The other day it became known that a top suspect in the $5.5 billion fraud case of PrivatBank, former Chief Executive Officer Oleksandr Dubilet, is almost guaranteed to escape punishment.
He moved to Israel and received Israeli citizenship. This country does not extradite its citizens. As it was proved by the case of one of the fugitives of the Viktor Yanukovych era, former Energy Minister Eduard Stavytsky, who changed his last name to Rosenberg in Israel, Israel will not investigate crimes committed in Ukraine. Therefore, moving to Israel is an almost guaranteed ticket to freedom, no matter how corrupt the immigrant may be.
The fact that Dubilet lives with a new passport in Israel almost certainly breaks the chain of the PrivatBank case investigation. After all, only Dubilet could testify against the former owner of the bank, Ihor Kolomoisky, who communicated with him as his trusted person. And the embezzlement of $5.5 billion, including the $4.8 million that was siphoned from the bank the day before it was nationalized in 2016 — none of that could have taken place without communication between Dubilet and Kolomoisky.
This is a disappointing intermediate result in the history of the most high-profile banking fraud that ever happened in Ukraine, when the investigation can reach only the executors of the corrupt
schemes, leaving their architects unpunished. The history of PrivatBank is typical not only because the key participant managed to escape charges. In general, it shows that the banking
sector of Ukraine has been a pasture for top-level corruption for decades. Money was stolen under schemes implemented not in dusty factories, but in air-conditioned offices of business centers.
This is a marathon of 30 years when hundreds of banks became insolvent in Ukraine, and in their place, like mushrooms, new ones appeared, and no one was punished for it.
Ukraine’s free-floating exchange rate since the global financial crisis of 2008 has meant a decline in the value of the hryvnia to the dollar — from 5 to roughly 28 today. Ukraine’s currency was introduced in 1996 at 1.8 to the dollar.
First one to fall
The first high-profile bankruptcy took place in Ukraine Bank, which went under in the early 2000s.
The building of the bank now houses the central office of the Justice Ministry, and only the sculptures of cows in the garden remind us that an agrarian bank was once located here.
Ukraine Bank was liquidated in the same way as PrivatBank, under pressure from the International Monetary Fund, which realized that the black hole in the bank’s ledgers was becoming too large and capable of infecting the country’s entire financial body. Ukraine Bank obediently loaned money at the request of top officials, who defaulted. One of such cases almost cost the job of the
then-Deputy Chairman of the Board and future president of Ukraine — Viktor Yushchenko.
The bank lost $25 million. It transferred 2 billion rubles to Russia, but never received the equivalent in dollars. Before the transaction, the then-head of Ukraine Bank, Vadym Hetman, instructed young subordinates to handle it — Ihor Mityukov, head of the international settlements department, and Yushchenko, the bank’s deputy head. In the future, Mityukov became finance minister, and Yushchenko — the head of the National Bank of Ukraine, the prime minister, and eventually president.
Many years later, when the case was under investigation, prosecutors charged some business people who had already fled Ukraine for Russia. At the same time, the investigator pointed out that the crimes committed by them became possible “due to the negligence of officials of the Ukraine Bank.”
The case against Yushchenko was closed as the statute of limitations had expired. And only when he became president, it was closed again under new circumstances, fully rehabilitating him. The story of Ukraine Bank is the answer to the question of why Ukrainian banks collapse: because of impunity and their use in fraudulent and political schemes.
Ukraine Bank will emerge in Yushchenko’s life once more. When Yushchenko joined the opposition, another politician, Yuriy Lutsenko, reportedly spread damaging materials against Yushchenko.
Political consultant Ihor Shuvalov said in an interview that he witnessed Lutsenko sell documents that allegedly showed that Yushchenko paid for his daughter’s education with the money of the
Ukraine Bank. The buyer was a political technologist who at the time worked for Viktor Medvedchuk, a pro-Russian Ukrainian politician.
Messages by the Kyiv Post to Lutsenko and his assistant, Larisa Sarhan, went unanswered.
