“Lozovyi Amendments” and the Case on Misappropriation of UAH 9.2 bln of PrivatBank

Authors: Pavlo Demchuk, Legal Advisor at Transparency International Ukraine,

Yulia Poltorak, HACC Case Monitoring Lawyer at Transparency International Ukraine

Earlier, we wrote about how “Lozovyi amendments” can destroy corruption investigations. Now we have a new confirmation of this statement, a very high-profile and even scandalous one.

We are talking about the case on misappropriation of UAH 9.2 bln of PrivatBank, in which HACC judges Oleh Tkachenko and Larysa Zadorozhna came to different conclusions about the expiration of terms of the pre-trial investigation. They reacted differently to the arguments of the defense against different defendants in the case. As a result, on September 9, Tkachenko released Yaroslav Luhovyi, the former director of the department of interbank dealing of PrivatBank, from custody, while on September 12, Zadorozhna imposed a UAH 1.6 mln bail on Nadiia Konopkina, the former head of the department of interbank operations of the same financial institution. 

Why this happened and who is right, find out in our material.

Problems with the calculation of the pre-trial investigation terms in the decision on Yaroslav Luhovyi

On March 16, 2018, by the Law No. 2147-VIII, amendments to the Criminal Procedure Code of Ukraine, in particular regarding the issue of the pre-trial investigation period, entered into force. Up to this point, the calculation of the pre-trial investigation period began from the date of serving the person with a suspicion notice regarding commission of a crime. Starting from March 16, 2018, this period is calculated from the moment of registration of criminal proceedings in the Unified Register of Pre-Trial Investigations until the day of applying to the court with an indictment. The idea belongs to Andrii Lozovyi, MP from the Radical Party of Oleh Liashko, so these changes were eventually called “Lozovyi amendments.” 

In this context, it is important to remember: the final provisions of the law stipulate that the above-mentioned provisions come into force three months after the entry into force of this document. These changes do not have retroactive effect and apply to cases in which information about a criminal offense was entered into the Unified Register of Pre-Trial Investigations after the entry into force of these changes. However, the law does not regulate the situations of amalgamation of criminal proceedings that were entered before March 16, 2018, as well as after that date.

The events of the alleged crimes in the case on misappropriation of UAH 9.2 bln of PrivatBank took place in 2015–2016, but the investigation started on March 6, 2017. Then, the detectives launched an investigation into the statement of PJSC CB PrivatBank about the unjustified transfer of funds to the account of PJSC IC Ingosstrah. This proceeding was registered under number 12017040000000531.

Another episode of the PrivatBank case took place in March 2015. It was then, according to the NABU, that officials of PJSC CB PrivatBank, acting in collusion with officials of the Dnipropetrovsk Regional State Administration and the National Bank of Ukraine, appropriated PrivatBank funds in the amount of UAH 9.2 bln. According to law enforcement officers, the suspects used a non-resident controlled company DROVALE LIMITED and artificially created an obligation of bonds redemption. It was this episode that the new suspicion notice to Kolomoiskyi, Luhovyi, and Konopkina concerned.

The information on this episode was entered into the Unified Register of Pre-Trial Investigations on May 11, 2018,with the case number 42018100000000448. Subsequently, it was consolidated with the proceedings 12017040000000531. 

Although there were no formal grounds for the application of the “Lozovyi amendments” in criminal proceedings, HACC judge Tkachenko still applied them when calculating the terms of the pre-trial investigation. But he did not give a specific answer when, in his opinion, the pre-trial investigation period expired. He referred to the date of the start of the investigation (March 6, 2017) and decided that the period expired either on September 7, 2018 (it was then that the 18-month period of the pre-trial investigation expired), or on February 27, 2022 (since several persons were served with a suspicion notice, in respect of whom the materials were separated from this criminal proceeding on August 19, 2022). 

Such discrepancies in the terms determined by the judge only confirm our statement that the provisions of the Criminal Procedure Code of Ukraine regarding the calculation of the terms of the pre-trial investigation need to be improved.

Judge Tkachenko’s decision seems to be justified because it is consistent with the conclusions of the Joint Chamber of the Supreme Court of October 31, 2022. Then the judges of the Supreme Court noted that it was the investigating judge who should extend the terms of the pre-trial investigation in criminal proceedings entered into the Unified Register of Pre-Trial Investigations from March 15, 2018, and consolidated with criminal proceedings initiated before that date. But in the previous article, we already criticized the approach proposed by the Joint Chamber as unpredictable for the investigative and judicial authorities.

However, the Joint Chamber of the Supreme Court changed its conclusion on September 11, 2023. The judges decided that the “Lozovyi amendments” applied to criminal proceedings, information about which was entered in the Unified Register of Pre-Trial Investigations since March 16, 2018, and did not apply to criminal proceedings, information about which was entered in the Unified Register of Pre-Trial Investigations before the specified date. However, this conclusion was formulated after the decision of judge Tkachenko.

