From the Organized Crime and Corruption Reporting Project, April 19:
The former chairwoman of Ukraine’s central bank dubbed it one of the biggest financial scandals of the 21st century.
Valeria Hontareva was describing the alleged theft of US$5.5 billion from PrivatBank, once the country’s largest commercial lender. The suspected masterminds are the bank’s two oligarch owners: Ihor Kolomoisky and Hennadiy Boholiubov, who stand accused of absconding with an amount roughly equal to 5 percent of the country’s gross domestic product. According to court records, both men are said to have recently been living in Switzerland, though Kolomoisky appears to be spending time in Israel.
“Large-scale coordinated fraudulent actions of the bank shareholders and management caused a loss to the state of at least $5.5 billion,” Hontareva said in March 2018. “This is 33 percent of the population’s deposits … [and] 40 percent of our country’s monetary base.”
Now, for the first time, OCCRP has traced the mechanism that appears to have allowed Kolomoisky and Boholiubov to funnel such vast wealth out of Ukraine: The money was moved through a PrivatBank subsidiary in Cyprus.
The arrangement helped hide the fact that cash was disappearing because the National Bank of Ukraine treated the Cyprus branch of PrivatBank the same as it would domestic branches. This designation meant officials never detected that cash transferred to Cyprus was leaving Ukraine.
Meanwhile, Cypriot regulators either failed to detect that the various bank transfers totalling $5.5 billion were backed by bogus contracts, or didn’t take the necessary action to stop them.
The system allowed billions of dollars to be pumped through the PrivatBank accounts, which were held in Cyprus by offshore companies.
This account is based on a forensic audit by Kroll, the U.S.-based corporate investigation and risk consulting firm. The report, which is based on PrivatBank’s own records and was obtained exclusively by OCCRP, also reveals that there was little distinction between Kolomoisky and Boholiubov’s corporate and personal accounts.
Ukraine nationalized PrivatBank in December 2016, saddling taxpayers with a $5.9 billion bailout. The nationalization was widely supported by the international community, including the IMF, the European Union, and the United States, which called it a “milestone in economic reform and the fight against corruption.”
Kolomoisky has said he wants $2 billion in PrivatBank capital returned to him. And on April 19, a Kyiv court ruled PrivatBank’s nationalization unlawful, deciding in favor of the oligarch and setting the stage for a prolonged legal battle.
In a letter circulated to the media by Kolomoisky’s Swiss office, the oligarch refuted allegations by the National Bank of Ukraine that Privatbank had engaged in fraudulent lending practices.
“I categorically deny the allegations made by the National Bank of Ukraine,” Kolomoisky said, adding that regulators had all the access they needed to monitor his bank’s activities. He painted the authorities’ nationalization of his lending business as an asset grab.
“Management of the [Ukrainian central bank] had as its main purpose not the support of the country’s largest bank, but its nationalization and the expropriation of the assets provided as security, together with the persecution and pressuring of the former shareholders,” Kolomoisky said.
Boholiubov declined to speak on the record.
The new revelations about how the scheme worked emerge just as Kolomoisky stands to increase his already considerable influence in Ukraine through the country’s presidential election. A candidate favoured by the oligarch — Volodymyr Zelenskiy, a comedian who appears on his television channel 1+1 — won the first round of the election, which may determine whether the country continues its already shaky course of anti-corruption reforms. Zelenskiy will now face off against President Poroshenko in the final round.
An independent analysis funded by the Council of Europe and published Feb. 18 shows that Kolomoisky’s 1+1 channel overwhelmingly favors Zelenskiy in its news coverage. On March 30, the day before the first round of the elections — which by law should be free of campaigning — the channel was scheduled to broadcast 7.5 hours of Zelenskiy’s programs.
The candidate has disputed that he owes Kolomoisky anything.
“He is my business partner, not my boss,” Zelenskiy said in an interview.
Accounting Tricks
Privatbank launched its Cyprus operation in the late 1990s. No other Ukrainian lender is known ever to have received permission from the National Bank of Ukraine to open an overseas branch.
The head of the National Bank of Ukraine, Yakiv Smolii, said PrivatBank’s Cyprus office didn’t materially differ from the lender’s branches in Ukrainian cities such as Kharkiv or Lutsk, so cash being funnelled there didn’t trigger any regulatory action. Ukrainian officials did nothing to stop the money from leaving the country. (Smolii spoke to OCCRP in his capacity as co-author of the book “Private Story: The Rise and Fall of Ukraine’s Largest Private Bank.”).......MUCH MORE
