Once Ukraine's fourth largest bank, Delta Bank was classified as problematic in October 2014 by the National Bank of Ukraine and declared insolvent in March 2015. The state payout for the bank is the biggest in Ukrainian history, with $622 million going to people who lost their deposits.
The bank’s management, its owner Mykola Lagun and the central bank have been accused of wrongdoing by depositors, journalists and members of parliament. Lagun could not be reached for comment.
Most of the alleged wrongdoing is said to have occurred during the three months before the bank was declared insolvent, when it was under the control of a central bank curator. An investigation was launched by the General Prosecutor’s Office last April, yet no one has been prosecuted.
Despite the record payouts (under Ukrainian law, deposits are guaranteed to a maximum of Hr 200,000 or $8,000, per individual, another 40,000 of Delta’s depositors lost Hr 8 billion ($321 million) in uninsured deposits.
The state-financed fund estimates the bank’s assets will raise Hr 29 billion ($1.1 billion) at auction, though the bank’s management reported that there was Hr 80 billion ($3.2 billion) on the balance sheet upon insolvency in March 2015.
Under Ukrainian creditor law, state creditors take priority over individuals. Therefore, the National Bank’s refinancing loan, Hr 9 billion ($361 million) and the Hr 16 billion ($642 billion) initial payout will be returned first.
The depositors are in court vying for their money, but their prospects look bleak.
“The history of Ukraine hasn’t had any case were the fourth line of creditors, (individuals) got all their money,” said Roman Badalis, the lawyer representing the Delta Bank depositors. He was also a depositor in the bank and lost $10,000 not covered by the Deposit Guarantee Fund.
Given the number of awards Delta and its management won for banking and finance in the preceding years, its collapse came as a shock to many people.
What happened?
Delta Bank failed because Lagun bought up banks aggressively, without paying much attention to the quality of assets he was acquiring, Oleksandr Paraschiy, head of investment company Concorde Capital, told Kyiv Post.
“I think its success was in the owner’s strategy to expand non-organically,” said Paraschiy.
In the summer of 2014, the bank’s problems spilled out into the streets. There were queues outside Delta branches as people struggled to withdraw more than Hr 100 a day.
The central bank has been criticized for not acting earlier based on the daily accounting reports they receive from all banks. But the main criticism comes from what happened when the bank came under the supervision of the central bank. The bigger players were able to get their money out, cleaning out the bank before the liquidators arrived.
“The National Bank gives two to three months and the shareholders just get all the best assets out of the bank and when the insurance fund is there, they cannot pay the depositors because the assets are not there. What you have to do is get the assets back to get the money to pay people,” Badalis told the Kyiv Post.
National Bank of Ukraine Governor Valeria Gontareva closes her eyes as bank robbery keeps happening and no one is held responsible.
Cargill takes some assets
Days before the bank was declared insolvent, the bank’s 30 percent shareholder, American international agro-giant Cargill, reassigned some of Delta’s assets estimated to be worth the equivalent of its shareholdings and exited with Hr 2.5 billion ($104 million). Cargill says its actions comply with international law.
Badalis, who represents the depositors, says that the transaction was illegal because, by that point in time, the National Bank of Ukraine restricted all withdrawals. In January, a Ukrainian court ruled to support the liquidator in order to determine if Cargill had the right to reassign assets.
The following month, in February, a letter written by Cargill to the head of the presidential administration, Borys Lozhkin and the head of the Deposit Guarantee Fund, Kostyantyn Vorushylin, copying the U.S Ambassador to Ukraine Geoffrey R. Pyatt, was published online.
In it, Cargill emphasized its numerous investments in Ukraine, berated representatives of the government for their “negative” and “misinformed” statements on its relations with Delta and said that continued investment would depend on the government’s position being aligned with their own.
The case regarding the reassigned assets is now in the process of starting anew in court.
Refinancing themselves
In July 2015, on the court’s instructions, an unplanned state audit was carried out on Delta Bank for the period of 2012-2015. It found that the bank stole Hr 4.1 billion ($160 million) of its Hr 10 billion ($400 million) refinancing loan issued in 2014 via fictitious credit transactions to 12 affiliated companies, (one of which was even named Bonnie and Clyde.)
Ten of the companies had bank accounts at Latvia’s Baltic International Bank. The remaining two had accounts with Amsterdam Trade Bank and Trasta Komercbanka.
