...because of the budget deficit
An audit conducted by the Prosecutor General's Office has found that most of the money contributed by the Russian Venture Company (RVC) to funds has been deposited with major banks. The Prosecutor General's Office says it amounts to a "gross irregularity" and ineffective use of government money. Based on the results of the audit, Prosecutor General Yuri Chaika has submitted to Vladimir Putin proposals on further regulation of venture activities to enhance the responsibility of officials and questioned the practicability of the company continuing its activities. In the opinion of the Prosecutor General, the current activities of the RVC do not correspond to the company's mission. The audit of the RVC has revealed that 6 billion out of the 8.5 billion roubles in the assets of six unit investment funds of high risk investments formed jointly with RVC (which contributed 4.1 billion roubles) has been deposited with banks. Over two years a mere 1.7 billion roubles (20%) has been spent to buy securities. It also transpired that as of January 20, 2009, 85% of the RVC's authorised capital was in bank deposits. "At present the RVC and the funds it has created are not interested in implementing venture projects because keeping money in bank deposit accounts is much more profitable. That runs counter to the mission of the RVC", the Prosecutor General's Office believes. "In a number of cases the money intended for the development of an innovation economy in Russia was transferred to the accounts of companies registered in the US".
The balance books of some venture funds formed by management companies jointly with the RVC show that the larger part of the assets has indeed been transferred to accounts and bank deposits. Thus, about 55% of the assets of the VTB-Venture Fund (VTB Asset Management) were in deposits with the VTB Group banks at the end of 2008. About 85% of the assets of the Bioprocess Capital Ventures (managing company Bioprocess Capital Partners) was deposited with the Development Bank, VTB, Sberbank and Alfa-Bank.
"The company's authorised capital was used in full accordance with the investment policy and decisions of the company's board of directors," the RVC's investment director, Jan Ryazantsev, told RBC Daily. He pointed out that the nature of venture investments is such that investment in projects takes place gradually during the whole period of the fund's operation, which is ten years.
"Not to lose government money some free assets are put in bank deposits," Jan Ryazantsev explained. As a rule, these are major Russian banks many of which are affiliated with the state." He said this also applied to free venture fund assets. Mr Ryazantsev revealed that the RVC has not set up foreign legal entities and has not transferred money abroad although some venture funds have indeed invested in companies which are active abroad because they need points of presence in developed markets to attract foreign clients.
The director general of VTB Asset Management, Natalya Plugar, confirms that venture funds typically invest their assets gradually and it is wrong to keep money in the fund's account. "It is practicable and absolutely legal to keep the money in banks," Natalya Plugar says. The revenues from these deposits go to the contributors, the RVC and the VTB Group banks, she said. The partners were often the banks themselves: for example, the co-investor of the Leader-Innovatsii (managing company Leader) Venture Fund was Gazprombank and the co-investors in the VTB Venture Fund were VTB Group banks.
The Prosecutor General's Office established that in 2008 the RVC planned to increase its operational costs to 290 million roubles, twice as much as Rosnauka spends on the federal targeted programme Research and Development in Priority Areas of the Scientific and Technological Complex of the Russian Federation in 2007-2012. The Prosecutor General's Office notes that in 2007/08 the RVC director general, Alexei Korobov, earned more than 8 million roubles and the remuneration of the members of the company's board of directors, an Israeli citizen Yigal Erlich and a Finnish citizen Esko Aho as well as the owner of Nezavisimaya Gazeta, Konstantin Remchukov, topped 16 million roubles over the last two years.
From the results of the audit Prosecutor General Yuri Chaika submitted to Prime Minister Vladimir Putin concrete proposals on additional regulation of venture activities, on enhancing the responsibility of federal officials for effective use of budget money. He also questioned the practicability of the company's continued operation in the context of the world financial crisis and budget spending cuts.
By Sergei Lavrentyev
