As reported by Censor.NET, the results of the independent investigation by Kroll have been presented to the National Bank of Ukraine (NBU).
The National Bank also made public key findings of the investigation:
1. Extraction of funds.There are clear indications that loan proceeds were used to purchase assets and finance business inside and outside of Ukraine for the benefit of former shareholders and their affiliates.
2. Disguising the origins of funds. The mechanisms used to disguise the origin and destination of loan funds bears signs of a large-scale money laundering. The volume and timing of the transactions within minutes of each other and with no declared connection between the entity repaying the loan and the original borrower and the extensive use of Special Purpose Vehicle (SPV) companies based in off-shore jurisdictions, demonstrated signs of a concerted attempt to disguise the true nature of the economic purpose from regulatory and other stakeholders for the benefit of the former shareholders and their affiliates.
3. Bank within the bank. A shadow banking structure within PrivatBank was behind the coordinated manipulation of the loan book, and extraction of benefit. The concealed structure processed and facilitated the movement of the proceeds of hundreds of loans worth billions of dollars to parties related to the former shareholders and their affiliates. This shadow banking structure used hundreds of employees embedded within the bank.
4. Structure and administration of the loans. The shadow bank administered the related party corporate loan portfolio. It issued new loans, typically used to repay principal and interest on existing related party loans (Recycling Scheme), and was the architect of fund flow mechanisms to disguise the origin and destination of the loan funds, presenting a façade of an ordinary client-focused bank. The Bank attracted funds from private and commercial depositors from Ukraine and abroad, which facilitated the Loan Recycling Scheme.
This long term hiding of such a large exposure to related parties required PrivatBank to make repeated false representations of its financial position. This misrepresentation could only have been achieved through multiple instances of banking fraud and false accounting by the former management of the bank.
5. Balance sheet. Prior to nationalisation in December 2016, more than 95 percent of corporate lending was to parties related to former shareholders and their affiliates. By late 2016, 75 percent of the loan book was consolidated into loans to 36 borrowers related to the former shareholders and their affiliates. The majority of these loans remain overdue and unpaid, resulting in a loss to the Bank of at least USD 5.5 billion.
The results of the Kroll investigation confirm previous conclusions of the National Bank. The National Bank confirms its readiness to share the results of investigations with law enforcement authorities.
Earlier, Ukraine’s Prosecutor General's Office launched a probe into possible collusion of employees of Privatbank, Ukraine’s National Bank, and Kroll Associates U.K. Limited, a U.K.-based investigative firm involved in anti-corruption campaign in Privatbank before its nationalization. The PGO initiated a case into bringing Privatbank to insolvency on July 4, 2017.
Bank's Board Chairman Oleksandr Shlapak said 36 loans were signed by the former chairman of the board, Oleksandr Dubilet, with him exceeding the powers. The National Bank was provided unreliable data on uncovered credit risk and undeveloped reserves, and borrowers were not checked for relatedness, their financial position was artificially overstated.
Read more: NABU raids head office of Privatbank
On Dec. 18, the Cabinet of Ministers announced its decision to nationalize Privatbank, the largest privately-held bank of Ukraine. The government intends to issue 30-year domestic government loan notes worth 150 billion hryvnia ($5.54 billion) and become a 100-percent owner of the bank. The bank's first deputy CEO announced the decision was made after an unprecedented information attack on the bank and a threat it posed to its clients. The bank's leadership assured the clients their savings will be safe, naming it the key condition in the talks. In his turn, Minister of Finance Oleksandr Danyliuk confirmed the clients' money will be safe and protected by the state. Due to the nationalization procedure, Privatbank halted corporate transactions for one day, till 9 a.m. Dec. 20.
According to the National Bank of Ukraine, Privatbank needs 148 billion hryvnia in additional capitalization. The finance minister said that after Privatbank is stabilized, the state plans to sell it. In turn, President Poroshenko said the state guarantees safety and integrity of the client's funds.
The decision on the Privatbank nationalization has been supported by IMF, EBRD, the G7 countries, the EU and the U.S.