The investigating judge’s approach to interpreting the provision of Art. 615, part 8 of the Criminal Procedure Code of Ukraine is also peculiar. But we’ll cover it later.

Approach to the calculation of terms in the decision on Nadia Konopkina

Investigating judge Zadorozhna in the case against Nadiia Konopkina, the former head of the department of interbank operations of PrivatBank, took a different approach to resolving the issue of the pre-trial investigation terms. She concluded that information on certain criminal offenses was included in the Unified Register of Pre-Trial Investigations before the entry into force of the “Lozovyi amendments.” As for the fact that information about the misappropriation of UAH 9.2 bln was entered into the Unified Register of Pre-Trial Investigations on May 11, 2018, that is, it should have already been covered by the “Lozovyi amendments,” the investigating judge indicated that information about the closure of criminal proceedings in connection with the expiration of the pre-trial investigation was not provided to her. Due to the fact that no person was served with a suspicion notice regarding the commission of this criminal offense before the date of imposition of martial law, then Art. 615, part 8 of the Criminal Procedure Code of Ukraine, which suspends the expiration of terms in proceedings without suspects under martial law, applies.

Thus, the investigating judge assessed the time of entering information about criminal offenses into the Unified Register of Pre-Trial Investigations, as well as the fact that the criminal proceedings were not closed due to the expiration of the pre-trial investigation. She also indicated that the terms from the beginning of martial law to the moment of serving the notice of suspicion did not expire due to Art. 615, part 8 of the Criminal Procedure Code of Ukraine.

According to judge Zadorozhna, the fact of serving with a suspicion notice regarding the commission of other criminal offenses that were investigated in amalgamated proceedings is not significant for determining the pre-trial investigation period. Such a notice is important for calculating the beginning of the pre-trial investigation only in relation to crimes, in regard of which the suspicion notice has already been served.

In our opinion, such an approach is preferable, but in this case, in one criminal proceeding, the terms may be calculated differently in relation to different criminal offenses, and this creates uncertainty in the implementation of judicial control.

What is the problem?

If there is a correlation between the date of entering information about criminal proceedings in the Unified Register of Pre-Trial Investigations and the application of the “Lozovyi amendments,” the pre-trial investigation bodies may abusethis. The abuse will consist in the artificial consolidation of “old” criminal proceedings with “new” ones so that the pre-trial investigation in the proceedings with the suspects is extended not by the investigating judge, but by the head of the prosecutor’s office.

In such cases, we recommended analyzing whether the pre-trial investigation was carried out according to the same facts. This will make it possible to understand whether it is really about one case in essence, or whether such a consolidation is artificial.

In the case on the misappropriation of UAH 9.2 bln of PrivatBank, we have information that in the initial criminal proceedings entered into the Unified Register of Pre-Trial Investigations on March 6, 2017, the following facts were investigated:

–       unreasonable transfer of funds on December 16, 2016, through an additional agreement in the form of indexation to the account of PJSC IC Ingosstrakh, causing serious consequences to PJSC CB PrivatBank that are more than 250 times higher than the non-taxable minimum income of citizens (preliminary qualification — Art. 364-1, part 2 of the Criminal Code of Ukraine);

–       embezzlement of funds in particularly large amounts committed by former officials of the bank in collusion with officials of the National Bank of Ukraine, after the unjustified accrual and payment of remuneration to PJSC IC Ingosstrakh in connection with the growth of the hryvnia exchange rate to the U.S. dollar (preliminary qualification — Art. 191, part 5 of the Criminal Code of Ukraine);

–       embezzlement of funds in particularly large amounts by former officials of PJSC CB PrivatBank. These persons, during the period of provision of refinancing tranches from the National Bank of Ukraine, provided loan funds to LLC PrivatOffice and Key Decision, PJSC IC Ingosstrakh, LLC Novopharm on terms knowingly unfavorable to the bank (preliminary qualification — Art. 191, part 5 of the Criminal Code of Ukraine).

In the criminal proceedings concerning Luhovyi, Konopkina and, finally, Kolomoiskyi and other suspects, on May 11, 2018, information was entered on the appeal of the National Bank of Ukraine that in March 2015, officials of PJSC CB PrivatBank, acting in collusion with officials of the Dnipropetrovsk Regional State Administration and the National Bank of Ukraine, abusing their official position, appropriated funds of PJSC CB PrivatBank in the amount of UAH 9,264,807,900. It refers to the use by these officials of the controlled non-resident company DROVALE LIMITED and the artificial creation of an obligation of bonds redemption of the series V, W, X, and Y (preliminary qualification — Art. 191, part 5 of the Criminal Code of Ukraine).

Thus, it seems that the act concerns the assets of one bank, was committed, according to the pre-trial investigation body, partly by the same persons and mostly under the same qualification. This allows us to assert that there was no abuse in the consolidation of criminal proceedings, but such a consolidation was carried out in order to increase the efficiency of the pre-trial investigation. Therefore, in criminal proceedings 12017040000000531, “Lozovyi amendments” were not to be applied.

