Ukraine opens criminal cases for Privatbank insolvency

Ukraine’s prosecutor general office has opened
criminal cases to investigate Privatbank (PRBANK) being driven to insolvency,
the bank’s CEO Oleksandr Shlapak reported on July 4. Law enforcement agencies
are investigating the bank’s issuance in fall 2016 of UAH 133 bln in loans to 36
companies that used the funds to repay the loans taken by other borrowers
before. The new borrowers were empty shell companies, Shalpak said. These loans
were a part of a total of UAH 198 bln of the bank’s loan portfolio to related
parties, he said.

A day before, Ukraine’s Prime Minister Volodymyr
Groysman commented on a TV show that the former owners of Privatbank took
obligations to return some of the borrowed money to the bank by July 1. “If the
obligations are not fulfilled, and the National Bank confirms that, then comes
the criminal responsibility,” he said.

Recall, Privatbank was recognized insolvent on Dec.
18, and was nationalized on Dec. 21. On Dec. 16, the key owners of the bank,
Igor Kolomoisky and Gennadiy Bogolyubov, signed a letter to the prime minister
asking to nationalize the bank and promising to ensure the restructuring of
related party loans by July 1, 2017.

Alexander
Paraschiy: We found no legislation that allows anybody to avoid
criminal charges for driving a bank to insolvency on the condition that they
return any of the money to the bank. Indeed any reasonable standards of rule of
law would not make criminal persecution conditional on the amount of money that
the former Privatbank shareholders may or may not return. In other words, the
government’s behavior looks like blackmail, and a weak attempt at that.

Such disturbing politics make sense when taking into
account the amount of money that the government alleges was stolen (UAH 198
bln, or USD 7.3 bln), as well the chance for the partial return of such funds.
But given the weak history of rule of law in Ukraine, particularly when it
comes to the oligarchs, we do not believe in the return of any significant
portion of the funds, and we do not believe the government will prosecute
anybody in this story. That’s largely because the state bodies have already
made a lot of legal and procedural mistakes in this process that preclude any
successful legal action.