There have been 30,000 criminal proceedings which, in one way or another, relate to PrivatBank, the state’s largest financial institution nationalized in 2016 after losses by its previous owners, Ihor Kolomoisky and Hennady Boholyubov, forced a $5.5 billion taxpayer bailout.
Two-thirds of those cases – 20,000 – were already closed. Another 700 of those under investigation relate to crimes in office. And 40 are particularly relevant and high-profile.
Probably the most high-profile criminal proceeding on the grounds of embezzlement of the bank’s property was initiated back in 2017.
And since 2019 the investigation has been carried out by National Anti-Corruption Bureau of Ukraine detectives.
However, until 2021, not all necessary investigative and procedural actions were taken to confirm the fact of crime and determine damages, in particular: temporary access to all necessary documents of PrivatBank relating to the committed criminal offense; conducting repeated forensic economic examination; conducting computer and technical examination of the electronic document management system of the bank; conducting a handwriting analysis of the signature made on behalf of the potential suspect and other participants in the criminal offense; interrogations of the bank’s employees regarding the preparation, execution, approval, and signing of documents that became the basis for illegal embezzlement of the bank’s funds; interrogations of all members of the credit committee of PrivatBank on the circumstances of decision-making at their meetings.
Embezzlement plan by bank’s former top officials
Large-scale transactions with the funds of the largest bank in Ukraine took place just before its nationalization.
While taking into account the position of the owners of the bank’s material share, as well as realizing that in the near future it would be declared insolvent and pass under state control, and realizing that in this regard they would lose control over PrivatBank funds, former top officials of the bank prepared and decided to implement a plan for embezzlement and withdrawal of funds from the bank.
So far, two episodes of criminal activity of the former top management related to embezzlement of the bank’s property for a total of over Hr 8.3 billion (nearly $300 million) have been revealed, and we have five suspects whose notifications of suspicion I personally approved.
Forensic investigation
I joined the team of prosecutors conducting procedural guidance in this criminal case on Jan. 11, 2021, and the next day I gave a number of instructions to detectives. On Jan. 18, I appointed a forensic economic examination, the results of which, with a proven loss in the first episode totaling Hr 136 million (nearly $5 million), we received in less than a month – on Feb. 13. And already on Feb. 22, I signed a notification of suspicion for three top managers of PrivatBank.
I can say with confidence that this result became possible only due to the coordinated and effective work of the Prosecutor General’s Office and NABU detectives. All our actions in this criminal proceeding were clearly coordinated, and through a synergy of efforts we managed to make significant progress in the investigation.
Episode I: Illegal accrual and payment of additional remuneration to an associated company in the amount of Hr 136 million (nearly $5 million)
It has been established that the former chairman of the board of PrivatBank, his first deputy and head of the financial management department, who also held the position of first deputy chairman of the board of a private insurance company, decided to withdraw bank funds before its nationalization, which happened on Dec. 19, 2016.
One of the ways to withdraw the funds was to accrue and pay an unreasonable additional remuneration (index-linked fee) under the pretext of an increase in the exchange rate of hryvnia against the U.S. dollar in the country in favor of a bank-associated legal entity under deposit agreements. The officials unreasonably accrued Hr 136 million (nearly $5 million) as remuneration, while knowing about the decision of the National Bank of Ukraine, which recognized this legal entity as associated with the bank and the fact that the establishment of any privileges for it that are not current market conditions is a violation of the law of Ukraine “On Banks and Banking.”
Creation and forgery of a letter on behalf of the bank
In December 2016, senior bank officials created a forged document – a letter dated allegedly Jan. 8, 2014, which was signed by the former chairman of the board and addressed to the associated insurance company, with a proposal to place a deposit on the terms of accrual and payment of additional income in the form of indexation, due to the growth of hryvnia against the US dollar during the period of placement of funds on the deposit account. Thus, they tried to create the appearance of a legal relationship allegedly since 2014 for the possibility to make further illegal payments.
Creation and forgery of the minutes of the credit committee
Subsequently, PrivatBank officials forged retroactively another document – the minutes of the bank’s credit committee dated Jan. 15, 2014, according to which the committee allegedly decided to apply accrual and payment of the indexed deposit fee to the client, i.e., the insurance company, without actually holding meetings of the credit committee and taking decisions on these issues. The final payment date was Dec. 16, 2016.
The decision on the accrual and payment of this indexed fee was also documented by bank officials in the fictitious minutes of the bank’s credit committee dated Dec. 16, 2016, the meeting of which did not actually take place.
Creation of additional agreements to deposit agreements
In order to create the appearance of legality of transactions, bank officials created additional agreements to deposit agreements with a related legal entity and approved the accrual and payment of remuneration in connection with the increase in the exchange rate of hryvnia against the dollar totaling Hr 136,892,264 (nearly $5 million), i.e. approved accrual and payment of remuneration in violation of the terms of the bank’s order “On the implementation of a new deposit with remuneration in connection with the increase in the exchange rate of hryvnia against the U.S. dollar.”
