It is Ukraine’s most publicized financial crime.
The country’s top lender, stateowned PrivatBank, is trying to claw back $5.5 billion of its depositors’ money that went missing under its former owners.
Last week finally brought some progress. The U. S. Department of Justice accused Ukrainian oligarch Ihor Kolomoisky of illegal activity and moved to seize his properties in Louisville, Kentucky and Dallas, Texas.
According to PrivatBank, $746 million in stolen money ended up in the U.S. and was used to buy real estate and metallurgical plants, mainly through a group of companies called Optima.
While Kolomoisky and his associates haven’t been charged with a crime, the Justice Department filed two civil forfeiture complaints that could allow it to seize $70 million worth of real estate. In the complaints, the U.S. says Kolomoisky, his partner Gennadiy Bogolyubov and their American associates Mordechai Korf and Uriel Laber engaged in fraud and money laundering.
The complaints came days after federal agents raided two Optima offices in Cleveland, Ohio and Miami, Florida without making arrests.
Civil forfeiture often accompanies criminal investigations. While the FBI and U.S. attorneys have been digging into Kolomoisky for a while, they appear to finally have something to show for it. Many believe that criminal charges are only a matter of time.
“If there was a chance that Kolomoisky could regain control of PrivatBank and stop cases in other jurisdictions, now we know for sure there’s an investigation that he can’t influence from Ukraine,” said economic journalist Andrii Ianitsky, who investigated PrivatBank. “Justice is inevitable and sooner or later, it will reach the guilty.”
“But the bad news,” he added, “this is still not Ukraine.”
Kolomoisky’s lawyer, Michael Sullivan, did not respond to a request for comment. Last week, he told the Washington Post that the oligarch “emphatically denied the charges” and emphasized that no criminal charges have been made.
Kolomoisky himself told Ukrainian media that his and Bogolyubov’s investments in the U.S. were made from the oligarchs’ personal funds earned in 2007–2008 from legitimate deals involving the Evraz metallurgical business in Dnipro.
Global scheme
Kolomoisky and Bogolyubov once owned PrivatBank, which had a third of the country’s individual deposits and 20 million customers.
According to financial investigators Kroll Inc., the oligarchs ran a Ponzi-like scheme, loaning money to their own enterprises and siphoning funds overseas through Cyprus. This eventually caused a $5.5 billion shortfall at PrivatBank.
In the end, the National Bank of Ukraine under former governor Valeria Gontereva nationalized PrivatBank in December 2016. Since then, it has tried to reclaim its money, a large chunk of which is parked in the U.S.
“Kolomoisky and Bogolyubov further laundered the money by investing in the United States,” the DOJ’s complaint reads. “Korf and Laber established a network of companies, generally under some variation of the name ‘Optima,’ to acquire businesses and real estate in the U.S. using the misappropriated money from PrivatBank.”
These include more than five million square feet of commercial real estate in Ohio, steel plants in Kentucky, West Virginia and Michigan; a mobile phone manufacturing plant in Illinois; commercial real estate in Texas and other assets, which often failed to turn a profit.
The properties the DOJ wants to seize include a Louisville office tower called PNC Plaza and a Dallas office park known as the former CompuCom Headquarters, worth a combined $70 million.
Criminal charges next?
The U. S. has been cracking down on illicit foreign money in recent years. Civil forfeiture is used as a quick way to seize property that suspects allegedly got through crime. It often accompanies money laundering cases.
It can be difficult to prove the crimes that underlie money laundering, which is why a forfeiture is a useful tool, experts say.
But John Lauro, a U.S. lawyer and former federal prosecutor, says civil forfeiture doesn’t mean the government has a weak case.
“Often in cases I’ve been involved in, the government will first proceed civilly with the freeze and then continue its criminal investigation,” he said.
Kolomoisky is under investigation by the FBI, the Internal Revenue Service, U. S. Customs and Border Protection and the Justice Department.
To reclaim the properties, and his associates would have to prove that the money they used to buy them wasn’t stolen. However, Lauro said that it’s rare for people to challenge civil forfeiture, as it might expose criminal activity.
