Corruption Drama with PrivatBank. Pending Investigations and Charges Kolomoiskyi Faces

Author: Pavlo Demchuk, Legal Advisor at Transparency International Ukraine

Ihor Kolomoiskyi, the former owner of PrivatBank and the ex-head of the Dnipropetrovsk Regional State Administration, continues to collect criminal cases against his alleged past frauds. Since last autumn alone, he has been served with a number of suspicion notices by various law enforcement agencies, and it appears that this trend might intensify. Moreover, the topic of fraud in the bank still comes up in news headlines from time to time.

There have been no verdicts in the cases against Kolomoiskyi, but are there even any grounds for them?

Read on to find out about the charges Kolomoiskyi faces, how many cases he is involved in, and which episodes regarding PrivatBank were of interest to the investigators.

What is the number of Kolomoiskyi’s suspicion notices?  

First of all, we would like to mention the suspicion notice that the detectives of the Bureau of Economic Security (BES), together with the SSU, served Kolomoiskyi with on September 2, 2023.

Photo: Security Service of Ukraine

On September 15, it got updated; now, Kolomoiskyi is suspected of fraud, money laundering, seizure and disposal of other people’s property, as well as forgery of bank documents.

On September 7, 2023, right after the SSU and the BES, the NABU and the SAPO served Kolomoiskyi with a suspicion notice of conversion of bank funds worth more than UAH 9.2 billion.

Photo: NABU

In addition to him, five other senior managers of the bank were served with suspicion notices in this case:

–       Yaroslav Luhovyi, head of the Interbank Dealing Department,

–       Oleksandr Dubilet, former chair of the Board of PrivatBank,

–       Liudmyla Shmalchenko, Dubilet’s deputy,

–       Nadia Konopkina, head of the Interbank Operations Department,

–       Tetiana Yakymenko, deputy head of the Department for Servicing Correspondent Banks.

On May 8, 2024, investigators of the National Police served Kolomoiskyi with another suspicion notice of committing a crime related to the organization of a contract killing. According to the investigators, he ordered the murder of a director of one of the law firms in 2003. The lawyer survived, but for ordering his murder, Kolomoiskyi faces imprisonment for up to 15 years or life imprisonment.

Thus, Kolomoiskyi now appears as a suspect in at least three cases opened in various law enforcement agencies. Further in the text, we provide details of the first two suspicion notices.

Fake deposits in PrivatBank: BES suspicion notice

The BES is investigating an episode regarding bank money laundering during 2013-2021. In this case, Kolomoiskyi is charged with Article 190 and Article 209 of the Criminal Code of Ukraine—fraud and money laundering.

Detectives found that in December 2013, Kolomoiskyi had allegedly deposited UAH 949 million in cash in PrivatBank.

According to the investigators, there were no deposits, and one of the bank employees drew up a number of documents for the transfer of funds, which confirmed the fact of Kolomoiskyi depositing the cash. Subsequently, another employee transferred this “cash” to Kolomoiskyi’s personal account as non-cash funds.

In February-April 2013, Kolomoiskyi concluded loan agreements between the bank and the PJSC Naftokhimik Prykarpatty, controlled by him. Kolomoiskyi himself acted as a guarantor to ensure the fulfillment of the company’s obligations under these agreements. Subsequently, he allegedly repaid the loan; thus, the company was in debt to Kolomoiskyi, artificially owed him money, and transferred the funds to his IBOX bank account in May-October 2020. This scheme resulted in the conversion of approximately UAH 572 million by Kolomoiskyi.

To carry out the rest of the plan, Kolomoiskyi purchased foreign currency in euros and concluded legal services agreements with foreign non-resident companies in 2020-2021. Subsequently, he “paid” for them under the agreements and transferred the money abroad to 4 different accounts.

