It was one of the key cases in the legal battle over state-owned PrivatBank, a banking saga that cut to the core of Ukraine’s war with corruption.
The Ukrainian government had nationalized the bank in 2016 after discovering a $5.5-billion hole in its ledgers. It alleged that this was the result of mass embezzlement led by the bank’s then-owners.
The owners, oligarchs Ihor Kolomoisky and Gennadiy Boholyubov, denied those accusations and have been fighting to retake the bank ever since.
The Supreme Court case, heard on June 15, was a key part of that battle.
The Ukrainian state was arguing that it had acted lawfully during nationalization when it converted the deposits of the families of Ihor and Hryhoriy Surkis — who it alleged were business insiders of Kolomoisky — into PrivatBank’s capital to recoup the losses from alleged embezzlement.
Meanwhile, the Surkises claimed they were not Kolomoisky’s insiders and that the state had acted illegally by imposing a so-called bail-in procedure on their deposits. It owed them Hr 1 billion ($40 million), they argued.
If PrivatBank lost, it would have potentially cost the state much more than that. The ruling would set a precedent for dozens of other cases in which Kolomoisky associates are attempting to reclaim $1.16 billion in deposits and void the bail-in procedure.
For a while, the picture didn’t look pretty for the state-owned bank: Two lower courts had agreed with the Surkises and obliged the bank to return the money.
But on the evening of June 15, the Grand Chamber of the Supreme Court of Ukraine delivered PrivatBank a win, overturning the lower court rulings.
“It is definitely a victory,” said Viktor Hryhorchuk, a lawyer for Ukraine’s central bank. “There are no grounds that would support the claim that the Surkis family is not related to the bank (when owned by Kolomoisky). Not a single one.”
The Surkises cannot reclaim their deposits. All they can do is try to get financial compensation in civil court. They now have 10 days to prepare their claims.
All eyes on the Supreme Court
On June 15 at 9:30 a.m., an army of lawyers gathered next to the Supreme Court building. They were the defense team of the central bank, the Cabinet of Ministers and PrivatBank’s state-appointed management. Journalists and camera operators lined up to enter the court.
The crowds also included representatives of the International Monetary Fund (IMF) and diplomats of the United States and the European Union. They had come to see how — or whether — Ukrainian judges would obey newly-passed legislation that prevents insolvent banks from being returned to their former owners. Passing that law was a requirement for Ukraine to receive $5 billion in aid from the IMF.
But this new legislation — dubbed the “anti-Kolomoisky” law — was only passed reluctantly. On June 11, some lawmakers even asked the constitutional court to void it. That would endanger the fate of PrivatBank in its dispute with the Surkises.
The last time the Grand Chamber of the Supreme Court actually heard the PrivatBank v. Surkis case was back in March. The next hearing was meant to take place in late April, but was postponed after judges complained to the Supreme Council of Justice about “pressure on the court.”
On June 11, the Council issued its conclusions and asked the Prosecutor General’s Office to watch what it says so as not to undermine the court’s independence. It also asked the Justice Ministry to review the activities of a political party that routinely protests next to the court’s building, demanding that the judges not rule in favor of Kolomoisky and his associates.
But there was no indication that the court would return to PrivatBank v. Surkis on June 15. It’s abrupt decision to hear the case on that day would be just the latest twist in this dramatic legal saga.
Kolomoisky and friends
At the center of the case was the question of whether the Surkises were Kolomoisky’s insiders in PrivatBank. The state insisted they were.
Since 2016, lawyers working for the Surkises have claimed that their clients have nothing to do with the oligarch. However, public information about the ownership structure of Kolomoisky’s 1+1 media holding contradicted their claims.
According to documents published on the 1+1 website, Kolomoisky and Ihor Surkis were partners in the 1+1 television channel, with Kolomoisky listed as beneficiary owner and Surkis as a significant stakeholder.
Ihor Surkis’ company, Bolvik Ventures LTD, owned 17.57% of 1+1 as of December 2015. Today, it owns 24.66%.
However, a week before the critical court hearing, news broke that one of the beneficiary owners of Bolvik Ventures LTD was Oksana Marchenko, the wife of Viktor Medvedchuk, a controversial pro-Russian politician and lawmaker.