Ukraine’s nominal gross domestic product peaked at $183.5 billion in 2013 and went into sharp decline before returning to growth in 2016. A COVID-19 pandemic-induced recession hit again in 2020, but the economy is expected to grow 4% in 2021.
Gradobank
Another high-profile history of insolvency in the first years of independence related to Gradobank, which was used by the German government to pay compensation to gastarbeiters (temporary
labor migrants). The head of the bank, Viktor Zherdytsky, was accused of embezzling money and was a r r e s t e d twice and eventually acquitted, both times in Germany.
As a result of this bankruptcy, Ukraine was left with a collection of 735 paintings by both classical and contemporary artists, from Mykola Pymonenko to Anatoliy Kryvolap. It was collateral for the loan agreement, and, as it became known later, some of the paintings disappeared—those that were stored in bank Veles. I mention this name because Veles Bank later became yet another symbol of fraud. At that time, the bank already had a new owner — a lawmaker from the Yulia Tymoshenko’s faction Batkivshyna — Kostyantyn Bondarev.
In 2015, the National Bank headed by Valeria Gontareva cleaned the market of phantom banks and discovered a strange transaction. Through this bank, Bondarev tried to withdraw from Ukraine almost half a billion dollars on fictitious documents, ostensibly to repay the debt abroad. When the NBU began an inspection, it turned out that the entire documentary database was forged as well as the source, the residence permit and property documents.
The money was to be transferred to a company with an office in Latvia, which was founded by a Chinese citizen. And the money was transferred by a person who collected this amount as if selling some property to a company that was established by a combined harvester operator from Kharkiv Oblast.
This was pure fiction. As a result, when the National Bank decided to liquidate Veles, they could not even find it: the bank terminated the lease agreement and left with all the equipment, servers, and documents.
There are many stories that are similar. Another example recently discovered by the Security Service of Ukraine was Misto Bank. The management of the bank falsified financial documents to hide insolvency when reporting to the National Bank to get loans.
In the report, they claimed ownership of the soybean processing plant which accounted for 13.7% of the bank’s total assets. Receiving inaccurate data, the NBU issued loans to the bank to maintain liquidity.
Another example of avoiding liability is how Mykhailivsky Bank collected money from depositors by misleading them. People thought that their deposits were protected by the Deposit Guarantee Fund because all the documents were processed at the bank’s premises. But it turned out that the other party to the agreements was not the bank, but companies with names designed to deceive inattentive customers. And, unlike deposits in banks, their deposits were not guaranteed.
To save the deceived investors, parliament had to pass a special law. But, in the end, the owner of the bank, Viktor Polishchuk, escaped punishment.
When his fraud was exposed, he claimed that he had allegedly sold the bank before it went bankrupt.
Since there were 11 fictitious new owners, each had a share of less than 10 percent, and by law, it was not necessary to apply for approval to the National Bank. This made it possible to feed the legend of the backdating sale of the bank.
The National Bank did not believe Polishchuk’s legend yet he did not receive any punishment. Ukraine’s State Bureau of Investigations only focused on his top managers, who received suspicions. Polishchuk himself was part of former President Petro Poroshenko’s entourage and negotiated the purchase of Channel 112 before Viktor Medvedchuk bought the media outlet.
However, in addition to clearing the market of phantom banks, there were also opposite cases — when banks that were mostly well were destroyed as a result of political vendetta.
That was the case with Forum Bank that was declared bankrupt in the spring of 2014 which was doing well financially. The reason for the destruction of Forum could have been the hostile attitude of Poroshenko to the owner of the bank Vadym Novinsky. A video of their heated quarrel in 2014 is a hit on YouTube. Poroshenko’s ally Stepan Kubiv, who was in charge of the National Bank at the time of Forum’s destruction, had worked in the banking sector for many years, but, according to media reports, had not earned the best reputation there.
Real reform began after the release of Kubiv and the appointment of Gontareva. Its market cleansing still provides an opportunity to talk about the banking sector in positive terms. This is a question for law enforcement and courts, which have ensured impunity for many scammers, either by turning a blind eye to their abuse or allowing them to enjoy freedom in Vienna, as happened with the owner of several banks, agrarian oligarch Oleg Bakhmatyuk.
