Author: Nika Kratsashvili

The “National Bank of the Republic of South Ossetia” manages the banking system in the de facto Republic of the Tskhinvali Region. One of the commercial banks registered in the de facto republic has dubious ties with the Kremlin, which the latter adroitly uses for organizing economic relations with Ukraine’s separatist region of Donbas. The publication examines the functioning of the banking system, commercial banks in the Tskhinvali region, and their connections with Russia.

“National Bank”

The actual regulator of the banking activities in the Tskhinvali region is the so-called “National Bank” of the Republic of South Ossetia,” which is the main “state” bank in the region. The “National Bank” operates under the “legislation” and “constitution” of the Tskhinvali region and is “heading the banking system and carrying out monetary policy.”

Building of the “National Bank” in Tskhinvali. Source:  Sputnik 

The “National Bank” was established by a resolution of the so-called Supreme Council on May 7, 1992. The Bank’s activities were guided by the regulations and charter of the Central Bank of Russia. Later, the “National Bank” approved its own charter. In 1995, the “National Bank” received the status of a so-called legal entity and was accountable to the “Supreme Council” of the Tskhinvali region. Its functions included the development of the banking system of the Tskhinvali region, the organization of money circulation, monetary regulation and the implementation of foreign economic activities. In 2007, the “National Bank” introduced a system for supervision and inspection of commercial banks. On July 15, 2008, the Tskhinvali region adopted the “Law” on the “National Bank” in its current version.

Anniversary Coins

Since 2013, the “National Bank” has been entrusted with another function – the emission of banknotes and coins of a new type, as well as commemorative and investment coins. In 2014-2015, the Bank issued silver coins in honor of the poet Kosta Khetagurov, the 25th anniversary of the so-called Republic of South Ossetia, and the scientist Vasil Abayev. It is planned to issue four anniversary coins in 2021, and a coin dedicated to the 90th anniversary of the South Ossetia State University (the only university in the Tskhinvali region) in 2022.

Commemorative Coins Issued by the “National Bank”. Source:  Cominf.

Zolotaya Korona and Mir Cards

The Zolotaya Korona money transfer system has been operating in Russia, CIS and several other countries, including Georgia, since 2003. The “National Bank” of the Tskhinvali region issues and services Zolotaya Korona bank cards. The Bank seeks to create a convenient service infrastructure on the territory of the region and installs ATMs and terminals in trade and service enterprises. According to the “National Bank,” money can be deposited on the Zolotaya Korona card in any of its branches and the procedure of payment for purchases or services using the card takes no more than 4-5 seconds. 

At a parliamentary session in April 2021, the Head of the “National Bank”, Zhana Dzhioeva, said that work on the introduction of the Zolotaya Korona microprocessor cards continued in 2020. As she said, over 8,000 people have these cards and a total of 20 organizations pay salaries through this system in the Tskhinvali region. Dzhioeva also noted, that as planned, non-cash payments will be introduced in the Tskhinvali region.

According to Dzhioeva, the “National Bank” joined the Mir Russian payment system in 2019, and since then, its cards have been actively used by “citizens,” including pensioners having Russian citizenship and receiving Russian pensions.

The Zolotaya Korona card was the first card system in the Tskhinvali region. Even in 2019, the Chairman of the “National Bank” of that time, Felix Zaseev (2012-2020), announced the ongoing gradual replacement of the Korona cards with Mir cards.

Zolotaya Korona and Mir. Source:  Okchanger, Paymentscardsandmobile

A total of five organizations have been using the Mir system to pay salaries since 2020. “Budget agencies” are gradually moving to Mir. About 3,000 Mir cards were issued in the Tskhinvali region.

Interestingly, only USD and EUR currency conversions are available in the Tskhinvali region. Since the region uses RUB, the exchange rate depends on the exchange rate of the Central Bank of Russia.

Loans

The “National Bank” provides loans to the so-called state, commercial enterprises, and organizations. There is no obligation to issue loans to individuals; however, exceptions still apply to employees. The loan validity is three years.

According to Dzhioeva, against the background of the coronavirus pandemic restrictions in 2020, the slowdown in economic activity decreased the solvency and overdue debt on loans increased sharply. It was also noted that the limit of the reserve fund was RUB 120 million while the fund exceeded RUB 134 million.

ATMs

A total of 11 ATMs operate in the Tskhinvali region, eight of which are in Tskhinvali and three - in districts, Dzhioeva said. An additional ATM was installed in Kvaisa in June, and as planned, several ATMs will be added in Tskhinvali.

“International” Cooperation

In 2018, in Tskhinvali, the “National Bank” and the “Central Republican Bank” of the so-called Donetsk People's Republic signed an agreement on cooperation. The Tskhinvali region “recognized” the “independence” of the separatist republics of Donbas in 2014, and the friendship and cooperation agreements were signed with the “Donetsk People's Republic” (2017) and the “Luhansk People's Republic” (late 2018).

Commercial Banks in the Tskhinvali Region

According to the “National Bank”, a total of three commercial banks are “officially” registered in the Tskhinvali region:

1. “Joint Stock Savings Bank of the Republic of South Ossetia” („Акционерный сберегательный банк Республики Южная Осетия”);
2. “International Settlement Bank” („Международный Расчетный Банк“);
3. “Republican Development Bank”  („Республиканский Банк Развития“).

