The word “chutzpah” is often defined with an anecdote: A man murders his parents and then begs for mercy in court because he is an orphan.
By that standard, Oleg Bakhmatyuk has chutzpah.
The Ukrainian agricultural tycoon is a suspect in a case of large-scale embezzlement. After the Ukrainian government took control of two insolvent banks he owned, he now owes the state more than $1 billion, according to the country’s central bank.
But Bakhmatyuk is convinced that Ukrainian authorities should not prosecute him. Rather, they should sit down and cooperate with him to return as much money as possible.
That choice — prosecute or negotiate — defines Ukraine’s struggle to combat corruption in the banking sector. Since 2014, it has nationalized half of its banks. These financial institutions, often deeply corrupt and wildly undercapitalized, have cost the country $20 billion, according to the central bank’s former governor.
So far, Ukraine has prosecuted no one. Instead, it has chosen the path of negotiation, attempting to save the banks and later trying to sell off their distressed assets to whoever pays the most money — often related parties.
Now, however, National Anti-Corruption Bureau of Ukraine is taking aim at VAB Bank, formerly owned by Bakhmatyuk. On Nov. 11, it detained seven people on charges of embezzling $49 million. Among the arrested were a respected former deputy governor of the National Bank of Ukraine, former staff members of Bakhmatyuk’s VAB Bank, and employees of companies connected to Bakhmatyuk.
NABU also issued a notice of suspicion to Bakhmatyuk, who is currently outside the country.
But after years of failure to prosecute, this abrupt move is raising serious questions: Why now? And why this specific, fairly limited case?
Most surprisingly, NABU accuses an official from one of the country’s most respected institutions, the National Bank, of colluding with one of the least trustworthy types of Ukrainians, a business tycoon.
Egg king
Bakhmatyuk is just one of many oligarchs and big businessmen whose banks — usually infected with alleged insider lending — went bust in the Ukrainian financial crisis that began in 2014.
His history of boom and bust is also far from uncommon.
Since the early 2000s, Bakhmatyuk has built an agrarian business empire starting in his native Ivano-Frankivsk, the provincial capital of 230,000 people located 600 kilometers southwest of Kyiv. It has made him one of Ukraine’s wealthiest men.
Today, the 45-year-old businessman owns UkrLandFarming, one of the country’s largest agroholdings. Much of his wealth appears to come from its subsidiary Avangardco, a London-listed egg producer.
In 2011, Bakhmatyuk purchased VAB Bank. In the ensuing years, the businessman expanded his holding rapidly, purchasing over 20 agricultural firms and expanding his land bank.
Now, it seems Bakhmatyuk grew his business too fast — something he himself admits.
The businessman’s two banks have gone bust: The National Bank of Ukraine declared VAB Bank and Financial Initiative insolvent in November 2014 and June 2015, respectively.
Former depositors in VAB Bank claim that Bakhmatyuk pulled a common trick in Ukrainian banking: he used VAB to give out loans to his affiliated businesses. Indeed, in a 2015 interview, Valeria Gontareva, then the National Bank governor, said that VAB and Financial Initiative had 64% and 96% insider loans, respectively.
A woman holds a poster that reads “Bakhmatyuk is a thief” as she attends a rally of depositors in collapsed VAB Bank in front of the Ukrainian parliament on Nov. 15, 2016. Bakhmatyuk, an agro-tycoon and the former owner of VAB Bank, stands accused of appropriating $49 million given to the bank by the National Bank of Ukraine as a stabilization loan to repay its debts to depositors. (Volodymyr Petrov)
Bakhmatyuk says that there were indeed some connected loans — something he terms a “general tendency” in Ukraine at the time. But that wasn’t why the banks became insolvent. Rather, he blames systemic problems in the banking system and the collapse of the Ukrainian currency, the hryvnia, in 2014.
“All the banks had connected credits, as it turned out eventually,” he says. “Of course, when the default started, we didn’t have the capital to make up for it.”