“Anyone with an interest would have to be willing to testify under oath and be cross-examined by federal prosecutors,” he said. “If counsel believes that there’s any risk of a criminal indictment, then you have to be very careful about having your client testify.”
This 20-acre office campus in Dallas, Texas, has been empty for more than four years since CompuCom Systems Inc. moved out of its eight-story tower. The property was bought by Kolomoisky’s business partners using money allegedly embezzled from PrivatBank and now faces civil forfeiture. While the majority of shady money entering the U.S. ends up in larger centers like New York City and Miami, Kolomoisky’s associates invested in smaller cities in the American heartland. (Google Map)
Daria Kaleniuk, a Ukrainain activist and executive director of the AntiCorruption Action Center (AntAC), believes that criminal charges are coming.
“There are strong prospects for progress in the criminal case against Kolomoisky,” Kaleniuk told the Kyiv Post. “We will soon see the forfeiture in a criminal proceeding.”
According to Kaleniuk, U.S. prosecutors do have strong enough evidence to charge Kolomoisky with a crime. However, they do not intend to reveal everything they have on the oligarch right away. “I think it is a very well-thought-out tactic,” Kaleniuk says.
A criminal indictment may already be pending in secret until the time is right.
Artem Shevalev, deputy chairman of the supervisory board at PrivatBank and former deputy finance minister, agreed. “This step of the Department of Justice (the forfeiture) means that the U.S. is apparently ready to indict the people in question (or maybe has already done so, but not yet announced it publicly),” Shevalev wrote on Facebook on Aug. 7.
“This is likely a matter of the nearterm perspective,” he wrote.
Indeed, the DOJ already seems to have a lot of evidence. In one complaint, it writes “the money used to purchase the CompuCom Campus was directly traceable to four loans obtained from PrivatBank by Kolomoisky and Bogolyubov.”
It also appears that Kolomoisky’s former allies may be turning against him. Ianitsky said that there are rumors that Korf and Laber may be giving information to U.S. investigators. The Kyiv Post has learned that Korf has testified in a Florida court.
What about Ukraine?
Ukraine’s track record is much worse. Detectives here have been going after Kolomoisky for three years with no success.
In June 2017, the Prosecutor General’s Office launched an investigation against him. In November 2019, the chief prosecutor, Ruslan Riaboshabka, handed the case to the National Anti-Corruption Bureau (NABU).
Almost a year later, no results have been made public, in spite of 1,800 volumes of documents pointing to an alleged insider lending scheme that enabled Kolomoisky and his aides to allegedly embezzle billions in depositors’ money. The NABU hasn’t responded to request for comment.
In a February interview with the Kyiv Post, NABU chief Artem Sytnyk complained that the investigation into PrivatBank fraud was being obstructed by other law enforcement officials. “Expert evaluations aren’t getting done quickly,” Sytnyk said back then.
Riaboshabka echoed his words a few months later in April, blaming the Security Service of Ukraine (SBU) for dragging their feet on expert evaluations that are crucial for bringing Kolomoisky to justice.
He alleged that his successor, Iryna Venediktova, attempted to sabotage the case, pressing NABU to hand it over to the SBU, which is chaired by Ivan Bakanov, a childhood friend of Ukraine’s president Volodymyr Zelensky. The president is a former business partner of Kolomoisky.
Venediktova’s office did not respond to a request for comment. Riaboshapka turned down a request for comment this week.
His former adviser, lawyer and anti-corruption activist Oleksandr Lemenov, told the Kyiv Post that, under Zelensky, Kolomoisky is safe and sound in Ukraine.
“Under the current leadership of the country, the President’s Office, with which Kolomoisky more or less finds common ground, I doubt he is in danger of anything while he is in Ukraine,” Lemenov said.
“It’s too bad that our law enforcement is so flabby and impotent so they cannot see this case through to the end. But that does not apply to NABU,” he added. “NABU is riding a bicycle while everyone else is shoving sticks in the spokes. What a cycle sport.”