“Joint Stock Savings Bank of the Republic of South Ossetia”

“The Joint Stock Savings Bank of the Republic of South Ossetia” (“Sberbank”) was registered in the Tskhinvali region in 2006. It received a banking “license” in 2006 and 2013. Like the “National Bank”, the Sberbank’s address is Stalin st. 20, Tskhinvali. In 2019, the bank launched a website.

The bank’s “official” web page reads that it is a universal bank offering a wide range of banking products and services to its customers. The most important aspect is that the so-called State of South Ossetia, represented by the “National Bank”, is named as the founder and sole owner of the Joint Stock Savings Bank.

Joint Stock Savings Bank in Tskhinvali. Source: Sberbankuo

The Joint Stock Savings Bank participates in programs of the de facto government, including the program of providing loans to small and medium-sized businesses. It is noteworthy, that half of the Tskhinvali region population are customers of this bank.

The “National Bank”’s web page reads that the Chairman of the bank is Nodar Gazzaev; however, according to the bank’s web page, the Chairman of the Board is Zhana Dzhioeva, who has been the Chairman of the “National Bank” since 2020 onwards.

“International Settlement Bank”

According to the “National Bank”, the “International Settlement Bank” was registered in the Tskhinvali region on May 15, 2015, and received a banking license on the same day. Vasily Shadyan is the Chairman of the Board of the bank. Like the “National Bank” and the Joint Stock Savings Bank, its address is Stalin st. 20, Tskhinvali. The Bank’s office is on the second floor of the same building where the “National Bank” and the Joint Stock Savings Bank are located.

Stalin st. 20, Tskhinvali. Source: Yandex.ru

According to a representative of the bank, Oleg Dzgoyev, “two beneficiaries” established the International Settlement Bank in Tskhinvali. Its capital totalled RUB 60 million by 2018. In an interview with a Meduza representative, Dzgoyev stated that the bank's annual turnover was less than RUB one billion. Since finances are circulated through the Internet, the presence of bank customers in Tskhinvali is not necessary, Dzgoyev said.

It should be noted that the International Settlement Bank which paid over RUB 33 million rubles in taxes was one of the largest tax-payers to the budget of the Tskhinvali region in 2020.

According to journalistic investigations by Meduza in October 2018 and the Washington Post in November 2018, the International Settlement Bank was set up to implement the black money scam.

Since Russia did not formally recognize the separatist “republics” of Ukraine, trading with them through banking operations would have led the Kremlin to a clear violation of the Minsk agreement and Western sanctions. Moscow had to find a bypass to trade with the separatist republics. Reportedly, Tskhinvali, on the instructions of Russia, “recognized” the “People's Republics” of Donetsk and Luhansk in 2014. Consequently, the region was enabled to overtly establish banking ties with the breakaway regions of Ukraine. Russia recognized the “independence” of the Tskhinvali region back in 2008 and thus can openly conduct banking transactions with Tskhinvali. So was the “financial triangle” created.

Through the International Settlement Bank, the “Republics” of Donetsk and Luhansk buy fuel, food, and construction materials for their population of roughly three million and sell their products to Russia. Mainly, products are transported by trucks.

Financial Triangle between Donbas, the Tskhinvali Region and Russia. Source: Spektr or Washington Post

After Ukraine imposed a banking blockade on Donetsk and Luhansk, the “republics” registered over 200 companies in the Tskhinvali region. At the request of Russia, these companies were to be subject to a special tax regime in the Tskhinvali region. The companies pay 1% of the profit to the “budget” of the Tskhinvali region, which totalled RUB 20 million in 2017.

Vneshtorgservice, the largest industrial company of the Donbas region, is registered in Tskhinvali. It should be noted that in 2015 an office of the International Settlement Bank was opened in Luhansk in the building of the so-called Luhansk Central Republican Bank.

In September 2018, the International Settlement Bank became one of the two banks in the so-called Donetsk People's Republic which was granted the right to operate there.

In 2020, the Security Service of Ukraine reported that Russia was financing the Donbas separatists through Tskhinvali with RUB 30 billion.

It should be noted that the International Settlement Bank is actively involved in charitable activities and promotes sports in the Tskhinvali region. The bank pays special attention to orphans and gives them financial gifts after graduation. Vasily Shadyan, the Chairman of the Board of the bank, often appears at public events. In 2021, the bank financed prom outfits for 58 graduates. As the bank reports, it has been following the tradition since its establishment in 2015 and the funds for charitable purposes are increasing every year.

“Republican Development Bank”

“The Republican Development Bank” (“Республиканский Банк Развития”) was registered in the Tskhinvali region in 2015 and received a banking license the same year. The web page of the “National Bank” lists Batraz Dzhioev as the Chairman, and as address - Heroes st. 3, Tskhinvali.

In 2018, the “National Bank” revoked the Republican Development Bank’s “license” to carry out banking operations. This decision was made as the bank failed to comply with the “republican laws” regulating banking activities and consequently, avoid the decrease in the amount of its own funds below the minimum value of the authorized capital.

It is also stated that despite the supervision of the “National Bank”, the owners and management did not take effective measures, which led to the suspension of the powers of the executive bodies and the termination of the activities of the bank.

Banks in the Tskhinvali region. Source: Bank-Ossetia, Sberbankruo, Spektr