Embezzlement investigation at Ukraine’s most-troubled bank finally gains momentum, but is it too late?
By the time Ukraine’s notoriously slow-footed law enforcers got around to issuing an arrest warrant, former Nadra Bank chairman Igor Gilenko was nowhere to be found – and possibly up to $1 billion was missing.
It took Ukraine’s General Prosecutor Oleksandr Medvedko until Oct. 9 to announce that an arrest warrant on embezzlement charges had been issued against the former Nadra Bank chairman and president. Medvedko also said other former top bank managers are also being sought as accomplices. However, Medvedko didn’t name them. He also would not say how many were involved or what role they are suspected to have played in the fraud.
The warning signs of Nadra Bank’s financial collapse came as early as last fall and accusations of wrongdoing came soon after. Nonetheless, despite the bank’s opaque ownership structure and hints of shady dealings, the National Bank of Ukraine lent Nadra Bank Hr 7.2 billion (nearly $1 billion) from October through December 2008.
The NBU’s $13 billion bank refinancing program was made possible, in part, by some $11 billion in loans from the International Monetary Fund. That, of course, means that Ukraine’s beleaguered taxpayers will ultimately have to cover the cost of whatever money was embezzled.
The whole sordid chain of events raises many unanswered questions: Why does the IMF lend money to a nation whose leadership cannot properly manage it? Why did the NBU ignore the red flags and lend Nadra Bank money? Why did it take so long for law enforcers to issue an arrest warrant? Who is in on the alleged scam with Gilenko? Top government or central bank officials? Who truly owned Nadra Bank? How many more fraudulent Nadras or crooked bankers are out there?
“We are looking at documents and other records which can be used as evidence,” Medvedko said.
Gilenko, a Russian citizen, chaired Nadra Bank from July 1997 until Feb. 10, when the NBU took over and placed the bank under a temporary administrator.
Nadra Bank received $214 million in refinancing from the NBU in October to pay foreign creditors, an amount that would eventually rise to roughly $1 billion by December, after billionaire Dmytro Firtash on Nov. 18 guaranteed Hr 4 billion in collateral on bank loans. Firtash expressed interest in buying the ailing bank, but backed out earlier this year and the extent of his current involvement is unclear.
“I gave a personal guarantee for Hr 5 billion [for Nadra Bank to receive NBU],” Firtash said on Jan. 17, during an appearance on Inter TV, the nation’s most-watched television channel. “Bank Nadra has four million account holders. If the bank had failed, the country’s entire banking system would have frozen up.”
The bank used more than half of the NBU money to buy hard currency at the official lower rate and re-sell it on the commercial exchange at a higher rate. The remainder went to making new loans (Hr 2.1 billion) and paying off creditors (Hr 700 million).
Those new loans are viewed with suspicion and are part of the criminal investigation into embezzlement. Two criminal cases were opened in August involving companies which obtained Nadra Bank loans on the basis of inflated collateral.
KLO Ltd. received Hr 173 million for the construction of a cottage town in Kyiv’s Makariv district. Collateral for the loan included 36 plots of land on 57 hectares, listed as 10 times more than it was worth, investigators said. A second company, Nait, borrowed Hr 211 million backed by collateral with six to seven times its true worth.
Gilenko and Nadra vice president Olena Logoshnyak approved the loans. Both companies, reportedly controlled by businessman and former lawmaker Ihor Yeremeyev, were liquidated by Dnipropetrovsk Economic Court on May 14 without repayment of the loans. Law enforcement is investigating dozens of similar loan schemes at Nadra and other commercial banks.
If Gilenko and his accomplices are caught and convicted, they could face up to 12 years in prison. The chances of catching Gilenko are slim. The 43-year-old banker and his former colleagues have not been seen in Ukraine this year.
The NBU-appointed administrator of the bank, Valentyna Zhukovska, said on Sept. 29 that Nadra had turned over all documents relating to NBU refinancing to police investigators, prosecutors and the State Security Service. “There is nothing about the bank not known to law-enforcement agencies,” Zhukovska said in June.