In the updated suspicion notice, the BES in fact covered a similar scheme, but for a wider period of time. The “collection” of incriminated articles now includes Art. 200, Art. 191, and Art. 209 of the Criminal Code of Ukraine—the organization of forgery of documents for transfer, as well as conversion and use of other people’s property.

According to the investigation, Kolomoiskyi created and headed an organized group of PrivatBank employees, which allowed him to seize more than UAH 5.8 billion in total for 2013-2014. Here again we have the story of an artificial deposit of cash into the bank’s cash desk, fictitious cash transactions, forgery of documents, and transfer of non-cash funds to Kolomoiskyi’s personal account.

According to the investigators, to legalize the stolen billions, Kolomoiskyi paid with them in his business activities. In particular, he gave out the money as loans, paid out the loans provided to enterprises under his control, transferred the money abroad, and withdrew cash in PrivatBank branches.

Under this case, he will be in custody until June 2, unless the court extends this interim measure or Kolomoiskyi pays almost UAH 2 billion of bail. By the way, its size initially amounted to UAH 509 million, later it was increased to UAH 3.8 billion, and now it is UAH 1.96 billion.

The court also seized Kolomoiskyi’s corporate rights in a number of companies, in particular POLTAVAOBLENERGO JSC, VALENTINA CINEMA LLC, Starlight LLC, and others; the appellate instance supported this decision.

Under this case, Kolomoiskyi faces a maximum sentence of 15 years in prison (according to the rules of punishment) with deprivation of the right to hold certain positions or engage in certain activities for up to three years and with confiscation of property.

Kolomoiskyi will not be able to conclude a plea agreement with the investigation under this suspicion notice because he is charged with organizing the commission of particularly grave crimes.

“Bank rehabilitation” for UAH 9.2 billion: NABU suspicion notice

The NABU, for its part, is investigating an episode regarding the events of January-March 2015. It was then, according to the detectives, that Kolomoiskyi, together with his accomplices, misappropriated UAH 9.2 billion of bank funds to further finance the controlled offshore company and increase his own share in the authorized capital of PrivatBank. Thus, Kolomoiskyi “fulfilled” the requirements of the National Bank of Ukraine under the PrivatBank Financial Rehabilitation Program for 2015-2017.

The defendants artificially obliged the bank to redeem its own bonds from the offshore company DROVALE LIMITED. Subsequently, more than UAH 446 million was transferred to the accounts of related legal entities for the purpose of legalization under the guise of securities purchase and sale transactions. In the end, the funds went to Kolomoiskyi’s personal account, who added them to the authorized capital of PrivatBank.

Scheme of bank funds’ seizure. Image: NABU

From March 2, 2014, to March 24, 2015, Ihor Kolomoiskyi served as the head of the Dnipropetrovsk Regional State Administration. That is, he was a civil servant of the “A” category, which places the case under the NABU jurisdiction. 

The NABU suspects him and five other former senior managers of the bank under Articles 191, 209, and 366 of the Criminal Code of Ukraine—fraud, forgery and use of property obtained by criminal means. The NABU case of UAH 9.2 billion was called the most large-scale in 2023.

An interim measure was not imposed on Kolomoiskyi, but on September 8, detectives seized his assets for 48 hours. However, the investigative judge of the HACC did not support this decision, neither did the Appeals Chamber. Back then, there were critical problems with the calculation of the terms of the pre-trial investigation in these criminal proceedings.

Does the NABU case have a chance?

In September 2023, the HACC closed the proceedings on the imposition of interim measures on members of Kolomoiskyi’s organized group. In particular, on September 9, the investigating judge of the Anti-Corruption Court released Yaroslav Luhovyi, the former director of PrivatBank’s department of interbank dealing, from custody due to the expiration of the pre-trial investigation. We covered it more here.

This caused a blaze of publicity. Subsequently, the appellate instance left the investigative judge’s decision unchanged. Although this decision is not subject to cassation appeal, on December 20, 2023, the Cassation Criminal Court of the Supreme Court opened proceedings under the cassation appeal of the prosecutor: “To ensure a uniformity of case-law and apply the rule of law in cases of this category correctly, the panel of judges considers it necessary, as an exception, to open proceedings.”

