Prior to its nationalization at the end of 2016, Privatbank was the subject of large-scale and coordinated fraudulent actions causing losses of at least $5.5 billion. The National Bank of Ukraine has informed with reference to Kroll hired for the forensic audit of the bank, Interfax-Ukraine reports.
“The results of an independent investigation by Kroll have been presented to the National Bank of Ukraine. The investigation has identified that Privatbank was the subject of a large-scale and coordinated fraudulent actions over at least a ten-year period ending December 2016, which caused the bank to suffer at least $5.5 billion,” the report published on the institution’s website reads.
“There are clear signs that loan proceeds were used to purchase assets and to finance enterprises in Ukraine and abroad benefiting former shareholders and their affiliates,” it reads. “The mechanisms used to disguise the origin and destination of loan funds showed signs of a large-scale money laundering scheme. The transactions took place within minutes of each other, with no apparent connection between the entity repaying the loan and the original borrower. This timeline of the transactions, their volume, as well as the extensive use of Special Purpose Vehicle (SPV) corporations registered in offshore jurisdictions point to an orchestrated attempt to disguise the true nature of the economic purpose from the regulator and other shareholders for the benefit of the former shareholders and their affiliates,” the National Bank remarked.
“Central to the coordinated manipulation of the loan book and the extraction of profits was a shadow banking structure within Privatbank. The secretive organization facilitated the movement of the proceeds of loans worth billions of dollars to parties linked to the former shareholders and their affiliates. This shadow organization used hundreds of employees integrated in the bank,” the report reads.
“The shadow bank managed the corporate loan portfolio of the related party. It issued new loans, usually used to repay the body and the interest on existing related-party loans (Recycling Scheme) and was the perpetrator of fund flow to disguise the origin and destination of the loan money, while posing as a normal client-focused bank. The bank attracted funds from individuals and corporations from Ukraine and elsewhere, which facilitated the Loan Recycling Scheme. This long-term hiding of such an extensive exposure to related parties caused PrivatBank to make repeated misrepresentations of its financial condition. This misrepresentation could have only been achieved through numerous instances of banking fraud and false accounting by the bank’s former management,” the document reads.
“Prior to the nationalization in December 2016, over 95% of the bank’s corporate lending was made to organizations linked to the former shareholders and their affiliates. By the end of 2016, 75% of the bank’s loan book was consolidated into loans to 36 borrowers linked to the former shareholders and their affiliates. The majority of these loans remain overdue and unpaid, causing the bank to lose at least $5.5 billion,” the central bank added.
The outcome of the Kroll investigation confirms previous conclusions made by the National Bank of Ukraine, which claims it is ready to share the results of the investigation with law enforcement agencies.