The VAB debt wasn’t the biggest in Ukraine. But with the hryvnia worth four times less than it had been a year earlier, the capabilities of Bakhmatyuk’s companies “significantly decreased.” Additionally, Russia’s war against Ukraine, launched in 2014 and ongoing today, had effectively stripped the businessman of Avangardco’s infrastructure in eastern Ukraine. Low prices for crops played their part too, the tycoon says.
“Yes, we made mistakes. Yes, we might have been more aggressive in our credit strategy than we had to be,” he says. “But you think there’s only Bakhmatyuk to take responsibility? What about the war? What about inflation?”
Wave of arrests
On Nov. 11, NABU gave its own answer to that question. It abruptly began making arrests in the VAB case. Among seven people detained was Alexander Pisaruk, the head of Raiffeisen Bank Aval. Previously, he had served as deputy governor of the National Bank in 2014–2015 and played an important role in declaring banks insolvent.
Pisaruk was charged and released on $200,000 bail. NABU believes that Bakhmatyuk conspired with Pisaruk to illegally get a stabilization loan for his bank, which they then embezzled. NABU notes that the loan was issued just a month before the National Bank declared VAB insolvent, something that appears suspicious.
Both the National Bank and Bakhmatyuk deny wrongdoing.
Pisaruk goes even further. In an interview with the Kyiv Post, he called the suggestion he colluded with Bakhmatyuk “almost a personal insult.”
He says no one who saw the tense negotiations between the National Bank and VAB could believe there was collusion. “There was no sympathy between the parties,” Pisaruk said.
There is one key area where Pisaruk agrees with Bakhmatyuk. Both insist the stabilization loan was used properly.
Pisaruk says issuing the loan was legitimate. It came at the peak of Ukraine’s financial crisis, when there were serious concerns about economic stability. Depositors were descending on VAB Bank to withdraw their savings.
Were VAB to fail, the central bank worried, it would spill over into other parts of the economy and potentially bring down UkrLandFarming, which employs 30,000 people. Just months earlier, another major agroholding, Mriya, had gone bankrupt as the result of significant insider fraud. The National Bank feared that, were a second major holding to go bust, Ukrainian agriculture might be cut off from credit and financing, Pisaruk told the Kyiv Post.
For this reason, the National Bank issued VAB a targeted stabilization loan. Its explicit purpose was to pay off depositors attempting to remove their savings. Pisaruk says he is confident that happened, because a central bank curator scrutinized the process.
NABU alleges that VAB Bank never provided the central bank with a financial recovery plan. Pisaruk says this is not accurate.
Bakhmatyuk signed a written commitment to bring at least $200 million of capitalization into VAB. Additionally, the loan was secured by collateral and Bakhmatyuk gave his personal surety based off his own assets to cover the whole debt.
“It was a legitimate effort to save a large bank to prevent a financial stability spillover on the banking system and the broader economy,” Pisaruk says.
The short time between the loan and the declaration of insolvency is also not a sign of wrongdoing, he says. In 2014, the economic situation was highly volatile and social tensions were also rising. There were cases of vandalism, broken windows and protests at branches of VAB Bank.
“The purpose of the stabilization loan was to pay out to those depositors and calm down the tensions before Mr. Bakhmatyuk could recapitalize the bank,” Pisaruk says.
The National Bank resolution required Bakhmatyuk to provide the $200 million or more by Dec. 1.
However, the agro-tycoon failed to fulfill that obligation, forcing the central bank to declare VAB insolvent and send it for liquidation, Pisaruk told the Kyiv Post.
Why now?
Bank fraud is hardly a new occurrence in Ukraine. At times, it seems to be the rule, not the exception.
In the most prominent case, the state assumed control of PrivatBank, the country’s largest bank, after uncovering a $5.5-billion hole in its ledgers in 2016. After the takeover, Valeria Gontareva, then the National Bank governor, announced that PrivatBank’s entire corporate loan portfolio had gone to companies closely tied to its previous owners, oligarchs Ihor Kolomoisky and Gennady Boholyubov.
