Date: October 6, 2017
Over 90 banks have been shut down, yet only a handful of cases against the top-managers and the owners of these institutions have been passed over to the courts. The reasons are sabotage by the law enforcement and absence of political will.
Despite the active work National Bank of Ukraine (NBU) and Deposit Guarantee Fund (DGF) have done on shutting down financial institutions and despite the law on the responsibility of shareholders for allowing a bank's bankruptcy, not one owner has so far been convicted and given a prison sentence.
Moreover, a significant share of the cases open based on the results of inspections by NBU and DGF have been simply closed by the law enforcement. The Fund officials say this is a result of the sabotage by the law enforcement. However, the situation is not that unambiguous.
In early September, as a representative of the Parliamentary Committee on Financial Policy and Banking, I submitted requests to NBU and DGF asking for information on the progress of the criminal cases related to the bank failures.
We wanted to find out how many cases have been passed over to the law enforcement agencies, when the schemes for siphoning funds out of the country were discovered in the insolvent banks, how many criminal cases have been open, how many of them have been passed over to the courts, how many shareholders and top manager have borne responsibility for making nearly every second Ukrainian a victim of the banking crisis.
We received responses from both National Bank and Deposit Guarantee Fund; full texts of those are provided below. In a nutshell, the results over the three past years are not looking good.
Despite the fact that over 90 banks have been shut down, according to NBU, only 19 letters on signs of organized crime in the activity of the banks' owners have been submitted, and corresponding criminal cases were open as a result.
Moreover, about 290 notices regarding the signs of money-laundering and financing terrorism have been handed over to the law enforcement. Notices on all of such cases have been submitted to the law enforcement, related to not only the problematic banks that were eventually closed down.
Throughout this year, NBU provided access to information related to the activity of the insolvent banks more than 100 times to National Police, Security Service of Ukraine, Prosecutor General's Office, National Anti-Corruption Bureau of Ukraine, State Fiscal Service of Ukraine. NBU does not share information on the progress of proceedings, referring to the law enforcement agencies as the ones in charge of operating such information.
Neither does NBU share information on potential proceedings that have been open as a result of banking inspections that are among the direct responsibilities of the regulator.
Every time when billions of hryvnias disappeared from another bank, NBU told a similar story. Something like "we left to go home, came back next morning, and they had already siphoned everything from the bank". Or "to be able to see the full picture, we have to conduct a deep audit".
However, back in the spring of 2016, in the meeting of our committee, representatives of the National Police openly said that NBU had every ability to track siphoning operations and cancel them, as well as detect other abuses while the banks were still operating in the market, and not only after their 'failure' and their owners' flight.
Why has it not been doing so? It is a rhetorical question. Then, what is there the curator institute for?
Our committee has seen very well how suspiciously fast (sometimes without real basis) some banks that could have been saved were closed down while NBU took months and even years close down others, non-compliant with their obligations. And no NBU employee has borne punishment for that so far.
The new draft bills on National Bank and the system of deposit guaranteeing that we have proposed are precisely on the responsibility for the quality of fulfilling one's functions.
Our Committee is already preparing and will submit corresponding requests to the law enforcement regarding the above-mentioned proceedings, to find out about the progress on each of them. This is important since, judging from the results over the past three years, there has been much more talk about pursuing the crooked bankers, than there have been tangible results.
Deposit Guarantee Fund
Information provided by Deposit Guarantee Fund is more detailed. Over the past three years, 4529 statements on commitment of criminal offenses in the banks shut down have been submitted to the law enforcement agencies, 2136 criminal proceedings have been initiated. 265 of those have been closed and indictments have been sent over to the courts on only 33 of them.
From the total number of statements, 479 (22%) are related to the individuals connected to the banks. Indictments have been passed over to the courts on only 9 of them, 378 proceedings have been initiated and 18 closed.
48 individuals have been recognized suspicious of having committed an offense:
- Bank Mykhaylovskyi - 3
- Bank Standart- 1
- Kievskaya Rus - 1
- Porto-Franko - 1
- Integral-Bank - 3
- Natsionalnyi Kredit - 3
- BG Bank - 2
- IMEKSBANK- 1
- Delta Bank - 3
- Finansy i Kredyt - 5
- Pivdenkombank and Terra Bank - 7
- Bank Kontrakt - 2
- Brokbiznesbank - 7
- Radikal Bank - 1
- Starokiyevskyi Bank - 2
- Nadra Bank - 3
- Union Standart Bank – 3
However, this information is not enough to be able to tell what are the real perspectives for those bankers to be convicted and receive a prison sentence. So, we will approach the Fund and the law enforcement agencies requesting more detailed information on the progress on the proceedings related to the banks' shareholders, the reasons for the closure of the proceedings opened based on the Fund's materials, as well as the reasons why such few cases have actually reached the courts.
Another reason for concern is the difficulties that the Fund has been facing while dealing with the law enforcement. In particular, in the Fund's response to my request, it is stated that "the methods and the forms of conducting the pre-trial investigation.. cause concern and uncertainty about the comprehensive, full and unbiased investigation of the circumstances of the criminal proceedings."
"Besides, cases of inefficient pre-trial investigation have taken place, as well as premature termination of criminal proceedings, inefficient procedural process that implies, among other things, failure to undertake timely measures for gathering witness statements, holding the necessary assessments, collecting evidence necessary for establishing the guilty", the Fund's response reads.
Let me put it simply. Law enforcement agencies have been sabotaging their direct responsibilities - to defend the interests of the state and its citizens. The money that the Fund is trying to get back through the criminal proceedings are the funds every one of us, the taxpayers, have lent to it.
I am not even talking about the fact that punishing the guilty and claiming damages, as well as ensuring that the funds siphoned out of the banks are paid back, could significantly improve the situation for the depositors who have suffered – both individuals and businesses.
I appreciate the detailed response provided by the Fund, however, we will be asking for more details and facts on the inefficient investigations and other examples of reckless (or intentionally negligent) attitude of the law enforcement agencies towards their job. And then, we will be sending corresponding requests to the law enforcement agencies for them to address the matter. It is critical that we end the disorder and corruption in this sphere.
Because it looks like nobody will be taking responsibility for the billions lost because of the 'turned eyes' of the banking regulator and the law enforcement. Yet, there seems to be enough resources to pressure honest businesses that pay taxes, fabricate fake criminal cases, conduct searches later recognized as illegal.
This was exactly what I talked about with senators, congressmen, representatives of IMF and famous journalists during my recent trip to the US: corruption, including corruption in the law enforcement, is the key obstacle for the attraction of investment and growth.
And the complete absence of results of investigations of financial machinations and abuse is a clear illustration of not only the incompetence of certain representatives of the law enforcement but of the general absence of political will to solve this problem.