3 key events ahead in recovering assets stolen from Ukraine
Nov. 28: A committee is expected to name the head of a new anti-corruption agency formed by the Verkhovna Rada. The entity’s official name is: National Agency Of Revealing, Tracing And Managing Assets Which Are Proceeds Of Corruption And Other Crimes. Insiders shorten it to Asset Recovery/Asset Management Office or ARO/AMO.
Dec. 15-16: An International Asset Recovery Conference will be held in the President Hotel in Ukraine, organized by the Anti-Corruption Action Center.
Week of July 10: An International Asset Recovery Conference will take place in Washington, D.C., organized by the World Bank’s Stolen Asset Recovery Initiative. The effort focuses on Ukraine, Nigeria, Sri Lanka and Tunisia. A preliminary meeting was held this year in Vienna, but details remain sketchy about the event.
BY BRIAN BONNER
When Igor Budnik took over two years ago as head of the National Bank of Ukraine’s financial risk management department, he made a surprising discovery: Most of his 14 employees spent their work time watching movies and writing useless reports.
“Very few of those people did some job that had any value at all,” Budnik, a speaker on the asset recovery panel of the Nov. 29 Kyiv Post Tiger Conference, said in an interview. “Most of the time these people spent watching movies over the internet. They spent a half hour producing those reports in the morning. The rest of the time they were doing nothing.”
Over at the General Prosecutor’s Office, Eugene Yenin this year took over as head of the international cooperation department shortly after the arrival of Yuriy Lutsenko as top prosecutor in May. He also found a bad situation.
Broken trust
While cooperation from other nations is essential in recovering stolen assets, since much of the pilfered loot is abroad, Yenin learned that some nations don’t trust prosecutors in Ukraine.
One publicized reason why involved the United Kingdom, which had frozen a suspicious $23 million in the bank account of Mykola Zlochevsky, the former minister of ecology during the President Viktor Yanukovych era. However, he had allies under the command of ex-Prosecutor General Viktor Shokin. On the eve of a hearing in Britain last year, prosecutors issued a letter saying that Zlochevsky wasn’t a suspect in Ukraine; U.K. authorities released the money.
Yenin said he apologized formally to his British counterparts and guaranteed “that we have done everything to prevent leakage in the future.”
No prosecutions
Yenin, moreover, found that no prosecutions for financial fraud under way.
He also learned that his predecessors had stalled on establishing mutual legal assistance agreements with other nations. Additionally, some subordinates were uncomfortable speaking English on phone calls abroad. Yet another problem: in-house translators were overburdened.
To illustrate how far behind the nation’s prosecutors are in catching the crooks, he and his colleagues are still spending time on civil proceedings abroad trying to recover $270 million stolen by ex-Prime Minister Pavlo Lazarenko in the 1990s.
Lazarenko remains the highest-ranking Ukrainian official — and about the only one — to be convicted of corruption. His conviction came after a federal trial in America, where he spent 97 months in prison.
The experiences of Budnik and Yenin illustrate how the nation is only getting out of the starting gate in tracking and recovering the staggering sums of money looted from Ukraine in the last decade, mainly during the rule of Yanukovych from 2010-2014, when the nation was robbed by official estimates of $40 billion.
Yenin, who is out of the country on Lazarenko-related business, will be represented at the Tiger Conference by deputy division head Myroslava Krasnoborova.
How much, how soon?
Asset recovery will be a focus of the Tiger Conference. The discussion will be moderated by ex-Finance Minister Natalie Jaresko.
Besides the central bank’s Budnik and prosecutor Krasnoborova, the two other speakers on the panel are Andriy Stelmashchuk, managing partner of Vasil Kisil & Partners law firm, and Daria Kaleniuk, executive director of the Anti-Corruption Action Center.
Under optimistic scenarios, there are hopes that Ukraine can recover up to 10 percent of the $40 billion Yanukovych-era losses by 2020. But the more realistic scenario is that it will take far longer to recover far less.
Despite the slow and sluggish start, movement is happening. Parliament has created a national agency for the recovery of stolen assets. Stelmashchuk heads the search committee to choose the new agency’s director, while Kaleniuk is a member of the committee. Also, an international asset recovery conference will take place in Kyiv in Dec. 15-16. And the World Bank’s Stolen Asset Recovery Initiative is hosting an asset recovery conference next July in Washington, D.C. Ukraine will be one of the priority countries along with Tunisia, Nigeria and Sri Lanka.
Budnik’s challenge
One of Budnik’s priorities is recovering Hr 47 billion ($1.8 billion) owed from failed banks to the NBU, which shut down 80 banks in the last two years, finding them insolvent largely due to bank fraud and embezzlement.
The NBU recovered Hr 1.2 billion last year and Hr 3.4 billion this year. Budnik hopes 20 percent of the balance – about $240 million — can be recovered by 2020.
