The banking scandal that broke Russia’s anti-Kremlin opposition

Last month, as another 30 days of war passed in Ukraine, Russian activists, economists, and politicians in the exiled anti-Kremlin opposition spent much of their time arguing about a banking scandal from the last decade. The debate has been as mystifying to outsiders as it is confusing to those without an education in finance. With help from two experts, Meduza breaks down the squabbling and criminal stakes at the heart of the scandal involving Probusinessbank, the Anti-Corruption Foundation, and activist Maxim Katz.

This latest row among Vladimir Putin’s public enemies started when Maxim Katz, a former municipal deputy turned popular YouTuber, released a two-hour investigative video accusing his erstwhile allies and long-time rivals at Alexey Navalny’s Anti-Corruption Foundation (ACF) of “laundering the reputations” of the former owners of Probusinessbank, Alexander Zheleznyak and Sergey Leontiev, in exchange for large donations and administrative help. (Zheleznyak served as the treasurer of ACF’s international operations until his resignation after Katz’s investigation in late October 2024.)

After three weeks of constant cyberspace combat between both sides and their supporters, the Anti-Corruption Foundation responded with its own whopper of a YouTube video: a 96-minute dissection of Katz’s storytelling omissions and denial that Zheleznyak and Leontiev stole any money. 

Much of the arguing about ACF’s ties to the two bankers and what happened at Probusinessbank a decade ago has less to do with the minutiae of their banking practices than the timing and optics of Katz’s assault. Earlier this year, ACF ruffled feathers among fellow oppositionists (particularly those in camps outside Team Navalny’s orbit) when it argued in a YouTube miniseries called Traitors that many of the businessmen now instrumental in funding anti-Kremlin activities are responsible for lifting Putin to power and betraying Russia’s post-Soviet democracy. In September, the team published evidence suggesting that former oil executive Leonid Nevzlin — the purse behind several media outlets and a close ally of Mikhail Khodorkovsky — had recruited thugs to attack members of the Anti-Corruption Foundation, possibly even to kidnap one and hand him over to Russian federal agents.

In this context, ACF’s supporters say Maxim Katz is merely acting as a hired gun against an organization that is causing trouble for the corrupt, moneyed interests who wrap themselves in anti-Kremlin credentials. (In this sense, the response mirrors Katz’s allegations against ACF.) 

The foundation’s rebuttal on YouTube focused on tearing down errors and manipulations in Katz’s investigation, but Zheleznyak and Leontiev’s return to the news agenda has also refocused journalists and experts on what ostensibly drives the ACF-Katz dispute: the actual events and practices at Probusinessbank.

Last week, Meduza spoke to Ilya Shumanov, the general director of Transparency International-Russia in exile, and Peter Mironenko, a co-founder of the business news outlet The Bell. The two observers retraced what we know about Zheleznyak and Leontiev’s activities, not from the perspective of internal opposition politics but as a regulatory issue. 

So, what happened at Probusinessbank?

Alexander Zheleznyak and Sergey Leontiev founded Probusinessbank in 1993. After surviving Russia’s 1998 financial crisis, Zheleznyak and Leontiev expanded the network, acquiring several regional banks and merging them with Probusinessbank in 2006 to form Life Group. By the early 2010s, Life Group was Russia’s fifth-largest banking network in branch size, and Probusinessbank alone was among the country’s top 50 banks.

And then it all came crashing down. 

In August 2015, Russia’s Central Bank revoked Probusinessbank’s license. Two months later, officials declared it bankrupt. The day Probusinessbank lost its license, the Central Bank calculated its liquidity gap to be at least 67 billion rubles (roughly $1 billion at the time), though the regulator has since revised this estimate several times.

Lending alchemy

Katz claims that the two bankers stole at least $470 million from Probusinessbank through a network of brokerage firms, offshore accounts, and subordinated loans. 

According to the Katz investigation, bank funds were placed in the accounts of foreign and Russian brokers and then transferred to offshores controlled by Zheleznyak and Leontiev. To conceal their connection to the enterprises receiving the money, the bankers registered the offshores to random people and paid them a pittance to pose in paperwork as the owners. Zheleznyak and Leontiev then used the money for personal enrichment, playing the stock market and saddling Probusinessbank’s clients with the risks. They funneled their winnings through a chain of companies, for example, into Leontiev’s trust, registered in the Cook Islands.

ACF’s response to the allegations that Zheleznyak and Leontiev stole almost half a billion dollars from Probusinessbank rests on the logic that most of the money was ultimately returned to enterprises under Life Group’s umbrella. Team Navalny reasons that the bankers resorted to moving the money around in such byzantine ways to evade onerous Russian regulations that arguably “suppressed private capital”:

Ilya Shumanov, the general director of Transparency International-Russia in exile, told Meduza that ACF researchers’ inability to locate all the funds withdrawn from Probusinessbank is significant. He said he found even less money accounted for in his own search of the bank’s records on subordinated debt — the riskier loans issued to Zheleznyak and Leontiev’s offshores:

Shumanov also contests ACF’s claim that money transferred to offshore companies and later funneled to Life Group “sister structures” constitutes a “return” of the bank’s funds:

Journalist Peter Mironenko, who co-authored The Bell’s recent investigation into the corruption allegations against Zheleznyak and Leontiev, told Meduza flatly that he thinks ACF’s defense of the loans to the bankers’ offshores “looks unconvincing.” The funds that ultimately landed in subsidiaries’ accounts were “no longer the bank’s money,” Mironenko explained. “They’d been removed from the banking oversight created specifically to protect depositors’ money from risks.”

