PrivatBank can expect fresh hurdles in UK fraud case against former owners
15 May 2020 3:49 pm by Annie Robertson
PrivatBank is no stranger to courtroom battles: The Ukrainian lender has cases in play around the world in its long-running bid to claw back billions of dollars that it claims were spirited away by two former owners.
A win in any jurisdiction's top court is a big deal, however, so the UK Supreme Court's recent ruling in favor of an appeal by the bank will have been a red-letter day for it. The judges last month cleared the way for a showcase trial in the High Court in London — something the nationalized lender has been pursuing for years.
By now, however, that initial cheer will likely have been muted by the realization that the path to a win is going to be anything but smooth.
The state-owned lender's long-running civil claim in London alleges that former owners Igor Kolomoisky and Gennadiy Bogolyubov swindled $1.9 billion from the bank through companies registered in the UK and the British Virgin Islands.
By the time the trial kicks off — likely to be in mid-2022 — the claim is expected to have swollen to an eye-watering $4.5 billion after interest is added.
But evidence disclosure demands and the need to review a decade's worth of documentation — held by the bank’s former owners — could be used as a weapon to slow down proceedings, weaken the bank's financial position and make it a long, hard slog to claw back any funds.
An example arrived hard on the heels of the Supreme Court verdict: A remote High Court hearing last month, in which Bogolyubov was ordered to explain his relationship with a department of the bank that administered loans to his companies.
His lawyer protested that PrivatBank “shouldn’t be entitled to the information they are seeking … so that the bank can cast around to find something useful for this case.”
While such arguments are a common theme in complex trials, the high stakes in PrivatBank's UK claim translate to greater jeopardy.
Disclosure exercises, meanwhile, frequently throw up problems of documents wrongly stored, unreliably distributed between hard copy or digital files, and often even only on individuals' computers. Such obstacles could well crop up in a case that involves a number of subsidiaries, locations and parties.
Aside from PrivatBank's challenge in ironing out issues of disclosure prior to trial, other hurdles may be in the way.
One potentially significant tactic designed to cause the bank difficulty involves defense witnesses giving evidence via video link.
This makes it harder to compel witnesses to answer difficult questions, especially if Internet connections happen to drop at pivotal moments. It also becomes considerably harder to protect witnesses against intimidation, and prevent lawyers from pressuring them into answering questions in a way to benefit one of the parties.
Before PrivatBank was nationalized in December 2016, it suffered $5.5 billion in losses allegedly linked to eight years of fraudulent insider loans aimed at benefiting Kolomoisky and Bogolyubov. Both deny the allegations.
PrivatBank alleges that the money was shuttled through a subsidiary in Cyprus to avoid alerting senior bank officials that it had left Ukraine; that local regulators failed to spot the fraud; and that the funds were then offered as sham loans to shell companies held in Cyprus by offshore businesses allegedly controlled by the former owners, including those registered in the BVI.
After failing to gain traction in local courts, in 2017 the bank sought solace in the UK justice system: The High Court ruled that it had "no jurisdiction" to hear the case, but this was overruled by appeal judges late last year. The Supreme Court ruling last month halted a last-ditch attempt by the former owners to have the case thrown out again.
Alongside the UK proceedings, PrivatBank filed a civil action against Kolomoisky and Bogolyubov in the US state of Delaware in May last year, accusing them of laundering hundreds of millions of dollars in the US through commercial real-estate deals.
In December, PrivatBank launched an additional $600 million civil claim in Israel. Last month, it filed a new $5.5 billion damages claim in Cyprus against the pair, one of the bank’s former executives and two local companies it claims were involved in funneling vast sums of cash from the bank.
The bank had earlier also filed a $3 billion lawsuit in Cyprus in 2018 against auditor PwC’s Cypriot and Ukrainian arms, over an alleged breach to spot wrongdoing in the bank’s financial statements.
This catalog of legal battles makes clear the bank's determined aspirations to recoup fraud losses it alleges — seen as a step toward returning to private hands by 2022. The London proceedings, at least, suggest a long, expensive fight first.
The anti-corruption chapter in a trade agreement forged between the US and Brazil is a step in the right direction to curb transnational white-collar crime.
Goldman Sachs’ settlement with the Malaysian government in the 1MDB scandal makes it “impossible” to convict former banker Roger Ng in Malaysia.
23 Apr 2020 9:14 pm by Ana Paula CandilCompanies supplying the government with essential products during the pandemic must pay extra attention to their negotiations and pricing.