Under normal circumstances, this would be grounds for criminal prosecution. But that has not happened in Ukraine.
Instead, PrivatBank’s new management is tangled in litigation with the oligarchs as it tries in the U.K. and U.S. to recover money that it alleges was stolen. Meanwhile, Kolomoisky and Boholyubov want to regain control over the bank or receive compensation.
Several recent court decisions in Ukraine favoring the oligarchs, as well as Kolomoisky’s formerly close business ties with President Volodymyr Zelensky, have raised concerns the government might return the bank to its previous owners or find a compromise involving compensation. Zelensky has recently clarified his position, ruling out such an occurrence.
In this context, NABU’s sudden interest in Bakhmatyuk and Pisaruk has raised questions.
Bakhmatyuk alleges that NABU launched the case to demonstrate that it is working.
“This case was dragged by the ear,” he says.
Both he and Pisaruk believe that NABU may be investigating the former deputy National Bank governor to gain access to the case.
Normally, NABU is supposed to deal with corruption by officials, so it cannot prosecute this case unless there’s an official involved.
Alexander Pisaruk, chairman of the board at Raiffeisen Bank Aval (R), attends a hearing in the Anti-Corruption Court on Oct. 14, 2019 in Kyiv. (Volodymyr Petrov)
The arrests also coincide with a critically important event for Ukraine: a new visit by the International Monetary Fund mission to the country. Kyiv is hoping to secure a new aid program worth $5–6 billion.
The IMF has repeatedly expressed concern over the stability and security of Ukraine’s banking sector, particularly its state-owned banks.
If NABU — an agency supported by the IMF — arrests individual charged with financial crimes, it could potentially show the international donor that Kyiv is serious about fighting corruption.
Burnishing one’s corruption-fighting credentials is beneficial, says Cornelius Granig, the CEO of advisory firm K-ADVISORS and a member of the Kyiv Post international advisory board.
“As a new state president, prime minister and government came into power in Ukraine in mid‑2019, it will be very important that they all support the fight against corruption and encourage NABU, (the Special Anti-Corruption Prosecutor’s Office), SBU (security service) and other involved authorities to investigate suspicious activities and bring the cases in front of the courts,” he said in a message.
But the benefit from such actions is not clear in this case. Pisaruk is a figure widely respected in the Ukrainian business and international donor community, so his arrest is hardly guaranteed to impress the IMF.
Speaking at an event organized by Ukraine’s Hromadske television channel on Nov. 19, Finance Minister Oksana Markarova — who herself has a strong reputation internationally — termed Pisaruk’s arrest “a mistake.”
“I know Alexander (Pisaruk), and he is one of the most clean and professional people I have ever known in the banking sector,” she said.
To complicate matters, since the VAB case erupted, there has been another sudden arrest: on Nov. 16, the SBU security service detained Oleksandr Hrytsenko, the chairman of major state-owned bank Ukreximbank. The authorities accuse him of embezzlement and money laundering.
The SBU said the charges relate to his alleged complicity in the 2014 laundering of stolen assets linked to former President Viktor Yanukovych, the corrupt ex-leader of Ukraine who fled to Russia after being ousted during the 2014 EuroMaidan Revolution.
While there is no direct evidence that the cases against Bakhmatyuk and Pisaruk are connected, multiple sources close to state-owned bank advisory boards have told the Kyiv Post that the situations are linked, and may be beneficial to individuals such as Kolomoisky and Bakhmatyuk.
How does it end?
For his part, Bakhmatyuk feels NABU’s approach is neither productive nor likely to impress the IMF.
“It would more pragmatic if Bakhmatyuk would pay, say, Hr 300–400 million ($12–16 million),” he said, referring to himself in the third person.
Bakhmatyuk claims that he’s the only former bank owner who has come forward with a proposal to return lost money. He says he’s even agreed with the Deposit Guarantee Fund, which controls the assets of insolvent banks, to pay an immediate tranche of Hr 500 million and then continue paying Hr 1 billion ($41 million) every year for the next eight years.