The unpaid loans are part of an astronomical $11.4 billion in banking losses, most of which is not likely to be recovered for taxpayers. About $3 billion in depositors’ losses were insured by the state, but another $5.2 billion were not.
The losses reveal how badly corrupt the central bank was during the presidencies of Viktor Yushchenko, a former central bank head, and Yanukovych, who fled power on Feb. 22, 2014, during the EuroMaidan Revolution.
Firtash, Lagun
Two of the biggest deadbeats are fugitive oligarch Dmytro Firtash, owner of the failed Nadra Bank who owes Hr 12 billion, and Mykola Lagun, owner of the failed Delta Bank, who owes Hr 9 billion. Budnik said that Firtash and Lagun borrowed the money from the central bank without any lasting personal guarantees or collateral.
“We can’t touch them,” Budnik said.
Bakhmatiuk, Zhevago
Three other big deadbeats put up personal loans and collateral, but the central bank hasn’t made much progress in getting the money back yet.
The trio — Oleg Bakhmatiuk of the failed VAB Bank and Financial Initiative Bank; Kostyantyn Zhevago of the failed Finance & Credit Bank; and Leonid Klimov of the failed Imex Bank — still owe a collective Hr 10.5 billion, or $410 million.
“We have filed lawsuits against all these gentlemen. So far they have been very effective in stalling the court proceedings,” Budnik said. “There have been some successes. We have been able to get a court ruling to arrest all of Bakhmatiuk’s personal assets.”
He said the NBU started having better success after retaining a private law firm for civil lawsuits. “We believe this is the way to go,” said Budnik, who worked for commercial banks and McKinsey & Company consultancy before joining the central bank. “Litigation is what the private sector has been very successful at. The government is best served by using the private sector instead of trying to build the same competence in government.”
Budnik’s staff has grown to 42 employees to meet unprecedented demands. He has an advantage because the NBU pays salaries competitive with the private sector, unlike much of the rest of goverment.
Sluggish DGF
One state agency stalling progress is the Deposit Guarantee Fund, run by Kostyantyn Vorushylyn, an ex-business partner of President Petro Poroshenko.
“There is a widespread recognition that the DGF has not been so far successful in recovering the assets it has under managmenet — Hr 500 billion by book value, Hr 100 billion in appraised value.”
The fund is recovering less than 1 billion hryvnias per year. “At the current rate, it will take decades to recover the money it has under management,” Budnik said.
A better solution, he said, is to hire private sector advisers. A test sale of bank assets will take place in May, he said. “The only way to sell the huge inventory of distressed assets is to put them on bulk sale through international loan sales advisers,” he said.
‘Quite distressing’
The fund is also failing to file civil lawsuits to recover money and assets. Instead, it relies on criminal prosecutions that are not happening.
“In more advanced jurisdictions, when banks fail because of insider lending, authorities will go after you and seize your assets,” Budnik said. “That’s still not the common practice in Ukraine. DGF has the old-style Soviet mindset that the bad guy must be put in prison. This is not necessarily the case. First, the bad guy has to redeem the losses he created and, with luck, he will also be put in prison if he does not redeem the losses.”
He said that ”most other countries put emphasis on civil proceedings,” but not Ukraine. “This is quite distressing.”
Even Russia is having greater success, citing the case of Sergei Pugachev, whose multibillion-dollar fortune was frozen by courts in London.
‘Deterrent value’
Despite the obstacles, Budnik said that authorities must make the effort. “There is going to be a huge deterrent value when people start seeing they can not just walk around Kyiv and nobody is going after them, as Mr. Lagun is doing.”
Budnik said “a lot of obstruction starts when you go outside the NBU…Ukraine is now in the early stages of building a functional state. You need to start with the basics: courts, army, the police and other law enforcement. Until those basic functions of the state are reformed and become functioning, the central bank will find it extremely difficult to do its job properly.”
Yenin’s challenge
Yenin said the public wants the stolen $40 billion returned “as soon as possible.” In reality, however, “even if we take the right track, it takes five to eight years or longer,” he said.
Some of the money is in cash, some in Russia, some untraceable. Prosecutors are only starting to identify where the money went, with help from the government’s financial intelligence unit.
Yenin said only 200 million euros in suspicious assets have been frozen in European Union nations, while $1.4 billion has been frozen in Ukraine, money linked to the fugitive Yanukovych and his central bankerhead, Sergei Arbuzov, also a fugitive.
This is also an area where, if the money is abroad, Ukraine must learn what proof is required to freeze assets in other nations. Some require criminal convictions; others don’t. He cited Latvia and Switzerland as helpful partners, while singling out Cyprus as a nation that takes a long time to respond to requests.
Despite the long road ahead, recovering assets is a journey worth taking, Yenin said. Establishing “criminal responsibility for those who robbed the country,” he said, “is important to me.”
