Friday, October 30, 2020

Oligarchs Weaponized Cyprus Branch of Ukraine’s Largest Bank to Send $5.5 Billion Abroad

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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.

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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.

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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.

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