The controversy surrounding the National Bank of Ukraine (NBU) went in a new direction this week.
On July 22, Victor Kurtsev, a former NBU employee, revealed that the central bank dissolved a special unit that coordinated legal cases involving PrivatBank.
Kurtsev, who headed this Complex Projects Office, criticized the disbandment. He said it would hurt the government’s ability to defend PrivatBank and fight oligarchs. Several current and former NBU officials joined in the criticism.
“I believe that the fact that this division was disbanded weakens the positions of the NBU and the government,” the NBU’s First Deputy Governor Kateryna Rozhkova told the Kyiv Post.
Not everyone thinks so.
Artem Shevalev, a member of PrivatBank’s supervisory board, said “I strongly disagree. This is a heavily politicized manipulation.”
Several other banking experts said it’s hard to say if the disbandment will make a big difference. Serhiy Fursa, an investment banker with Dragon Capital, said it doesn’t look good.
PrivatBank itself declined to comment.
The NBU’s press office told the Kyiv Post that the Complex Projects Office is no longer needed and its functions have been distributed among other departments.
“The NBU’s position on protecting the interests of the state and depositors in PrivatBank’s cases remains unchanged: the National Bank will continue to defend the legality… of the nationalization of Privatbank and will make every effort to ensure financial stability and prevent the loss of taxpayers’ funds,” the NBU stated.
Opponents of the move worry that the NBU is playing with fire.
“Why was my office created? To avoid missteps,” Kurtsev told the Kyiv Post. ”Kolomoisky’s interests in London are defended by lawyers from the magic circle. The best companies in Britain. The same goes for all other countries, including Ukraine.”
He said these lawyers can use any mistake to their advantage, at PrivatBank’s expense, which is why having a coordinating office is important.
Background
PrivatBank is Ukraine’s largest bank by far. It once belonged to oligarchs Ihor Kolomoisky and Gennady Bogolyubov until the government found a $5.5 billion hole in its balance sheet. The bank was bailed in and nationalized in December 2016.
Since then, Kolomoisky and the now state-owned PrivatBank have been locked in hundreds of court battles in six countries. PrivatBank and the Ukrainian government are trying to reclaim the $5.5 billion Kolomoisky allegedly stole. Kolomoisky is trying to get the bank back.
The full extent of the fraud, insider lending and money laundering allegedly perpetrated by the oligarchs inside PrivatBank was uncovered by forensic company Kroll Inc, which the NBU had hired.
The NBU also hired consulting firm AlixPartners and legal firm Asters to help nationalize PrivatBank and keep it that way.
A plethora of agencies and companies were mobilized to help, including the NBU, the Ministry of Finance, the Deposit Guarantee Fund, PrivatBank itself, Kroll, and the numerous law firms.
The Complex Projects Office was created in 2017 to coordinate them.
Complex Projects Office
The office initially employed a group of 10 specialists, which was eventually pared down to six.
Kurtsev said the office limited the number of people who had access to sensitive information, concentrated legal expertise in one department and helped the many agencies work well together.
Kurtsev, Rozhkova and a source who was not permitted to speak to the media, said that the Complex Projects Office’s work was very important and led to several major legal victories.For example, they said the Complex Projects Office’s legal strategy is what led to the PrivatBank bail-in being formally recognized by the Bank of England in March.
The recognition is a huge win for PrivatBank, which will let it hold off Kolomoisky’s attacks in London courts. The London cases between PrivatBank and Kolomoisky are central to their entire international battle.
The NBU press service, however, played down the Complex Projects Office’s role, saying it only “exchanged information between different contractors and paid their bills.”
“The Office was not directly involved in the nationalization of Privatbank, the preparation of documents that helped Ukraine obtain a decision of the Bank of England on bail-in, or judicial work in Ukraine and abroad, which was carried out exclusively by the NBU and legal advisers of the NBU, according to agreements,” the central bank’s press service told the Kyiv Post.
Still, it looked like the Complex Projects Office would grow beyond just being a PrivatBank task force.
Last summer, it was told to write a legal strategy to defend the NBU’s interests against the former owners of other insolvent banks. Many were used by oligarchs and tycoons as pocket banks until they were shut down.
“The unit didn’t just work on PrivatBank related issues but also prepared international recovery efforts in which NBU refinancing was lost or embezzled,” said a source who was not authorized to talk to the media.
Disbandment
But towards the end of 2020, Kurtsev said he was called to see the head of the NBU’s legal department, who told him that the Complex Projects Office is no longer needed.
Kurtsev said that the decision made him suspicious, as he believed the office was doing a good job. Instead of being moved to a different department, he decided to quit.
“To me, this looked non-transparent and I decided that I’d leave,” he told the Kyiv Post.
What happens now is up for debate. Supporters of the Complex Projects Office believe that the NBU has lost a valuable tool that will make it less effective at standing up to oligarchs in court cases involving banks.
Others say that the central bank can do without the office, if other departments can do its job.
The NBU’s press service said the office was disbanded because it was not needed anymore — the contracts with Kroll and AlixPartners are done. The NBU now handles PrivatBank’s court cases in Ukraine, while court cases in the U.K., U.S., Cyprus and Israel are handled by PrivatBank and its legal advisers.
Shevalev said the NBU’s role in more recent PrivatBank litigation “has been very limited and there has been no change whatsoever in the level of NBU support so far, maybe even more given their push with the Bank of England bail-in recognition.”
Rozhkova said that the Bank of England’s recognition was achieved with the Complex Projects Office’s help. “We started working on it in 2017,” she said.
Proxy battle?
Several sources said they believed Shevchenko was getting rid of a successful department as a move against the bank’s old managers.
“Sometimes I got the impression that the bank’s new management was ready to sacrifice the government’s successes just to discredit the previous team,” said Kurtsev.
By previous team, Kurtsev refers to the bank’s old management team led by former deputy governor Yakiv Smolii. Smolii resigned last July, complaining about political pressure, and was replaced by Shevchenko.
Since then, almost all other deputy governors quit — some of them told the Kyiv Post that they also experienced pressure. Only Rozhkova remained and she has been at odds with Shevchenko. She was formally reprimanded for talking to the media of her own accord, violating the bank’s “one voice” policy.
Later, the Kyiv Post acquired court documents showing that Rozhkova was being investigated for alleged treason and embezzlement for working with foreign companies like AlixPartners and Kroll.
Many department heads resigned as well. Some of them told the Kyiv Post that they felt pressured by Shevchenko, saying he is fond of micromanagement and does not tolerate dissent.
Oleksandr Bevz, the head of the bank licensing department who resigned in protest at the start of July, told the Kyiv Post that department directors were either ignored or lambasted for “voting the wrong way” by the central leadership and was even chewed out by Deputy Governor Yaroslav Matuzka for doing so. Several other employees who chose to resign in July said that they endorse Bevz’s words. Kurtsev said that even relatively minor decisions at the NBU often had to get Shevchenko’s approval.
Shevchenko and the NBU denied these accusations, saying that collegial decision making is alive and well at the central bank.