The Deposit Guarantee Fund confirmed to the Kyiv Post that Bakhmatyuk had voluntarily engaged in talks with the Fund and the National Bank to agree on terms under which he can return the money.
According to the Fund, Bakhmatyuk suggested returning Hr 8 billion ($332 million) to the two institutions within the next five years. The Fund, however, has not made a decision regarding the suggestion.
“Our main task is not reprisals against the former owners and stakeholders of the banks that are being liquidated, but to get the maximum amount of money to return to the victimized depositors of these banks,” Olga Bilay, the fund’s deputy head, said in a message to the Kyiv Post.
But Pisaruk is less convinced that negotiation is the solution.
“I would probably have more trust in what he’s saying if he didn’t fail to recapitalize his bank when he actually committed to,” he said.
However, the situation ends — with convictions or negotiation — Bakhmatyuk isn’t taking any risks. Today, he is managing his companies from abroad.
“My mistake is that I’m not an oligarch,” he told the Kyiv Post. “I didn’t spend my money on media or political parties. Business in this country can’t defend itself without these political components.”
Ukreximbank: Big state bank hit with scandal
State-owned Ukreximbank is the sole financial agent of the Ukrainian government for foreign loans borrowed or guaranteed by Ukraine, including from the International Monetary Fund. But that didn’t stop agents of the SBU security service from swooping in and detaining its chairman, Oleksandr Hrytsenko, while the IMF mission was in town negotiating a new loan package for Ukraine. Hrytsenko was snatched off the street while walking in central Kyiv with his family on Nov. 16. The SBU later confirmed it had arrested him at the request of the Prosecutor General’s Office. Hrytsenko stands accused of embezzlement, money laundering and creating a criminal organization. The SBU says the charges relate to his alleged involvement in laundering assets stolen by ousted ex-President Viktor Yanukovych or his allies. Hrytsenko lawyers deny the charges and claim the investigation is politically motivated. On Nov. 19, Hrytsenko was released on $120,000 bail. Several sources close to the supervisory boards of two Ukrainian state-owned banks have told the Kyiv Post that billionaire oligarch Ihor Kolomoisky, former co-owner of now nationalized PrivatBank, may be using law enforcement to wage a campaign against state-owned banks and the National Bank of Ukraine.
PrivatBank: Biggest bank fraud case in Ukraine
The case of PrivatBank, Ukraine’s largest bank, is the most prominent instance of bank fraud in the country’s history. In 2016, the state had to take over and nationalize PrivatBank after it uncovered a $5.5-billion hole in the bank’s ledgers. After the takeover, the central bank claimed PrivatBank’s entire corporate loan portfolio had gone to companies closely connected to its previous owners, oligarchs Ihor Kolomoisky and Gennady Boholyubov. In an attempt to recover money that it alleges was stolen, PrivatBank’s new management is suing its former owners. PrivatBank is seeking to prove that, in the course of a decade, its former owners engaged in large-scale money laundering into the United States, converting hundreds of millions of stolen dollars into various commercial real estate projects there. Kolomoisky and Boholyubov, in turn, deny any wrongdoing. In fact, they countersued the state for raiding their property and are aiming to regain control over the bank or receive compensation. Kolomoisky even claims he sees room for an amicable solution in his battle with the authorities over PrivatBank now that President Volodymyr Zelenskiy is in power. Zelensky is considered to be close to Kolomoisky, as he worked for the oligarch’s television channel during his comedy career. Many of Zelensky’s top staffers and lawmakers for his Servant of the People party have connections to the oligarch, too. This includes Oleksandr Dubinsky, a major critic of the PrivatBank’s nationalization. But perhaps the most vivid example of their connection is Andriy Bohdan, who used to be a lawyer for Kolomoisky and now is the presidential chief of staff.
Kyiv Post news editor Jack Laurenson contributed to this report.