Already on January 30, 2024, the HACC AC, for its part, calculated that as of January 1, 2024, the terms of the pre-trial investigation in the case had not expired; therefore, it was still ongoing and the service of suspicion notices in September was carried out lawfully and within the time limit.

These are good signs because the case did not stall and may not be closed. The Supreme Court will help clarify the issue of compliance with the terms of the pre-trial investigation. The cassation hearing is scheduled for June 13, 2024.

In this case, Kolomoiskyi is also facing a maximum sentence of 15 years. In this case as well, Kolomoiskyi cannot conclude a plea agreement, given the incriminated offense and the case-law of the HACC.

PrivatBank cases in which Kolomoiskyi is not involved

On September 6, 2023, the NABU and the SAPO referred a case of embezzlement of more than UAH 8.4 billion from PrivatBank to court. The investigation was completed in October 2022, and the defense was reviewing case materials for almost a year.

Kolomoiskyi is not among the accused in this case, but there are six people who worked in the bank before its nationalization. These are defendants in other proceedings:

–       Oleksandr Dubilet, former chair of the Board of PrivatBank,

–       Volodymyr Yatsenko, former first deputy chair of the Board of PrivatBank,

–       Liudmyla Shmalchenko, former deputy chair of the Board of PrivatBank,

–       Olena Bychykhina, former head of the Financial Management Department,

–       Nadia Konopkina, former head of the Interbank Operations Support Department,

–       Natalia Onyshchenko, head of the Operations Department.

The case consists of three episodes related to the withdrawal of funds from the bank on the eve of its nationalization in December 2016.

According to the investigation, in the first episode, the accused persons paid more than UAH 136 million in favor of the insurance company Ingosstrakh IC PJSC on the basis of false documents. They did this because they realized that they would later lose control over the funds of PrivatBank, which was to come under the control of the state as insolvent.

The NABU separated the embezzlement of UAH 8.2 billion of the bank’s funds as the second episode.  According to the prosecution, then the ex-chair of the Board Dubilet ordered an unreasonable write-off of money from the correspondent accounts of PrivatBank in one of the European banks, allegedly to repay the debt to two agricultural trading companies.

To disguise the embezzlement of funds and legalize the scheme, former senior employees of the bank forged bank documents and carried out fictitious lending to a bank-related legal entity.

The third episode concerns the payment of UAH 85 million from PrivatBank in favor of the controlled company Novopharm II LLC, again based on fictitious documents.

The NABU stated that the investigation into other episodes was still ongoing, so the already exposed facts of corruption in PrivatBank were not exhaustive. The total scope of materials in this case already exceeds 2,500 volumes; it turned out to be one of the most large-scale in the history of anti-corruption bodies. These three episodes are already being heard by the court.

What will happen next? 

So far, it is premature to predict the approximate completion and results of the investigations into Kolomoiskyi.

In the case investigated by the BES, the period of pre-trial investigation was extended until June 2, as well as the period of detention of Kolomoiskyi in custody. As far as the NABU case is concerned, the investigation was suspended to fulfill requests for international cooperation.

The case of the UAH 8.4 billion embezzlement of PrivatBank funds, in which Kolomoiskyi is not involved, is already in court; preparatory proceedings are now underway. We are following any updates in the case.

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All these cases show that law enforcement agencies can investigate even people like Kolomoiskyi. However, as in every such case, only a court verdict can be a real indicator of the effectiveness of law enforcement officers.

Considering the more recent investigations against Kolomoiskyi by the BES and the NABU, we very much expect that they will be completed and referred to court. No indictments in these cases will mean another demonstration of an all-talk-and-no-action approach. This, given the initiated cases in the ECHR, might indicate problems in the newly created investigative bodies.