Page 66 - BNE_magazine_12_2019 dec19

66 Opinion
bne December 2019
IMF ups the ante, demands government try to recover $15bn stolen from banks
Robert Homans in Los Angeles
The Wall Street Journal reported on November 5 that
in order for the IMF to approve a new standby loan agreement for Ukraine, Ukraine must comply with additional conditions, in addition to providing assurances that PrivatBank is not returned to Igor Kolomoisky, one of its former owners. Ukraine now needs to show the IMF that it is going after money stolen by the owners of approximately 100 Ukrainian banks, including PrivatBank.
The central bank (NBU) officials said in the interview that most of the $15bn was secreted out of the country through companies owned or controlled by shareholders, leaving ordinary depositors empty-handed.” Most of the 100 banks in question were either shut down by the NBU or, as in the case with PrivatBank, nationalised and continue to operate under NBU supervision with new management.
One of the ways that the former owners of PrivatBank took money out of Ukraine was via two wholly-owned branches, one in Latvia and the other in Cyprus, that were treated exactly like PrivatBank branches in Ukraine, plus they operated independently of Latvian and Cypriot banking regulations. Once in Cyprus and Latvia, both EU Member States, the money can enter the Western banking system and become very difficult to trace.
Although much of the $15bn may be un-recoverable, the IMF is correct to require Ukraine to actively try to recover money stolen by the former owners of these banks, and to make it
a condition for the extension of any new credit. The $5.5bn in un-collectible assets on PrivatBank’s balance sheet were funded by retail deposits belonging to ordinary Ukrainians, much of it guaranteed by Ukraine’s Deposit Guarantee Fund (similar to the FDIC in the US). The Deposit Guarantee Fund doesn’t have nearly enough money to satisfy all the guarantees. Perhaps
a review of the journal entries between PrivatBank/Ukraine and PrivatBank’s branches in Cyprus and Latvia, by qualified independent forensic accountants, would be a good place to start.
www.bne.eu
During the bank sector reforms over 100 banks were closed, but little has been done to recover the $15bn their former owners stole first
In addition to the $5.5bn that Kolomoisky stole from PrivatBank’s retail depositors, the IMF should insist that
NBU act against the personal guarantee that was extended
by Kolomoisky, in return for a $1.9bn bailout provided
to PrivatBank by the NBU a few months prior to the NBU nationalizing PrivatBank. In this matter, Kolomoisky’s defense as I understand it, is that his personal guarantee was issued
to the NBU under false pretences. That’s very hard for me
to believe. I’ve been in the commercial finance business for over 30 years. Personal guarantees that I have seen, and have used in my own transactions, clearly state the terms, the reason why the guarantor is giving the guarantee, and the remedies available to the beneficiary, in this case the NBU, if the guarantor doesn’t perform on his/her obligation. In other words, the defence that I understand Kolomoisky is putting forward is beyond ludicrous.
“Although much of the $15bn may be un-recoverable, the IMF is correct to require Ukraine to actively try to recover money stolen by the former owners of these banks”
The $15bn that the IMF wants Ukraine to at least attempt to recover is just one example of the neglect that Ukraine, under previous governments, has exhibited in recovering stolen assets from outside Ukraine, especially since the end of the Revolution of Dignity in the Spring of 2014. During this 5 1⁄2 year period, there has been little or no effort to recover funds belonging to associates of former President Yanukovich, that may be contained in accounts that were frozen, at Ukraine’s request, shortly after the end of the Revolution of Dignity. Two examples are in Latvia and Great Britain.