In this case, the assessment of the terms was complicated by the unpredictable interpretation of the provisions of Art. 615, part 8 of the CPC of Ukraine.

The provisions of this part of the article allow not calculating the period of pre-trial investigation during martial law in those criminal proceedings where there are no suspects. There is an unpredictable practice of their interpreting in the HACC Appeals Chamber. It is about how judges determine whether this part of the article applies or not.

One of the first cases where the problematic nature of this provision was manifested concerned the complaint about the suspicion notice to the Opposition Bloc faction MP Oleksandr Dolzhenkov, who was suspected by the NABU and the SAPO of illegally receiving more than UAH 700,000 in compensation for renting housing in Kyiv. 

As a result of the appellate consideration of the decision of investigating judge Tkachenko on the refusal to cancel the suspicion, a panel of judges chaired by judge Danyila Chornenka came to the conclusion that it was necessary to establish whether the suspicion notice was generally served in the criminal proceedings, regardless of whether the suspect was a person involved in the relevant criminal proceedings. The court found that the terms of the pre-trial investigation expired despite the martial law because in 2019 and 2020 there were suspects. The fact that criminal proceedings against these suspects were separated from the main one did not affect the decisions of the judges of the HACC Appeals Chamber.

Here’s a bit of context that can explain the problem. Since the beginning of martial law, MPs have amended the Criminal Procedure Code of Ukraine, establishing that in factual criminal proceedings (that is, where there are no suspects), it is inexpedient to extend their terms with the investigating judge. This was neither justified before, but again, we should be “thanking” ex-MP Lozovyi. 

A little time has passed, and there is a need to improve certain provisions of Art. 615 of the Criminal Procedure Code of Ukraine, which regulates the special regime of criminal justice bodies operation under martial law. After all, these provisions have already been tested in practice and have revealed some shortcomings. 

Therefore, in August 2023, MPs amended Art. 615, part 8 of the CPC of Ukraine, stating its first paragraph as follows:

“In criminal proceedings in which, from the moment of entering information about a criminal offense into the Unified Register of Pre-Trial Investigations and as of the date of imposition of martial law, no person is served with a suspicion notice, the period from the date of imposition of martial law until the date of its termination or cancellation is not included in the general terms provided for in Article 219, part 2 of this Code.”

However, the authors directly wrote the following in the explanatory note to the draft:

“At the same time, effective investigative (search) actions in this category of criminal proceedings are objectively complicated by the conditions of martial law, the lack (destruction) of evidence as a result of hostilities, the change of location of witnesses and other participants in criminal proceedings, the seizure of part of the territory of Ukraine, and the danger of procedural actions, etc. However, the terms of pre-trial investigation specified in Article 219 of the Criminal Procedure Code of Ukraine before the day of serving the person with a suspicion notice, which are eighteen months in criminal proceedings for a grave or particularly grave crime, will expire in August-September 2023.

These circumstances indicate the need to amend the Criminal Procedure Code of Ukraine in order to resolve the issue of the terms of pre-trial investigation before serving the person with a suspicion notice, including regarding war crimes, for the period of martial law.”

Thus, MPs intended to simplify the work of the pre-trial investigation bodies by eliminating the obligation to extend such terms in factual proceedings under martial law, as well as extending the period of pre-trial investigation of criminal offenses against peace, security of mankind, and international law and order.

This suggests that the practice of judge Tkachenko in the case of misappropriation of PrivatBank funds, as well as the judges of the HACC Appeals Chamber in the case of Dolzhenkov, does not quite comply with the rules of interpretation of the provisions of the law. After all, first you need to make a literal interpretation (find out the meaning of words used in a certain regulatory framework), and then, if you need to agree on several options for understanding, target interpretation (find out the purpose of the law). 

If the provisions of Art. 615, part 8 of the CPC of Ukraine “In criminal proceedings in which … no person is served with a suspicion notice” can be understood in two meanings — firstly, the presence of a suspect in criminal proceedings and, secondly, the commission of a procedural action “serving with a notice of suspicion” in criminal proceedings — then one should refer to the logic of the legislator when introducing such amendments to the CPC of Ukraine.

It can be assumed that the legislator intended to facilitate the work of pre-trial investigation bodies in those criminal proceedings where there are no suspects. After all, if there is a suspect, their procedural interest in the form of a quick pre-trial investigation should be protected through judicial control. And if not, then there are no rights that the investigating judge should monitor.

That is, the conclusion that when in criminal proceedings certain persons were served with a suspicion notice earlier, and then the materials concerning them were separated, the investigator still needs to extend the terms of the pre-trial investigation with the investigating judge, is incorrect. In other words, they do not need to waste time because there is a direct permission from the law not to extend the terms.

It should be noted that as of today, the decision on serving Dolzhenkov with a suspicion notice is being reviewed in the court of cassation. 

Court decisions adopted in the case on the misappropriation of UAH 9.2 bln of PrivatBank will be appealed. We will closely monitor the progress of the case and look forward to the resolution of controversial issues in the interpretation of criminal procedural law.