The Ukrainian government will now insure deposits given to some non-bank financial institutions after a Nov. 15 Verkhovna Rada vote following months of protests from defrauded depositors.
The law will mandate that Ukraine’s Deposit Guarantee Fund insure money deposited in non-financial institutions associated with a collapsing bank. Ukrainian law insures up to Hr 200,000 ($7,600) of a given deposit.
President Petro Poroshenko supported the law’s passage, meeting with depositors on Nov. 11 to herald the law’s submission. 285 deputies voted for the measure.
Most of the protests came from former clients of Bank ‘Mikhailivsky’ – a fast-growing bank that vacuumed up deposits via a scheme that saw money go not to the bank’s insured accounts, but rather to a separate financial institution associated with the bank.
To attract people to the scheme, Mikhailivsky offered sky-high annual growth rates of more than 25 percent, turning into one of Ukraine’s fastest-growing banks by assets in 2014.
The Ukrainian government has accused the bank’s management of using the deposits for insider lending, leading to Mihkailivsky’s collapse in May 2016.
At least 14,000 people lost more than Hr 1.2 billion ($45.7 million) in the scheme.
Immediately after the bank collapsed, many depositors attempted to recover deposits that they believed to be insured under Ukrainian law. But the country’s Deposit Guarantee Fund initially declined to insure the money, saying that depositors had inked agreements not with an insured bank, but with a separate financial institution.
The fraud led to months of protests in downtown Kyiv, with the Deposit Guarantee Fund agreeing to pay out money to separate groups of Mikhailivsky depositors.
The National Bank of Ukraine took over Mikhailivsky in May 2016, days after the bank’s former owner Viktor Polishchuk sold his share in the company that owned the bank. The NBU had placed a curator in the bank for nearly half a year to monitor activity at Mikhailivsky, but removed restrictions on the bank’s transactions in the months before its collapse.
In an interview with the Kyiv Post, Polishchuk denied any responsibility for the bank’s collapse or the deposit scheme. Instead, he blamed internal issues with the bank’s lending portfolio on Platinum Bank.
But elements of the Ukrainian government have kept up the pressure on Polishchuk. NBU Governor Valeriya Gontareva has called for the government to prosecute Polishchuk over the scheme. General Prosecutor Yury Lutsenko announced on Nov. 14 that Polishchuk’s stake in the Gulliver skyscraper had been frozen as part of an investigation into Mikhailivsky.
The specific bank fraud scheme that led parliament to alter deposit insurance legislation exists in other Ukrainian banks. Attorney Arsen Marinushkin, who represents defrauded Mikhailivsky clients, says that Privatbank runs a similar scheme under a service called “Profitable Investments.”
A Privatbank spokesman told the Kyiv Post in June that the service, which promises a 24 percent annual return, had already collected Hr 2 billion ($76.2 million) in deposits.
