The ongoing investigation of top managers of one of Ukraine's largest commercial banks on suspicion of tax fraud broadens in wake of detention of two senior Crimean officials
o senior Crimean officials.
The latest addition to the case of Zaporizhya-based Sloviansky bank includes alleged machinations with domestic bonds issued by the Crimean Cabinet in 1996, which allowed the bank's clients to significantly minimize tax payments and siphon some $250 million of state funds out of Ukraine.
The affair surfaced after Crimean Finance Minister Liudmyla Denysova was briefly detained on May 10 on suspicion of illegally transferring state-owned computer equipment to a commercial firm.
Crimean Agriculture Minister Mykola Orlovsky, detained along with Denysova on suspicion of abuse of office, is still being kept in custody.
Both Denysova and the Crimean Cabinet, in a separate appeal to President Leonid Kuchma, said her detention was spurred by the organizers of the controversial bond placement, who used the peninsula's prosecutor general to try to conceal the alleged wrongdoing.
Sloviansky, which was authorized by the then Crimean Cabinet to place the bonds and handle the funds received from bondholders, gained access to the paper through a Crimean bank it owned. The bank, the Black Sea Bank of Development and Reconstruction, was appointed as the Crimean Cabinet's agent for several bond placements made in 1996.
Sloviansky is one of Ukraine's 10 largest banks, with net assets standing at Hr 556.1 million as of Jan. 1, 2000.
Denysova said that Sloviansky, in a series of transactions involving the sale of the bonds to offshore companies, managed to siphon nearly Hr 500 million out of Ukraine, taking advantage of 60 percent interest rates paid on the bonds.
“Following my appointment [as Crimean finance minister] in 1998, I looked at the deal and realized that it was not profitable for Crimea. But the legal documentation of the loan was so well formulated that it would have been ‘more expensive' to terminate the arrangement,” Denysova told the daily newspaper Den.
Banking analysts said Sloviansky may also have used the non-taxable Crimean paper to conduct a series of operations involving offshore companies to allow its clients – big industrial enterprises in Ukraine's east – to hide part of their profits from Ukrainian tax inspectors abroad.
Denysova also said Ukrainian Finance Minister Ihor Mitiukov had been aware of the bond issue and cautioned her against it.
“He knew about the scam, but he was not involved with the loan and did not sign any documents relating to it,” Denysova told Den.
“On the contrary, he was against it and advised me not to sign anything, warning that we would have to be very careful. He said that we should take the first opportunity to end the affair.”
Denysova's detention came two months after five top managers of Sloviansky, including the bank's chairman, were arrested on suspicion of massive tax fraud.
On May 16, Kyiv's Pechersk District Court declined a petition to release them on bail pending the completion of a State Tax Administration investigation, which tax authorities say would take another four months.
The Crimean Cabinet's appeal to Kuchma said the unidentified individuals involved in the case wanted Denysova to terminate the bond agreement. However, she refused on the grounds that Crimea would incur Hr 4 million in losses since the bond was to be redeemed several months later, the statement read.
“The scandal broke only after law enforcement bodies began their investigation into Sloviansky, because those responsible for placing the issue were then forced to hide evidence of their wrongdoing,” the Crimean Cabinet said.
Crimea, famous for its Black Sea resorts, has the status of an autonomous republic and, unlike Ukraine's other administrative units, the oblasts, has its own Cabinet and parliament.
The first placement of Crimean bonds was made in July 1996, when the Crimean Cabinet was headed by Arkady Demydenko, currently deputy transport minister of Ukraine. The second issue was sanctioned by the next Crimean Cabinet, which was headed by Anatoly Franchuk.
Sloviansky officials have repeatedly denied any wrongdoing, claiming that the tax authorities were merely exacting revenge on the bank soon after losing a court case that freed Sloviansky from making extra tax payments.
Kuchma singled out Sloviansky during an April 20 extended meeting of his Coordination Committee for Fighting Organized Crime, where he criticized Ukraine's security ministers for “doing nothing” to prevent the bank from transferring money abroad despite tax authorities' sanctions against Sloviansky.
But the National Bank of Ukraine along with commercial banks have protested the way the tax authorities treated the arrested Sloviansky executives.
“Unfortunately, the State Tax Administration does not recognize the presumption of innocence. In a civilized country, Sloviansky executives would be released on bail,” National Bank Deputy Chairman Yaroslav Soltys said. “They are not maniacs, murderers or rapists. It would be enough to confiscate their passports and revoke their work pass.”
Ukrainian media speculated that the sudden surfacing of the bond placement affair might just be more high-level infighting on the peninsula.
The weekly newspaper Stolichnye Novosti wrote in its May 16 issue that the detentions of Denysova and Orlovsky might have been orchestrated by some of the peninsula's top officials, interested in gaining control over the current Cabinet.
The paper in particular named Franchuk, the former Crimean premier, saying he “remains persistent in his attempts” to remove the current Crimean prime minister, Serhy Kunitsyn, and take his post.
Franchuk, whose son Igor used to be married to Kuchma's daughter, Olena, won a parliament seat during the 1998 elections and is eager to retain his former authority in Crimea, according to both domestic and foreign analysts.
“Anatoly and Igor Franchuk run the Crimea both politically and commercially. Anatoly Franchuk was Crimean prime minister, and his son Igor runs Ukraine's largest petrol company,” economist Anders Aslund of the Carnegie Endowment for International Peace wrote in a recent paper. “However, they have lost clout after Kuchma's daughter Olena divorced the younger Franchuk recently.”
