Tuesday, 25 September

Tigran Sargsyan is in Panic

On May 25 of this year, the Economic Court, Judge A. Sargsyan presiding, issued a ruling (already in force) which could signal a turning point in the operations of the Central Bank (CB). This ruling declared void fines imposed through a series of CB decisions against VTB-Armenia Bank executive director Alexander Vartanov.

It may prove historic, because decisions by the Central Bank have never been questioned in the past. Besides this, it appears to have panicked CB President Tigran Sargsyan, as evidenced by his appeal for cassation.

This appeal included a point which bore the following heading: “The grave consequences caused by court errors.” We quote two sections of that point: “… to this day, none of the court decisions taken because of the numerous complaints against penalties imposed by decrees of the Central Bank have ever declared the Central Bank to be a state administrative organ which has failed to comply with the law regarding administrative bases and administrative procedures, thus ruling any of these measures of ensuring accountability void.”

“Because of a court error, the Central Bank will be forced to also take into account the law regarding administrative bases and administrative procedures, due to which the legal aspects of supervision over subjects in the financial world, formed and practiced over 11 years, must be reviewed (normative and internal legal decrees as well as the corresponding laws). A lot of time will be required to make these changes, during which the Central Bank will be unable to adequately perform one of its authorized functions – the supervision of financial subjects – which would damage the stability of the financial system and encourage abuse and the violation of the rights of those who avail of financial services, including the numerous customers of banks.”

It is well known that the Central Bank is an immune structure or, as one Armenian banker put it, a state within a state, with all the structures typical of a country functioning within it. Naturally, that banker preferred to remain anonymous, because he had already been “punished” once in the past by the CB administration on a similar occasion. As Central Bank President for the past eleven years, Tigran Sargsyan has created his empire – an empire that is all-powerful, dangerous, and both predictable and unpredictable. The Constitution outlines the function of the Central Bank as maintaining price stability. But nobody was able to explain how the Central Bank regulated price stability in Armenia. It was also inexplicable that the Economic Court passed a verdict against the Central Bank. The Central Bank had never before lost in court. This verdict could set an example for other Armenian banks to fight for their rights against the Central Bank.

Through a series of decrees passed by the Central Bank in late 2006 and early 2007, penalties were imposed on VTB-Armenia Bank (formerly ArmSavingsBank) and its executive director, Alexander Vartanov. These were punitive measures, as a result of which Vartanov had to personally pay around 2 million drams, and the bank nearly three times that amount. “Vartanov felt that the CB decrees were illegal. His rights had been violated and his business reputation had been damaged,” said Karen Mejlumyan, Vartanov's legal representative.

When Vartanov went to court, the Central Bank was amazed and angered by this brazen step, because all banks had earlier meekly submitted to CB decisions, and the words of the CB president had been supreme law to them. Vartanov, however, had dared to question the Central Bank and its president by going to court. Naturally, Vartanov had to be punished; the question was how the CB President would get that accomplished.

“They sent letters to the VTB administration,” said Vartanov, presenting the letters. They were addressed to VTB President A. L. Kostinin and President of Branch Banks N. A. Kuznetsov.

“The letters were sent by CB President Tigran Sargsyan and the father of his son-in-law, i.e. his in-law Hrant Suvaryan, who is also the head of the financial supervision department at the Central Bank,” continued Vartanov.

Hrant Suvaryan, the head of the financial supervision department at the Central Bank, had written the following in his letter to the VTB administration: “…without attempting to violate any of the rights to legal defense of the bank or of Vartanov, we find that by taking these steps, Vartanov has sought to protect his personal interests and avoid the responsibility of paying the penalty by involving the bank in a lengthy legal process. In his statement, Vartanov has used his position and invoked a CB normative act (the act of regulation for supervisory bodies) to contest this penalty, an unprecedented step which will undermine the whole legal system of the country, which is also unprecedented in turn and, in the opinion of the Central Bank, will damage the reputation of the bank.”

The VTB did not wish to have problems with its branch in Armenia and sacked Vartanov, but elected him to the board of the same bank (CB President Tigran Sargsyan has told his inner circle on numerous occasions that he would never register Vartanov as a board member).

Seeing that their decrees might end up being declared void in court, the Central Bank considered those decisions to have lost their legal power six months after they were first taken. It should be noted that the reason for Vartanov's sacking was the series of punitive decrees. Then, representatives of the Central Bank asked the court to reject Vartanov's case, because they had revoked the decrees themselves, and they had done so because Vartanov was no longer the executive director of the bank.

“We were against it. It's true, the decree were considered void and Vartanov would not have had to pay the penalty, but it should have been declared void from the day it was issued and not six months later for other reasons. Central Bank representatives said that they had revoked the decrees because Vartanov was no longer the director. So it turned out that they were offering forgiveness to a man who was innocent anyway,” said Karen Mejlumyan.

Vartanov insisted that the Central Bank decisions were illegal and therefore challenged the decrees in court. “It seems that the Central Bank had forgiven me; they no longer wanted me to pay the penalty. I don't want to be forgiven; I want the court to declare my innocence. The President of the Central Bank and Head of the Financial Supervision Department wrote letters defaming me to the VTB administration in Moscow. They sullied my name and long-standing reputation as a manager with years of experience in the banking system. They have to withdraw these statements,” said Vartanov.

Tigran Sargsyan will definitely never apologize. But Vartanov is ready to fight till the end – he said that Sargsyan had smeared his name and professional reputation, and that he was a banker who was not willing to leave his name “in the mud”.

On July 30, Vartanov presented a statement to CB President Tigran Sargsyan, in which he wrote: “Your unlawful and groundless decisions in late 2006 and early 2007 imposed fines in excess of 2 million drams on me as the head of the VTB-Armenia bank. When I asked for my right to legal protection, those very same decrees were used as a basis to send defamatory letters to the VTB leadership. The CB later issued new decrees which declared the earlier decisions void. Moreover, a decision by the Economic Court has declared the decrees which I appealed against void. This verdict also notes that as a result of the recognition that those decrees were void, the Central Bank is obliged to undo all the consequences caused by the decrees originally since the moment that they were declared.”

Vartanov then proposed that Sargsyan voluntarily put the verdict into force and send letters to the VTB administration denying the information damaging Vartanov's reputation and including a statement that the decrees were “illegal and anti-legal”. Sargsyan must also apologize to Vartanov for “using his position to spread inaccurate information which damaged Vartanov's honor and professional reputation.”

It is difficult to say how this conflict will end, but our sources have told us that a new set of Central Bank regulations are going to be presented to the Parliament. Some experts who are familiar with this package have said that it is set to make the Central Bank “even more dangerous”.

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