Investigators found that some of the directors of the 12 companies that received the money were also top managers at Delta Bank.
A criminal investigation was opened nine months ago but no one has been prosecuted.
Lagun, who is still spotted around Kyiv, places the blame on Vitaliy Masyura, the former first deputy chairman of Delta’s board of directors. Lagun alleges that Masyura acted without the knowledge of the bank’s management and shareholders. The Ukrainian police believe that Masyura is hiding in the United Kingdom.
Volodymyr Gutsulyak, who is in charge of the Delta Bank case at Ukraine’s General Prosecutor’s Office, told the Kyiv Post that they are looking at the legality of the actions of Masyura, Lagun and all others connected to the siphoning off of the refinancing. However, Gutsulyak noted that no cases had been brought against individuals, although the registered property of a number of those connected, including Lagun, has been frozen.
As far as the National Bank’s role is concerned, in April, oligarch and member of parliament Serhiy Taruta told the National Anti-Corruption Bureau of Ukraine that the central bank was aware that Delta’s management was shifting money outside the country during the supervisory period of October 2014 to March 2015.
“They gave them money which they stole and according to my sources, the leadership of the National Bank knew about this,” Taruta told the Kyiv Post. “I doubt there is the political will to get to the bottom of what happened.”
Gutsulyak says that the actions of the National Bank are also included in their investigation.
Connections matter
Documents investigated by the National Anti-Corruption Bureau of Ukraine indicate that Valeria Gontareva, the national bank governor, used her connections to help members of her family with money in Delta.
According to leaked bank statements published by investigative journalist Oleksandr Dubinsky in October 2015, Gontareva’s son and his wife were able to withdraw money from Delta before the bank collapsed. Both withdrawals happened during the interim period while the bank was under direct observation of the National Bank and months after the bank had told other depositors that there was no money left.
The leaked statements indicate that Gontareva’s son withdrew Hr 800,000 in February 2015. In the same month, his wife paid Hr 125,000 commission. Dubinsky says this means she withdrew Hr 12.5 million.
Gontareva denied the authenticity of the documents.
The National Anti-Corruption Bureau confirmed the transactions, but said that the total sum of withdrawal was Hr 125,000 and the rest of the money was transferred to a different account, and that 13,000 depositors performed similar transactions in the January-March 2015 period.
The bureau then ceased investigating Gontareva’s alleged abuse of office, saying there was no wrongdoing on her part.
The state pays twice
Yet another example of high-level schemes to ensure that certain players got their money out before the bank’s collapse involved Ukrainian state company Ukrgazvydobuvannya.
During the administration period, high-profile individual depositors purchased Ukrgazvydobuvannya’s Hr 214 million debt to Delta Bank. Meaning that the state gas extraction company would pay them instead of the bank and the other depositors would lose more assets in the liquidation process.
The 10 individuals involved include the relatives of former ministers and high-level state officials as well as directors of several oligarch-owned companies. So as state refinancing loans were funneled offshore, state-owned companies were used to reimburse the losses of members of the elite.
“They agreed with Lagun to save their own money,” Badalis said.
In April, the court backtracked on earlier decisions to rule in favor of Delta Bank in the case. And the prosecution of the individuals involved also does not look hopeful.
Gutsulyak of the General Prosecutor’s Office said that the incident was being looked at together with other cases of corruption at Ukrgazvydobuvannya.
Cutting in line
Creditors in Ukraine are prioritized depending on their status. For example, people who have been physically harmed by a bank’s insolvency are first to receive their money, individuals are fourth, and businesses and institutions come seventh.
In March 2015, shortly before Delta was declared insolvent, a few of the larger businesses and institutions were granted a special status by the bank’s management, meaning that they jump to the front of the line.
The entities in question are Oshchadbank, electronics retailer Foxtrot Group, Avant Bank and the State Mortgage Institution. The Deposit Guarantee Fund declared their statuses void and accused them of distorting their contracts with Delta Bank in order to withdraw assets. Yet in March, Oshchadbank has won its case for Hr 3 million against Lagun, which may set a precedent for the others.
“The commission…approves of the action of the central bank, but either they don’t fully understand the consequences or know what’s going on. Or they just explain it as part of the reform process because you can’t have reform without pain,” said Badalis.
