Farewell to the Godfather of Kremlin Banking

Not many people beyond the world of finance have heard the name Viktor Gerashchenko. Yet his work as a central banker was absolutely critical to the underpinnings of the Soviet economy and the Russian kleptocracy that succeeded it, and that remains critical to Putin and his elite to this day. 

The passing of the 87-year-old on May 11 triggered a wave of nostalgia among Russian economists, bankers, and officials who once preached liberal, pro-Western ideas. “I have known him since 1991, when I was a member of a group of experts under President Boris Yeltsin . . . Gerashenko saved the country, in fact,” said Mikhail Delyagin, a member of the Duma these days now known for his closeness to the Kremlin and revanchist views.  

The importance of the former head of both the Soviet and Russian central banks to his native Russia may be judged from his nickname of Hercules (in Russian, Gerakl, reminiscent of his shortened name), the foremost hero of the Ancient Greeks. 

A professional banker from a family of the Soviet elite — his father was the first deputy chief of the Soviet State Bank under Stalin — Gerashchenko managed to lead the central bank four times. A former Soviet dignitary, who once was a member of the Central Committee of the Communist Party, he built a successful career in new Russia as it adjusted to the unfamiliar world of free markets.  

Bulky and bald, his face defined by oversized tinted glasses, he looked like a relic of the Soviet past even in the 1990s. But his looks were deceiving. Gerashchenko was never afraid of using radical economic methods such as exchanging old Soviet banknotes for the new ones — thereby freezing all accounts and depriving much of the population of their savings in 1991.  

Having spent most of his life in international banking and many years abroad, he didn’t hesitate to join the ultranationalist and anti-migrant party Rodina (Motherland) and agree to play a spoiler during the presidential election, simply because the Kremlin asked him.  

He didn’t hesitate to admit this either, betraying an admirable candor, even if it also showed an astonishing absence of political and moral principles. Indeed, it may be that this amorality was precisely what aided his ascent. 

Gerashenko was probably the most prominent example of a curious type: a bureaucrat who became a banker in a country where entrepreneurship and non-state banking were either banned or non-existent. 

During the Cold War, working in this field meant working abroad, providing some of the most sensitive services to the regime in Moscow — from selling natural resources to the West and buying grain there to funding friendly Communist parties and “independence movements” around the world. 

To carry out these operations, the Soviet Union maintained a large network of state-owned foreign banks (known as sovzagranbanki) spanning cities from London to Singapore, and Tehran to Paris and Zurich. The oldest and most prominent of these was the Moscow Narodny Bank in London, opened in 1919 after the Soviet government nationalized a pre-revolutionary Russian bank.  

Gerashenko was appointed a director at the London bank in 1965 when he was 28 years old. By then, six years had passed since Soviet foreign banks had received a new mandate: to conduct operations that would be untraceable by American financial authorities — “to make Soviet dollar transactions impenetrable for the US government,” as one senior Russian banker told us. 

In the system of Soviet banks abroad, the KGB was always around the corner — when the UK government moved to expel 105 Soviet spies from the country in 1971, employees of the bank were among those deported (indicating the British authorities had a good idea of those institutions’ real purpose). 

In London, Gerashenko proved himself a capable specialist, and within a few years, he was transferred to head the bank’s operations in Beirut, Lebanon. There, he met Evgeny Primakov, the future head of Russian intelligence and later Russian prime minister, who was later to prove a key contact. Beirut was a key staging ground for Soviet intelligence careers, in part because the KGB concentrated its efforts there on recruiting Americans. 

After Beirut, Gerashenko continued moving through the worldwide archipelago of Soviet banks abroad, with assignments in West Germany, then in Singapore, before returning to Moscow in the mid-1980s. He eventually became head of Gosbank (the predecessor to Russia’s Central Bank) during the final years of the Soviet Union. 

By this point, Gerashenko had an enviable resume. He knew something about the financial system of the non-Soviet world, while he was also a trusted insider, being privy to the most sensitive part — the secret flows of money in and out of a still largely closed Soviet system. He became the supervisor of the system of Soviet banks abroad. Those banks provided services crucial to Moscow — for instance, the bank in Zurich oversaw the sale of Soviet gold ingots (transported under the seats of Aeroflot planes) and diamonds.  

One might have expected that with the collapse of the Soviet regime in 1991, things would have changed in the new, capitalist Russia — surely when it came to banking. Not quite.  

The first director of Russia’s Central Bank chosen by Boris Yeltsin was Georgy Matyukhin, a former officer of the First Chief Directorate of the KGB (foreign intelligence), with a background in Soviet banking. He had also been a student of Gerashenko’s father.  

The foreign intelligence directorate, now a separate agency called the SVR, was handed to Evgeny Primakov — Gerashenko’s old acquaintance — who would replace Matyukhin in 1992. All of them came from the same system, where the KGB was always not far away, just around the corner. And when, at one point, Gerashenko lost his position, he got it back when Primakov became prime minister. 

It was no surprise that from that time on, Russia’s banking sector was largely supervised by foreign intelligence. Although Russian bankers were never fond of the KGB, they accepted the continuation of the relationship — mostly because they believed they could always outsmart the spy agency and its successors.   

In the end, Putin proved them wrong. 

As it happens, the most sensitive elements of the Soviet banking system — including the sovzagranbanki — survived the 1990s and 2000s, albeit under changed names and ownership structures. And they came in handy when Russia was deluged by an avalanche of Western sanctions following the annexation of Crimea and then the full-scale invasion of Ukraine. For example, Gazprombank Switzerland, the direct successor to the Zurich bank once used to sell Soviet gold and diamonds, was used to process Russian gas payments from Europe, until it decided to stop its operations in late 2022.  

The mentality the KGB  brought into the banking system seems to have endured as well. 

Russian financiers, accustomed to aligning with the regime and its repressive agencies, chose to support the regime at war — not necessarily out of loyalty, but because they knew no different.  

Andrei Soldatov and Irina Borogan are Non-resident Senior Fellows with the Center for European Policy Analysis (CEPA). They are Russian investigative journalists and co-founders of Agentura.ru, a watchdog of Russian secret service activities.  

Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.