Arrests, searches, public announcements, and missing billions —it’s been a rough 24 hours in the banking world.
On the night of Nov. 11, the National Anti-Corruption Bureau of Ukraine (NABU) announced that it had detained seven people on suspicion of embezzling $49 million. Among the seven were current and former National Bank of Ukraine employees, VAB Bank staff and representatives of private companies linked to the owner of VAB Bank.
NABU has also detained Alexander Pisaruk, the former deputy head of the National Bank and current head of Raiffeisen Bank Aval, a Ukrainian subsidiary of the Austrian Raiffeisen Bank. Pisaruk appeared in court at 11 a.m. on Nov. 12, where a judge set bail at $1.2 million. If convicted, he could face 7-12 years behind bars.
Pisaruk’s arrest is linked to a $49-million stabilization loan that the National Bank gave to the VAB Bank, which is owned by businessman Oleg Bakhmatyuk, in 2014. The bank still went bankrupt while the loaned money allegedly ended up transferred to a Cyprus-registered firm owned by Bakhmatyuk.
Authorities believe that Bakhmatyuk conspired with Pisaruk, then-deputy head of the National Bank, to get the loan illegally.
The identities of the detained have some claiming the arrests are politically motivated.
Pisaruk is close to the former governor of the National Bank, Valeria Gontareva. He was her first deputy responsible for banking supervision from 2014-2015 and became the head of Raiffeisen Bank in August 2019.
Gontareva called the detention of Pisaruk an act of harassment by the authorities. Some observers have suggested it could be an indirect attack on Gontareva, who says she has faced a campaign of protracted political harassment in recent months.
Ukrlandfarming owner and former banker Oleg Bakhmatyuk attends the meeting of US diplomat William Taylor with business representatives on June 26, 2019. (Oleg Petrasiuk)
Bakhmatyuk reacts
Bakhmatyuk also alleges harassment by law enforcement. The businessman, who was abroad when the arrests took place, said he would return to Ukraine soon and even pay off the scandalous loan.
Bakhmatyuk, who owns the Ukrlandfarming agricultural holding, owed the National Bank Hr 10.6 billion in the loans received by his two now-bankrupt banks, VAB and Financial Initiative, the National Bank said in 2016.
According to Bakhmatyuk, his debt to the National Bank now stands at Hr 8 billion, or $327 million. In the wake of the arrests, he announced that he plans to gradually pay off this debt with money that his company Ukrlandfarming generates.
Convoluted case
In October 2014, the National Bank granted VAB bank a stabilization loan of $49 million. A month later it declared VAB insolvent and decided to liquidate the financial institution.
Two years later, NABU began to investigate Bakhmatyuk due to the fact that the National Bank allocated the stabilization loan for the financial recovery of the bank right before its official bankruptcy. NABU also found that VAB did not provide the National Bank with a financial recovery plan.
Before NABU could finish the investigation, then-Prosecutor General Yuriy Lutsenko handed the case over to the police. The hundreds of case files were then stored in a building’s basement. Later, that basement flooded in suspicious circumstances, destroying the documents.
To make matters more confusing, Bakhmatyuk has his own grudge with Gontareva, whom he has accused of damaging the national economy. Gontareva’s stated intentions were to reform the National Bank and clear the banking system of corruption and fraud. During her tenure, around half of Ukraine’s banks were declared insolvent and nationalized. At the same time, the exchange rate doubled, adding to the already enormous pressure on the economy.
The night that Gontareva quit in May 2017, she said that Ukrainian oligarchs had $1.9 billion of debt to the National Bank. The largest debtors were Oleg Bakhmatyuk at over $400 million, Dmytro Firtash owing $400 million, Mykola Lagun at $327 million, Kostyantyn Zhevago with $260 million and Leonid Klimov owing $140 million, she said at the time.
After the arrests on Nov. 11, Bakhmatyuk criticized NABU, saying its actions would discourage foreign investors. He also wrote an open letter to President Volodymyr Zelensky alleging that security forces were terrorizing UkrLandFarming without reason.
In the letter, Bakhmatyuk said that his company had been harassed by law enforcement for five years. He claimed to have repeatedly suggested holding a sit-down meeting to discuss the investigation by law enforcement in order to save the company, which has a major effect on the Ukrainian economy. Bakhmatyuk also claimed he had made repeated proposals to the Deposit Guarantee Fund, which manages and liquidates nationalized banks, to constructively resolve the issue of VAB Bank’s debt.
But Bakhmatyuk “sees that NABU is working with the Prosecutor General’s Office in a framework where the law does not matter,” he said.
Zelensky has promised the International Monetary Fund (IMF) to investigate abuses in the banking system. In September, the international lender visited Ukraine for talks on replacing the $3.9-billion loans-for-reform program which expires next year. The exact size of the potential new program has not been disclosed, but it could be as big as between $5-8 billion.
The talks, however, stalled due to oligarch Ihor Kolomoisky’s attempts to reverse an IMF-backed decision of nationalizing PrivatBank, the country’s largest lender, back in 2016. PrivatBank, then owned by Kolomoisky and his business partner,was near collapse when auditors uncovered a $5.6-billion hole in its balance sheet. The International Monetary Fund will not continue to discuss giving Ukraine more loans if the courts go easy on the oligarch.
Zelensky has dismissed suggestions that he would take Kolomoisky’s side in investigations against the oligarch. But Gontareva, who earned Kolomoisky’s ire for her role in nationalization, has claimed that the oligarch organized a series of attacks against her.
In August, Gontareva, who now resides in London, was hit by a car while walking, and required extensive medical attention. Soon thereafter, her daughter-in-law’s car was torched. Then, masked men carried out searches at Gontareva’s Kyiv apartment. And on Sept. 17, an arsonist burnt down her house outside of Kyiv.
Kolomoisky denies that he is involved. Later, however, Zelensky’s former comedy group, Studio Kvartal 95, mocked the arson on the 1+1 television channel. It belongs to Kolomoisky.
