When many of Ukraine's banks went bust after President Viktor Yanukovych's rule, the State Depository Insurance Fund paid out $2.6 billion to reimburse customers for their insured deposits.
In many cases, financial fraud led to the insolvency of many banks, whose ownership was often hidden in the Yanukovych years. Civic activists in Ukraine say they have uncovered one scheme responsible for $600 million in losses, but fear that law enforcement in Ukraine are bungling the criminal cases against those responsible.
“The law enforcement agencies in Ukraine are in transition from a corrupt system. They are incapable of investigating such kind of complex financial money-laundering schemes properly,” according to the Anticorruption Action Centre, a leading Ukrainian watchdog.
10 banks, $600 million
The Anticorruption Action Centre alleges that up to 10 Ukrainian banks were allegedly involved since 2011 in a money-laundering scheme that allowed cash withdrawals from correspondent accounts in European banks.
The investigation, presented on Feb. 26 in Vienna, shows examples of the siphoning of some $600 million from the Ukrainian banks.
Daria Kaleniuk, executive director of the Anticorruption Action Centre (AntAC), handed the documents to the Vienna Public Prosecution Office for Austrian authorities for investigation.
One of the correspondent banks that is believed to have been taking part in the money laundering is Austrian Meinl Bank AG. Activists say at least $215 million from Ukraine went to the bank.
The bank, in its emailed response to the Kyiv Post, called the accusations absurd and assured that “all national and international activities of Meinl Bank are in line with the relevant laws and regulations.”
Most of the money siphoned from Ukrainian banks in this scheme took place in transactions between Dec. 23, 2010, and Jan. 11, 2013, during the peak of President Viktor Yanukovych’s reign.
Serhiy Arbuzov, a Yanukovych ally, was then the head of the National Bank of Ukraine. Now Arbuzov is on the European Union’s sanctions list, under Ukrainian authorities have started criminal proceedings against him on suspicion of embezzlement through abuse of office.
Activists’ investigation shows scheme of siphoning of about $600 million from Ukrainian banks through the European banks.
The scheme
Kaleniuk told the Kyiv Post that AntAC activists and lawyers have been researching the scheme since last summer.
It worked this way: A Ukrainian bank would open a correspondent account with a foreign bank, where money was deposited and then a deposit-secured loan agreement was reached with the foreign bank.
The agreement, however, was never registered in the Ukrainian bank’s books nor secured with the obligatory reserves.
The money on the correspondent account was used as collateral in the loan agreement between the foreign correspondent bank and a third party.
The third party was usually an offshore shell company, activists say. In their words, the shell companies were linked with senior management or owners of the Ukrainian banks, although without contractual relations with them.
All the 10 Ukrainian banks that the activists say used this scheme have gone insolvent since and the state introduced interim administrations to them.
When the Ukrainian bank faced financial problems, the foreign correspondent bank withdrew the money from the correspondent account to secure the loan as specified by the agreement.
However, the hard copies of the loan agreements could not be found in the Ukrainian banks after the interim administrators took over, activists say. Therefore, the legitimacy of such debiting of money from the correspondent account cannot be checked.
Activists say that the Austrian banks, Meinl Bank AG being one of them, didn’t respond to requests of the temporary administrations of the Ukrainian banks to send copies of the agreements.
Meinl Bank avoided Kyiv Post questions about whether it received such requests, saying that “due to the laws of bank secrecy Meinl Bank as a matter of principle does not discuss its operations in the public,” and “it would be absurd to make the bank responsible for problems which lead to the closure of almost the half of Ukrainian banks.”
AntAC’s research suggests that Meinl Bank AG was involved in siphoning money from Ukrainian Pivdenkombank, Kyivska Rus, City Commerce Bank, Avtokrazbank and Tavrika. 
Most of the money, according to the Anticorruption Action Centre, were laundered through Austrian Meinl Bank. Meinl Bank calls the accusations “absurd.”
Insolvent banks
All of these banks were declared insolvent, which means that money from their clients’ deposit accounts have to be compensated by the State Depository Insurance Fund. According to Ukrainian legislation, it compensates the entire deposit up to Hr 200,000 ($7,400).
As of February, there are 65 insolvent banks in Ukraine. The State Depository Insurance Fund has already repaid about Hr 69.3 billion ($2.6 billion) of insured deposits.
According to AntAC’s report, temporary administration of the insolvent banks submitted criminal incident reports describing the money-laundering scheme to various Ukrainian law enforcement agencies.
Some of them, including the case of Tavrika Bank, even made it to the courts.
Conflict of interests
However, the decision of the Shevchenkivsky District Court in Kyiv considering the Tavrika Bank shows that the prosecutor investigating the case didn’t clarify who benefited from the deal when Meinl Bank debited $26.5 million from Tavrika’s correspondent account.
Tavrika was declared insolvent on Dec. 20, 2012 and the State Deposit Guarantee Fund had to return Hr 211 million ($26.3 million at that time) of bank’s debt. The debt was formed because security and pledge agreement with Meinl Bank was not secured with the bank reserves, according to the court case.
Tavrika had a correspondent account with Meinl Bank since Nov. 16, 2011. Meinl Bank signed a $50 million loan agreement with Winten Trading LTD, a Cyprus-based company. The loan was supposed to finance construction loans in Ukraine by Trest Pivdenzakhidtransbud.
Meinl Bank debited $26.5 million on Nov. 27, 2012, as Winten Trading LTD did not perform its obligations under the loan agreement.
According to AntAC’s research, East Advisors, Meinl Bank’s subsidiary, owned more than 23 percent of Trest Pivdenzakhidtransbud’s shares at the end of 2012.
“At the time of debiting the money, Meinl Bank could be subject to unlawful bias and collude with Ukrainian company and bank,” researcher say.
Conflicts of interest were also possible, since one company, the Kyiv Jewelry Factory, owned shares of Pivdenzakhidtransbud and Tavrika Bank at that time.
The court, however, interpreted the actions of the bank’s authorities then as “negligence” and the responsible person – whose name is not mentioned in the court’s decision – was acquitted.
Without a proper media outcry, the rest of the criminal proceedings will face a similar end, Kaleniuk told the Kyiv Post.
Kaleniuk said she handed the details to the Austrian prosecution service and to the newly launched National Anti-Corruption Bureau of Ukraine.
She and other activists are afraid that the Ukrainian investigators will not be able on their own to investigate properly the schemes.
“The law enforcement agencies in Ukraine are in transition from a corrupt system. They are incapable of investigating such kind of complex financial money-laundering schemes properly,” the Anti-Corruption Centre report says.
Vladyslav Kutsenko, a spokesman for the Prosecutor General’s Office, told the Kyiv Post that Ukrainian and Austrian law enforcement bodies have been cooperating in several cases, saying “he could not rule out that they include” the money-laundering cases.
He also thanked the activists for going to Vienna, but recommended that they better come to the Prosecutor General’s Office and share the documents with Ukrainian bodies.
“If we want results, and not just publicity, we need to act according to the law,” Kutsenko said.
But Kaleniuk is sure that releasing the report in Austria is key to the successful investigation of the schemes.
“It’s a bit unfair: Western countries, including Austria, demand fighting corruption in Ukraine, while they are closing eyes to the white-collar crimes of the Western bankers, lawyers, accountants, shell companies who enable Ukrainian fraudsters and kleptocrats to launder proceeds of large-scale corruption,” Kaleniuk wrote in a Facebook post after the press conference in Vienna.
Kyiv Post staff writer Alyona Zhuk can be reached at [email protected]