Kolomoisky has actively campaigned to get PrivatBank back, filing hundreds of lawsuits against the state. That road was closed for him in May, when the Ukrainian parliament passed legislation that bans returning nationalized banks to former owners.
Several experts pointed out that the law only passed thanks to strong international pressure. The International Monetary Fund made it a precondition for approving loans to the country.
Kolomoisky still continues to challenge the nationalization in Ukrainian courts.
Although Ukraine hasn’t charged the oligarch, it may have helped the U.S. to do so.
The NABU, along with Riaboshapka, gave a hand to their American colleagues, who were seeking to gather evidence on Kolomoisky in Ukraine, according to AntAC.
Extradition unlikely
After the news about possible confiscation of Kolomoisky’s property in the U.S. broke, a few dozen people in Kyiv took to the streets to campaign for the oligarch’s extradition.
“The U. S. is not Ukraine! You can’t settle the case there!” one of the protesters’ placards read.
The U. S. will definitely want to see Kolomoisky and his allies in the courtroom, according to Shevalev.
“Indictment means that these people can be arrested anywhere in the world (in jurisdictions that have such cooperation with the U.S.) or the Department of Justice of the U.S. can request extradition of these people from the countries where they reside to bring them to the U.S. for trial,” he said in a Facebook post.
Kyiv Post sources, however, are fairly certain that Kolomoisky isn’t going anywhere. Ukraine and the U.S. have no extradition treaty. Moreover, Ukraine has been historically reluctant to hand over its citizens.
In October, Riaboshapka told the media that Kolomoisky’s extradition is not possible after news of an FBI probe into Kolomoisky first leaked to The Daily Beast.
“To be honest, I rule out the possibility of extradition of Ukrainian citizens to another state, because our constitution forbids giving up Ukrainian citizens to other countries,” Riaboshabka said. “It does not matter if this person is Kolomoisky or anyone else.”
A man carries a placard that reads “We demand the arrest of Kolomoisky’s property” at a street rally in front of the Ministry of Foreign Affairs in Kyiv on Aug. 10, 2020. Protesters called for Kolomoisky to be extradited to the U.S., where he is more likely to face criminal charges. Experts believe his extradition is very unlikely. (Oleg Petrasiuk)
But even if this weren’t the case, the government still wouldn’t hand him over.
“If they were capable of that, they’d have been able to investigate the case,” said Ianitsky.
In fact, with so many cases against him in the United Kingdom, Cyprus, Israel and Switzerland, Kolomoisky probably believes that Ukraine is the safest place to be and could be a major reason for his return to the country last year, Ianitsky added. Switzerland even launched a criminal investigation against the oligarch, according to Kaleniuk.
Kolomoisky will face more financial troubles on top of a global freeze order imposed by a London court.
According to Shevalev, the information about the oligarch and his partner Bogolyubov in the civil forfeiture complaint is enough for them to be added to World-Check, an international database of politically exposed persons.
“This will make it impossible for them to use banking and other financial services around the world (well, except for banking institutions that do not live by international standards) and could lead to the closure of their respective accounts,” he wrote on Facebook.
Getting money back
Assets seized via civil forfeiture become property of the U.S. government.
“The forfeiture is in the name of the United States, not in the name of any alleged victim,” said Lauro.
But he added that the DOJ is mindful of the victims and may negotiate to make them whole if there is no other way to get back the missing funds.
As the victim, PrivatBank is ready to ask the DOJ to return the seized assets, a source familiar with the bank’s strategy, who is not authorized to speak to the media, told the Kyiv Post. There is a good reason for this, as the DOJ’s claim overlaps with PrivatBank’s case against Kolomoisky and his associates in the Delaware Chancery Court, the source added.
Hudson Institute research fellow Nate Sibley told the Kyiv Post that, in a case like this, it’s more likely for PrivatBank to reclaim the seized property compared to cases in which the seized property belonged to a nation-state.
“If I were a betting man, I’d say PrivatBank will get back some of these assets,” he said.
