Editor’s Note: This story has been updated with additional information about the possible date of it being put to vote in parliament.
A new version of a draft law governing banks nationalized by the Ukrainian state has been submitted to parliament by the Cabinet of Ministers on March 24.
Colloquially dubbed the “anti-Kolomoisky Law” after billionaire oligarch Ihor Kolomoisky, the bill would prevent insolvent banks from being returned to their former owners. While that provision could have broad application in Ukraine, it is a clear reference to PrivatBank, previously co-owned by Kolomoisky, which was nationalized in 2016.
Originally introduced in December, the bill proved contentious in the Verkhovna Rada. Supporters of Kolomoisky lobbied for the text to be amended. Then, both versions of the bill were automatically dropped following the dismissal of Prime Minister Oleksiy Honcharuk and his Cabinet.
Now the bill is back.
“Since 2014, the (National Bank of Ukraine) has applied the market withdrawal procedure to 104 banks,” reads the bill’s explanatory note. “Some banks are attempting to return to the market again, using an imperfect judicial system… used by non-viable bank owners as a quasi-legitimate tool that counteracts all efforts by the National Bank to improve and clean up the Ukrainian banking system.”
Lawmakers hope to vote on the bill during the emergency session of parliament on March 28.
However, lawmakers are reluctant to attend parliament due to the COVID-19 epidemic. While the Rada is trying to find a way to use remote voting, the Ukrainian constitution does not provide for this possibility.
After the text of the bill appeared on the Rada website, one banking insider, who requested anonymity as he was not authorized to comment on political issues, told the Kyiv Post that he and his colleagues were now “quietly optimistic.”
The passage of this bank law is one of the International Monetary Fund’s key preconditions for granting Ukraine a $5.5 billion loan, also known as an extended fund facility. The IMF even helped draft the bill that is under discussion.
The IMF wants to be completely convinced that PrivatBank, Ukraine’s largest and most profitable bank, will not return to the hands of Kolomoisky and his business partner Gennadiy Boholyubov.
The Ukrainian state took control of PrivatBank in 2016, after $5.5 billion were found missing from its ledger. A later forensic audit revealed an insider lending and money laundering operation, which U.K. courts have called “fraud on an epic scale.”
Kolomoisky and Boholyubov have been trying to reclaim the bank and win compensation ever since.
Old versions
The original 90-page version of the bank bill was developed with the IMF and Ukraine’s Deposit Guarantee Fund. It would prevent banks that have been declared insolvent from being returned to their former owners and fast track insolvency disputes to the Supreme Court.
If the court ruled against the declaration of insolvency, that could not be used to stop liquidation. Instead, the former owners could be entitled to compensation.
The law would give the National Bank of Ukraine (NBU) the authority to remove bank heads in case of violations and spell out the NBU and Deposit Guarantee Fund’s takeover and liquidation procedure.
A second, six-page version of the bank law was then developed with the involvement of lawmaker Oleksandr Dubinsky, a journalist widely believed to represent the interests of Kolomoisky.
This alternate version reportedly stipulated that, within six months of a court decision against a bank being declared insolvent, the Cabinet of Ministers could participate in negotiations to establish suitable compensation for the former owners. Critics of this provision worried that it would give oligarchs more leverage against the government.
The six-page version did not specify how the former owners’ loss would be determined, unlike the previous version.
New version
The newest version, also developed with the IMF, specifies that if a court rules against the NBU’s declaration of insolvency, this would not restore the insolvent bank’s status, nor would it void any transactions related to withdrawing the bank from the market or liquidating it.
Ruslan Chorniy, head of market research firm Financial Club, said the new bill succeeds at compromising between many different stakeholders and is less likely to be accused of being anti-constitutional. The new version also does a better job of spelling out the legal procedures that can arise out of a bank’s declaration of insolvency.
The bill details the appeals procedure against the NBU’s decision to take a bank off the market, assign temporary administration or liquidate its assets. It also aims to streamline the liquidation procedure and the compensation mechanism for a bank’s related parties and creditors.
It would also grant no rights to anyone who participated in the bank’s management at the time of the court’s decision. If the court did rule against the NBU, the only legal remedy that would be available to a bank’s former owners would be compensation. The former owners would be responsible for proving the losses that they incurred as a result of the bank’s shutdown. The value of the bank’s shares would be based on a financial report by an internationally recognized auditor.
Additionally, a ruling against the NBU would also not free the bank’s former participants from civil, administrative or criminal liability.
The bill further specifies that legal disputes over the declaration of insolvency would be heard by administrative courts. PrivatBank’s former owners have turned both to administrative and economic courts to dispute the nationalization.
While Kolomoisky went to court to dispute the legality of the nationalization procedure, he did not dispute the presence of fraud itself.
