

Since the program envisaged the restoration of the bank’s financial stability and solvency, the head of the interim administration, Tigran Mirzoyan, began making retentions from primary deposits and paying off loans made in the name of Artashes Davtyan’s relatives, signing the register of wages on bank employees’ behalf, and taking this money. And all this was done under Central Bank supervision as, according to the program, “the Central Bank is the sole body supervising the process of bank restructuring.”

Nevertheless, Tigran Mirzoyan has something to be proud of - the missions on technical assistance and of the Second European Department of the International Monetary Fund (IMF) know him personally. One may learn about this in another secret document - Central Bank Decision #050.129.BG of July 30, 2002. Here’s what it says: “Considering the proposals by the IMF missions on technical assistance and of the Second European Department… the Board of the Central Bank decided to relieve Tigran Mirzoyan of the post of head of interim administration of Credit Service Bank and to appoint him a member of the interim administration.”

Article 19 of the Law states that a program to restructure a bank must among other requirements necessarily include measures related to the realization of a sufficient level of fixed capital and restoration of other economic norms, but Tigran Mirzoyan stated in Clause 7 of the Program, and the Central Bank (i.e. Tigran Sargisyan) approved, that “from the moment of the approval of this Program, the bank falls outside the framework of the economic regulations defined by the Law on Banks and Banking Activity of Armenia.” This is the entire package of measures that Mirzoyan was planning to implement for two full years in this sphere and the Central Bank (i.e. Tigran Sargisyan) to supervise.

We are talking about the economic regulations with the “help” of which, if they are violated, the Central Bank (i.e. Tigran Sargisyan) may declare a bank insolvent. One may conclude from this that the interim administration was needed only to take the bank out of this framework. Apparently, that was all the Central Bank needed when it approved the Program.

If the Prosecutor General’s Office hadn’t “hindered” the head of the supervision department of the Central Bank, Artashes Davtyan -- that is hadn’t prevented his criminal activity, Credit-Service Bank would have been restructured -- it would have simply come to have other shareholders. There is another strange fact in this story - Credit-Service Bank, while under interim administration, was given a license for banking activity by the Central Bank.

Taking the restructuring program of this bank as an example, let’s see what powers the Central Bank (i.e. Tigran Sargisyan) reserves for itself when it approves such programs.

Paragraph 2.1 of Chapter 2 of the Program states: “The administration has the right, and at the Central Bank’s demand - the obligation, to sell the bank shares…. The conditions of the deal must be coordinated in advance with the Central Bank.” This means that the administration itself has the right to sell someone else’s property, and if it is demanded by the Central Bank, it is obliged to sell someone else’s property, and all this not with the consent of the shareholders, but with the consent of the Central Bank.

Para. 2.5 of Chapter 2 of the Program states: “The notion of the Central Bank means the chairman of the Central Bank,” thus, Tigran Sargisyan, according to this Program, not only has the right to sell someone else’s property but also may make amendments to the Civil Code of Armenia by himself. Everybody knows that the laws of Armenia are passed by the National Assembly and are ratified by the president. And perhaps not everybody, but at least the chairman of the Central Bank, must have known that “null and void” deals may be defined only by law. In Armenia this notion was defined by the Civil Code adopted in 1999. On January 9, 2002 the board of the Central Bank adopted a decision that in fact amends the Civil Code.

Let us quote the following clauses: “2.2. - A deal signed in violation of the requirements of Para. 2.1 of this Chapter is null and void”. “2.7. -A deal signed in violation of the requirements of Part 1 of Chapter 2 of this program is null and void.” A certain interim administration of a certain bank is engaged in making laws, and the board of the Central Bank has approved a program that attempts to replace the law.

Para 2.6 reads: “Irrespective of the provisions of this program, the head of the administration is obliged to follow every instruction of the Central Bank and to sign any deal proposed by the Central Bank which may not be directly envisaged by this program.” Since when we say the Central Bank, we understand its chairman, Tigran Sargisyan, it turns out that he may instruct the administration to sell the bank for 10,000 Drams to Artashes Davtyan or to any other person.

Before the recent presidential election several banks were made insolvent and hundreds of depositors took to the streets. As long as a year ago, the president of the republic at least twice made public statements calling upon the banks to fight for their rights. But the main violator of the banks’ rights in this case is the chairman of the Central Bank, Tigran Sargisyan, since he can at any moment order the sale of any insolvent bank, its shares and buildings, at any price ...

To be continued...