Nadra Bank was regarded as one of Ukraine’s most successful banks in September 2008. It was the nation’s sixth-largest bank then, with total assets of Hr 26 billion, Hr 10 billion in individual deposits and Hr 6 billion in corporate deposits. The bank, which in 2007 spent $50 million on rebranding, employed 9,000 people with 700 branches nationwide.
Bank owners as of Sept. 1, 2008, included Gilenko (33.4 percent), Serhiy Lagur (33.7 percent), Vadim Pyatov (19.6 percent), investment funds (7.8 percent) and bank employees (5.1 percent). Lagur and Pyatov are reportedly proxy owners for Yeremeyev and businessman Vadim Segal, respectively. The Kyiv Post contacted both Yeremeyev and Segal, who refused comment, as did the DF Group. The Kyiv Post was not able to contact Pyatov or Lagur.
Ukraine’s Accounting Chamber, the Association of Ukrainian Banks, and an ad hoc parliament investigative committee have all criticized how the NBU injected liquidity into some of the nation’s 170 commercial banks, many tottering from bad loans.
As early as Dec. 18, Prime Minister Yulia Tymoshenko had seen enough and started blowing the whistle.
“A handful of people under the protection of the president [Victor Yushchenko], the NBU chairman [Volodymyr Stelmakh] and artificial banks are making fortunes worth billions,” Tymoshenko said then. “Nearly one fifth of the [NBU] money was channeled to a bankrupt bank [Nadra].”
Yushchenko, Stelmakh and the central bank have denied wrongdoing and accuse Tymoshenko of destabilizing the bank sector by spreading false accusations.
Tymoshenko wants to nationalize Nadra Bank by year’s end, but the government is facing a multi-billion dollar price tag to clean up the mess. Nadra has a $2.6 billion loan portfolio, a big chunk of which may be fraudulent and never recovered; it has $1 billion in external debt; and it owes depositors $1 billion. Moreover, the NBU says the bank needs an additional $1 billion.
In an unprecedented and bizarre twist to the scandal, Nadra Bank on Oct. 8 published a list of all individuals and corporate entities who allegedly owe the bank money. The bank defended the posting of these debtors on its official website, but customers denounced the move as an illegal invasion of privacy.
The list includes thousands of individuals and 286 corporate clients. Individual account holders owe the bank Hr 1.5 billion, while businesses owe Hr 658 million and big corporate clients owe Hr 6.4 billion, according to the list.
According to Nadra, the largest group of corporate debtors, some 22 companies, are associated with Segal’s brother, Ilya. Next are 11 companies which the bank linked to Yeremeyev. The list also includes the Lutsk-based Femida-Inter company, which produces and exports juices, canned vegetables and fruits to Western European countries.
Femida-Inter deputy director Yuriy Pyrozhkov told the Kyiv Post on Oct. 15 that Nadra Bank has failed to abide by the conditions of its 13 million euro loan agreement, which was to have been paid in tranches. “We received two tranches of the loan. And then nothing,” Pyrozhkov said. “Nadra called on New Year’s Eve and said we could receive the 3rd 300,000 euro tranche in January, but they failed to pay.”
Pyrozhkov said Kyiv’s Economic Court ruled that his company has to repay Hr 72 million it received over the next two years. He added that listing his company among Nadra’s debtors on its official website is a violation of banking confidentiality laws. Lyubomyr Drozdovskiy, lawyer at D&U Partners law firm, told the Kyiv Post on Oct. 12 that Nadra Bank has no legal basis for its action.
“Making public information about clients is a violation of banking secrecy laws,” Drozdovskiy said. Credit histories can be made public only after receiving the written agreement. I expect individuals and companies appearing on the list will sue Nadra Bank.”
Yaroslav Stetsin, a financial expert at Astrum Investment Management, told the Kyiv Post on Oct. 15 that he wasn’t surprised by Nadra Bank’s collapse into disgrace and insolvency despite the nearly $1 billion in NBU assistance.
“The problem is that no one at the NBU tracked how Nadra spent the refinancing money,” Stetsin said. “There was no follow-up until it was too late.”