That was a surprise for everyone — including 1+1 and Kolomoisky, according to their comments to the media.
Many, however, suggested it was an attempt by Medvedchuk to help the Surkises win the court case against PrivatBank.
Bohdan Slobodyan, a lawyer for Surkis, said at the June 15 court hearing that his client holds only 8.33% in 1+1. Moreover, this is through a trust in Cyprus, he said, so it does not count.
A representative of the state Deposit Guarantee Fund argued that no one had ever seen this trust agreement and that there was no reason to believe it exists. The state also said that the size of Surkis’s stake in 1+1 does not matter. What matters is that it exists.
Moreover, the central bank said it had other reasons to recognize the Surkises as Kolomoisky’s insiders back in 2016.
According to Ivan Hrytsak, a lawyer for the central bank, the Surksises met numerous criteria to be considered related parties.
“Ihor Surkis was the one through whom the transactions in favor of other Kolomoisky insiders were conducted,” he said at the court hearing.
Ihor Surkis’ relatives were deemed insiders because of their association with him. Polina Kovalik, the wife of Hryhoriy Surkis, was recognized as an insider because of her ownership of three offshore companies.
“These companies had a special connection to the bank,” Hrytsak said. “It was visible in the inflated interest rates, in the conditions of credit and in other transactions that were performed without any supporting documents.”
The Surkises’ legal team disagreed.
“There is no proof of this…not a single bit (of proof)…of some non-market rates or other special conditions (between the Surkises and Kolomoisky). These were market relations,” said Slobodyan.
The state asked the Supreme Court to fine the Surkises for hiding their real business relationships with Kolomoisky from the court for so many years. It is still unclear whether the court did so. The full version of the decision has not yet been published.
However, the state managed to persuade the panel of 17 judges that Ihor Surkis is indeed a partner of Kolomoisky.
Playing dirty
Viktor Prorok, a Supreme Court judge, argued that the Surkis lawyers had cheated the system that is designed to automatically and objectively distribute new cases among judges when they first applied to the court in 2016.
On Dec. 23, 2016, the Kyiv District Court received three identical claims from the Surkis family and three other identical claims from A Bank, which they own.
This was done to improve their chances of getting the “right judge” for the case, state lawyers said. When one of the claims was automatically assigned to the judge they favored, the Surkises’ lawyers recalled the two remaining claims in both cases. This isn’t a new trick.
They ended up winning both cases in the Kyiv District Court. PrivatBank had to pay A Bank back Hr 300 million ($11.2 million).
Prorok asked Slobodyan to explain why they filed a multitude of identical claims. The lawyer said it might have been a mistake.
Getting the money back
The Supreme Court decision means that the Surkises’ $40 million in deposits must be returned to PrivatBank now. But the fate of these accounts remains a mystery.
After PrivatBank lost in the lower courts, it had to give this money back to the Surkises. It did this in a creative way.
According to PrivatBank’s lawyer, the Surkises had unpaid loans from the bank, so it complied with the court’s decision by repaying their loans and giving them only the small sum left over afterwards.
Mysteriously, the largest deposit, roughly Hr 500 million ($18.7 million), remained untouched on the account of Rakhmil Surkis, the father of Ihor and Hryhory.
PrivatBank struggled to explain how it had happened that Rakhmil’s deposit wasn’t bailed-in during the bank’s nationalization. The bank’s lawyer, Oleh Lozovsky, suggested that an error had occurred.
Now, the Surkises have to return the other half a billion to the state.
Legal war continues
The Supreme Court’s ruling unlocks the other cases that were put on hold until it could decide in PrivatBank v. Surkises.
After the Supreme Court issues the full text of its ruling in 10-14 days, the Sixth Court of Appeals, where Kolomoisky is disputing the bank’s nationalization, can press forward with case hearings. When it issues its ruling, the Kyiv Economic Court can continue hearing another Kolomoisky claim challenging nationalization.
Another court that has closely watched the Surkis battle in Ukraine’s Supreme Court is the London Court of International Arbitration.
In 2017, it received a joint claim from Kolomoisky associates who had invested in Eurobonds that PrivatBank issued in Britain. During PrivatBank’s nationalization, these investments were bailed-in. Now they want the London court to recognize the bail-in nationalization as illegitimate and force PrivatBank to return their money.
