You're reading: BG Bank steals from sinking ship

The last months of existence were busy for scandal-plagued BG Bank.

It was hemorrhaging money with a complicated ownership structure that many trace to ex-Party of Regions lawmaker Artem Pshonka, the son of fugitive ex-Prosecutor General Viktor Pshonka. Both of them fled Ukraine shortly after their patron, ex-President Viktor Yanukovych, did. Both Pshonkas are wanted on criminal charges for abuse of office.

But someone got rich on the way out – and authorities gave them plenty of time, at least six months, to do so.

The National Bank of Ukraine declared it a problematic bank in the summer of 2014 and put it under its supervision. A temporary administrator from the Deposit Guarantee Fund was appointed in November 2014. It was shut down for good on Feb. 26 2015.

There was nothing left to save by then.

By this time, BG Bank sold domestic state bonds worth $4.7 million for just $350 and allegedly stole a €3.5 million out of a €4.6 million loan from the European Investment Bank assigned to it from the Ministry of Finance. It was meant to pay for an overhead transmission line.

Critics say that the central bank failed to prevent the fraud, which should have been visible.

The final buyer of the domestic state bonds turned out to be Investment Capital Ukraine, the finance group formerly owned by National Bank of Ukraine Governor Valeria Gontareva.

Nashi Hroshi, a team of investigative journalists which televises its findings, showed how BG Bank conducted that financial transactions and where the money went.

The Bank of Georgia sold BG Bank in 2011. After that, it twice went through rebranding, changing its name from Pershiy to BG Bank.

State bonds fraud

In October 2014, BG Bank was owned by a chain of offshore companies registered in Cyprus.
In the same month, a new management was introduced, but served only for 15 days.

Chairman Andriy Osypenko and his deputy Vadym Dratver, who had no previous experience in banking, conducted a handful of transactions.

One of them stands out: Buying domestic state bonds for $4.7 million and then selling them to a private company for $350. The bonds were resold several times and ended in the Investment Capital Ukraine finance group, co-founded by Gontareva. She left in 2014 to become central bank governor and was not involved with the company during this transaction.

“We should get to the bottom of the problem – those weren’t some random people from the street who came and bought securities for a ridiculous price,” Oleksiy Mushak, a lawmaker with the Bloc of President Petro Poroshenko told the Kyiv Post.

The stock exchange company Terra Invest was the first buyer, getting the state bonds from BG Bank for $350, or a 0.007 percent of their price.

Terra Invest resold the bonds for $6,000 to Kalyna Trade, a company with a founding capital of just $180 that is conducting wholesale trade of fruits, grain and other goods. In its turn, Kalyna Trade sold the bonds for $4.5 million to the Investment Capital Ukraine.

The ICU conducted the transaction through the Settlement Center. According to the Managing Director Kostyantyn Stetsenko, ICU has never done business with Kalyna Trade.

Acting Deputy Chairman of the central bank Kateryna Rozhkova said to the journalist of Nashi Hroshi that the resale of the state bonds “has violated all the existing rules,” but they didn’t stop it.

Valentyna Dyka, the central bank curator assigned to BG Bank, was responsible for monitoring and reporting all suspicious transactions. But Dyka didn’t notify the central bank about the sale. Soon, she resigned from the central bank.

The central bank says it didn’t pay attention to the bond sale immediately because BG Bank had no restrictions on working with securities. By the time that the National Bank noticed the sale, the transaction had noticeably changed the BG Bank’s balance significantly for the worse.

The authorities have opened three criminal proceedings against BG Bank employees who carried out these transactions. The investigators refused to reveal the names of the defendants, appealing to the secret pre-trial investigation. The only one known case is against bank’s former deputy chairman, Dratver, who is wanted for abuse of power.

Losing the state debt

Back in 2012, when BG Bank was in better shape, the Finance Ministry under Yanukovych appointee Yuriy Kobolov, now a fugitive from Ukraine on corruption charged, selected it to be the recipient of a €4.6 million loan from the European Investment Bank. The loan was meant to allow the state-owned Ukrenergo to build a new overhead transmission line.

It got the money in July 2014, when BG Bank was already in trouble and had been placed under NBU restrictions. It had had limits on cash withdrawals for several weeks and banned from accepting deposits, and had a curator assigned by the central bank.

Despite signs of imminent collapse, current Deputy Finance Minister Vitaliy Lisovenko directed the loan to the BG Bank. Several months later, the bank went bankrupt, and the loan was gone.

Ukrenergo got only €1.1 million out of promised €4.6 million before the BG Bank collapsed. The company expects the rest to be compensated by the state in 2016. Lacking €3.5 million is already budgeted, thus, Ukrenergo waits as soon as it comes through “the bureaucratic procedures.”

Before directing the money to the BG Bank, Lisovenko asked the central bank if the bank could fail, but the central bank refused to respond, citing the bank secrecy, according to National Bank of Ukraine spokesman Leonid Muzykus.

Lisovenko refused to comment on the matter.

Although the BG Bank was declared insolvent in February 2015, nearly 17 months later it is still undergoing the liquidation process. n