“The funds went everywhere,” said Shumanov. “To accounts at the Life Group Collection Bureau, which is formally unconnected to Probusinessbank, and to other commercial projects controlled by the bank’s owners — but not to the bank itself. And part of the money simply disappeared.”

Zheleznyak and Leontiev created a complex system where assets listed on Probusinessbank’s balance sheet rotated between brokers and offshores, and those latter entities could be “separated” from the bank’s balance if Russia’s Central Bank raised objections. When the regulator revoked the bank’s license in 2015, Probusinessbank could no longer retrieve its funds from the brokerage accounts because they were held as collateral. 

It was a disaster for both the creditors and the depositors, says Shumanov. “People who were supposed to receive their money based on the bank’s obligations were left with nothing.”

Brokerage transactions, moreover, weren’t the only scheme to siphon money out of the bank. A day before Probusinessbank’s license was revoked, when its accounts were already frozen, 625 million rubles (roughly $9.5 million at the time) was taken from its cash office and transferred to another Life Group bank, Express-Volga. “In other words, attempts to withdraw funds — to steal them — continued even at this level,” Shumanov told Meduza.

Other last-minute ploys included loans issued directly to dummy corporations controlled by Probusinessbank’s top managers, which Shumanov called “a crude scheme used to withdraw assets from the bank urgently, anticipating that the bank’s license would be revoked.”

Sergei Leontyev’s purchase of Cypriot citizenship earlier in 2015 and his flight from Russia just a few days before the Central Bank’s intervention also indicate that Probusinessbank’s owners knew in advance about the impending regulatory threat and potential criminal charges. 

Eight months before Probusinessbank lost its Russian license, it lost its credit rating from Fitch, which couldn’t verify the location of the bank’s funds. Shumanov explained to Meduza that the money funneled through brokers was actually being reflected twice on Probusinessbank’s balance sheet: first as deposits on brokerage accounts and again as subordinated loans that Zheleznyak and Leontiev’s shell companies issued to the bank.

“This means the bankers were falsifying the bank’s financial statements,” said Shumanov, who found similar liquidity gaps at other banks in Life Group that avoided bankruptcy and were restructured. This bogus bookkeeping concealed capital shortfalls and constitutes a felony, he said.

The revocation of Probusinessbank’s license was part of Central Bank Governor Elvira Nabiullina’s 2014–2016 campaign to clean up the industry in Russia. Her initiative targeted captive banks where shareholders diverted money from bank coffers to their own pockets. Shumanov told Meduza that Zheleznyak and Leontiev used Probusinessbank in exactly this way:

To circumvent these obstacles, Leontiev created a new entity called Wonderworks to continue making high-risk investments with low-interest loans from Probusinessbank.

An ethical dilemma, a legal defense

When state investigators opened a criminal case against Leontiev and began questioning the other bank managers he and Zheleznyak left behind in Russia, they discovered a parallel system of dozens of different companies, codenamed “Valkyrie,” created to falsify financial statements and move funds out of the bank. 

Much of the evidence for this illicit system admittedly comes from testimonies given by suspects held in Russian jails, but the accounts are detailed, and Zheleznyak and Leontiev even disclosed to journalist Andrey Zayakin that they ran a separate department to conceal asset withdrawals.

According to Zayakin, in interviews he conducted in 2020, Zheleznyak and Leontiev said they raised more than $300 million by selling high-return promissory notes issued by companies affiliated with Probusinessbank, doing little to hide that most of the deposits collected were undeclared money — literally “suitcases full of cash” — from persons with direct ties to state prosecutors. In fact, the officials whose money Probusinessbank apparently laundered include former Deputy Prosecutor General Saak Karapetyan and former Prosecutor General Yuri Chaika, who was the focus of a bombshell ACF investigation in December 2015.

The suitcase scheme is a blatant red flag, journalist Peter Mironenko told Meduza:

In its response to Katz, the Anti-Corruption Foundation acknowledged that Avilon car dealership company beneficiaries Alexander Varshavsky and Kamo Avagumyan used Probusinessbank to stash the Prosecutor General’s slush fund. “To be honest, I find it utterly repulsive,” ACF chairwoman Maria Pevchikh told viewers in the organization’s 90-minute YouTube video. 

However, Pevchikh argued that Zheleznyak and Leontiev’s dealings with corrupt officials don’t mean the bankers aren’t the victims of the Putin regime’s political persecution. “It is political, but not in the way we’re used to,” said Pevchikh, claiming that Zheleznyak and Leontiev were prosecuted not for their beliefs but for “refusing to share the spoils.”

Shumanov told Meduza that Zheleznyak and Leontiev’s illegal banking activities mean it would have been more appropriate for ACF to investigate them than take their money and invite them into their organization. “How on Earth did they allow such a person to hold any management functions within the Anti-Corruption Foundation?” asked Shumanov, referring to Zheleznyak’s role as ACF’s international operations treasurer. “The bank’s depositors were Russian citizens, including small and medium businesses! Isn’t that important? I think it’s important — critically important! — for any political organization.”

Whether or not Zheleznyak and Leontiev qualify as victims of political repression is also more than an ethical dilemma for a handful of Russian oppositionists. The issue has also been at the center of major litigation. 

When he spoke to Meduza, Peter Mironenko pointed out that Zheleznyak and Leontiev’s legal defense has grown more overtly political with time:

Reporting by The Bell shows that the two bankers have won foreign lawsuits, time and again, thanks largely to Western courts’ fundamental distrust of Russia’s justice and regulatory systems. It has been especially easy for Zheleznyak and Leontiev with European and American judges because many of the Russian officials who investigated Probusinessbank are also implicated in the death of tax adviser Sergey Magnitsky, whose case has become an international cause célèbre “encapsulating the darker side of Putinism.”