On Feb. 22, 2021, I approved the notification of suspicion of three former high-ranking officials of PrivatBank over the embezzlement of the bank’s property for a total amount of Hr 136 million. One of the suspects tried to leave Ukraine on a private jet that day, but thanks to the efforts of law enforcement officers, the aircraft was returned to the ground, and the former first deputy chairman of the board of the bank was apprehended. The circumstances of the leak of information about the procedural action, which was prepared in conditions of strict confidentiality, are currently being studied in the framework of an internal inspection by the General Inspectorate of the Prosecutor General’s Office.
The results of the expert examination concerning the second episode were ready on Feb. 19, 2021. I also made a number of written instructions to NABU detectives, and on March 15, I signed a notification of suspicion over the embezzlement of more than HR 8.2 billion. A notification of the previously notified suspicion over the embezzlement of HR 136 million was changed for the ex-chairman of the board due the revelation of an even larger scheme.
Episode ІІ – Unreasonable repayment of $315 million debt of two Swiss agri-traders to the European bank at the expense of PrivatBank money
The investigators established that the former chairman of the board of PrivatBank, in complicity with the former deputy chairman of the board of PrivatBank – head of the treasury, and the former head of the department of interbank transactions, as well as other officers of the Bank, embezzled the bank’s money by granting fictitious loans to the bank-related legal entity which was registered in the Virgin Islands at that moment, in the amount of
$315 million that equaled to Hr 8.2 billion.
Letters of the chairman of the board of PrivatBank
The former chairman of the board of PrivatBank sent two letters and SWIFT-notification to the Latvian bank during Dec. 16-19, 2016, asking to repay the current debt of two Swiss agri-traders to the Latvian bank, totaling $315 million, at the expense of money belonging to PrivatBank that were held on the correspondent account in the Latvian bank.
Moreover, the former chairman of the board of the bank specified in the SWIFT-notification that after repayment of debts under the letters of credit, the Latvian bank would have to inform the Swiss companies about the full repayment of their debt and to confirm that their debt was cancelled and that the agri-traders didn’t have any financial obligations anymore.
Legal documentation confirming debtor’s replacement
Upon order of the ex-chairman of the board, in order to cover up the embezzlement of the bank’s money, his former deputy – head of the Treasury, as well as the head of the department of interbank transactions of PrivatBank, ordered their subordinated bank officers to come to work during the days-off on Dec. 17 and 18, 2016, and instructed them to enter the necessary information into the databases of the bank regarding the replacement of the debtor and the transfer of the debt of two agri-traders to the bank-related company. All those actions were made without issuing any minutes by the credit committees or signing any loan contracts, and in violation of the law of Ukraine “On Banks and Banking.”
The bank’s top managers promised the bank officers to provide them with the supporting documentation later. However, they have only received a copy of forged minutes from the credit committee of PrivatBank.
Forgery of the minutes of the credit committee
The correspondence of the participants of the crime, which was confiscated during the investigation, shows that after the illegal write-off of the bank’s funds and after the nationalization of PrivatBank, namely from Dec. 27 to 30, 2016, they decided to give the transactions a legal form by amending the minutes of the bank’s credit committee for previous dates.
Upon my instructions, the investigation appointed and conducted a forensic computer and technical examination, which has established that the former top managers organized the inclusion in the minutes of the credit committee dated Oct. 24, 2016, of an additional item on the provision of a loan to a related company for the balance of debt in US dollars before the Latvian bank and other foreign banks for up to five years and attached the file on the justification of the debtor’s replacement, which was allegedly the basis for withdrawal and embezzlement of the bank’s funds in the amount of almost $315 million.
According to the evidence we received, the file was created only on Dec. 30, 2016, and on the same day was attached to the page with the October minutes. In addition, the examination confirmed a number of other facts that prove that the bank’s computer system was modified in order to conceal the crime.
At the moment, in total, we have five suspects in two episodes: chairman of the board; first deputy chairman of the board; deputy chairman of the board – head of the treasury; former head of the department of interbank transactions; former head of the department of financial management. The investigation is ongoing.
I am convinced that the National Anti-Corruption Bureau of Ukraine and the Special Anti-Corruption Prosecutor’s Office have taken a quite dynamic pace in this criminal proceeding, which was necessary for the case of PrivatBank for a long time since we are talking about the unprecedented documented amounts of losses for Ukraine.
Everyone involved in such a large-scale scheme should be revealed and punished, regardless of their status or surnames. We set such a goal for ourselves, and for this purpose, I became a prosecutor in this proceeding.
Iryna Venediktova is the prosecutor general of Ukraine. She took office in March 2020. She is a former acting head of the State Investigation Bureau and ex-chair of the Committee on Legal Policy of the Verkhovna Rada.
