You're reading: Despite allegations, West stands by central bank

The publication of damaging recordings in November and a string of incomprehensible actions by the National Bank of Ukraine have lent credence to allegations of wrongdoing made by experts, politicians and former central bank employees.

The deputy head of the National Bank, Kateryna Rozhkova, is accused of allowing banks to launder money, illegally sell assets and steal state refinancing loans and depositors’ money. She is also accused of using state funds to unjustifiably prop up banks connected to her personal business interests. The central bank governor, Valeria Gontareva, is accused of protecting Rozhkova.

Rozhkova and spokespeople for the NBU did not respond to requests for comment.

Meanwhile, Ukraine’s Western partners continue to voice their support for Gontareva and the actions of the NBU and have not reacted to the accusations. The International Monetary Fund’s representative office and the U.S. Embassy in Ukraine, who have been most vocal in their support, did not reply to requests for comment.

Emmanuel Mathias, senior financial sector expert at the IMF, told the Kyiv Post on the sidelines of an asset recovery conference this month that he had not heard about the allegations.

The NBU’s “clean-up” of the banking system has been hailed as the hallmark of reforms conducted by Ukraine’s leadership, with 83 out of 180 banks closed in the past two years.

But critics say that the wrongdoing lies not in closing banks, most of which were operating illegal schemes, but in how certain closures took place. In some cases, banks were receiving state refinancing despite stress tests indicating that they should have been closed over a year ago.

Rozhkova recordings

In undated recordings published online in November, a voice resembling that of Rozhkova can be heard discussing with the head of Platinum Bank Dmytro Zynkov (who formerly headed failed Nadra Bank, which owes $1.5 billion to the NBU) the need to rescind the bank’s problematic status so that the bank can continue to accept deposits.

Rozhkova admitted that the recordings are authentic in a Nov. 10 NBU statement. But she defended the conversations by saying that she talks to all the managers of Ukraine’s banks as part of her job. She also called upon law enforcement agencies to investigate who was listening to her phone calls.  She said that it had likely been carried out by those with vested interests in undermining the banking system.

Gontareva called the release of the recordings a “manipulation” and designed to “discredit” the bank in an interview with ICTV on Dec. 19.

The people in the recording also discuss disguising the real ownership of Platinum Bank. The person with the voice resembling that of Rozhkova says that the banks owners would not have to pay market interest rates for their insider loans, and saying she would make sure they got the refinancing for their “scheme operations,” while approving the payment of Platinum Bank’s employees from her office at the NBU.
Rozhkova headed Platinum Bank before joining the NBU in June 2015. She took up her current position in December 2015.

The voice resembling Rozhkova on the recordings can also be heard discussing with Natalie Dehtyareva, the director of the department of banking supervision, how to falsify information on Ukrainian banks scheduled to be given to the IMF.  The recordings also appeared to show Rozhkova agreeing to lobby for VTB Bank, Bank Mykhailivskiy, and Fido Bank.

Oleksandr Zavadetskiy was the director of the department of registration and licenses at the NBU until he says he was unlawfully fired in mid-October for not signing documents relating to Platinum Bank. He told the Kyiv Post that the NBU declared Platinum problematic more than a year ago because it had some of the worst results from the stress tests, but that Rozhkova stepped in to help the bank.

Platinum is operating and continues to receive state refinancing. It is also currently advertising high interest rates to attract depositors. Zavadetskiy said that it is not clear where this money is going as Platinum’s ownership is obscured by 11 nominal shareholders, in apparent violation of NBU regulations.

Masking ‘corruption’

Zavadetskiy told the Kyiv Post that Rozhkova’s misdeeds at the NBU are being “masked” by legitimate actions of Ukraine’s central bank.

“They are doing the right things and simultaneously engaging in corruption,” said Zavadetskiy. He says the lack of reaction from Ukraine’s Western partners is surprising, but he attributes it to the fact these activities don’t “cross the perimeter of cooperation of Ukraine with other countries” and are thus internal Ukrainian matters.

“In my view, in those matters that intersect with the strategic interests of other countries, the NBU is fulfilling their role. So, other countries, the United States and the IMF, evidently aren’t personally interested in the corrupt parts,” said Zavadetskiy.

Gontareva, who has denied allegations of corruption over the NBU’s failure to stop the management at now defunct Delta Bank and Bank Mykhailivsky from siphoning off millions of dollars worth of refinancing abroad while under the central bank’s supervision, has not questioned Rozhkova’s actions.

“When the corruption of Rozhkova became public, lots of people hoped that there would be some sort of reaction from Gontareva. But Gontareva is protecting her, so then you have to think why,” said Zavadetskiy.

West closes its eyes

Zavadetskiy says that he believes Ukraine’s Western partners are turning a blind eye to some of the activities, particularly the conflict of interests relating to members of the management, but in some cases they might unaware of what’s going on. According to Zavadetskiy, the IMF did not write into their agreements with the NBU any rules relating to conflict of interests – the NBU is charged with applying these same rules elsewhere.

“The picture we see at Platinum Bank now was created by her,” said Zavadetskiy. “It didn’t happen after she came to the NBU, but when she was still the manager of Platinum Bank. That’s her business model. Until then, she worked at FinBank, where there is exactly the same situation – just smaller. Accordingly, when she became the curator of the supervisory department (June-December, 2015), naturally she had a conflict of interests. How can she punish someone for the things that she has done herself?”

Black PR?

Gontareva has brushed off the allegations by calling them black PR, paid for by oligarchic groups who have either suffered from the banking cleanup or are seeking to bring about early elections by destabilizing the country’s economy.

Serhiy Taruta is one of the oligarchs who has led the charge against Gontareva and rejects her accusations. He says that he is campaigning against Gontareva as part of his civic duty as a member of parliament.

Taruta is arguing for Gontareva to be fired and an independent council to be created to elect a new central bank head. He says the key is for the NBU’s head not to be a political appointment so that there is no conflict of interests.

Taruta has been criticized for some of his claims. At the IMF’s October meeting in Washington, Taruta distributed a pamphlet titled “Gontareva: A threat to the economic security of Ukraine.” Aside from detailing some of the corruption allegations above, the pamphlet presented Gontareva as the source of Ukraine’s economic woes.

Vox Ukraine, an independent body of experts, analyzed Taruta’s pamphlet and concluded that the data used was correct but it was a manipulation of the facts. Taruta defended his pamphlet to the Kyiv Post by saying it not demonstrate his conclusions but the conclusions of other independent experts.

“There should be no double standards, one standard for the United States and another for Ukraine,” said Taruta, with reference to the U.S. central bank. Taruta told the Kyiv Post that the U.S. embassy “had been wrong” about disgraced President Viktor Yanukovych, and so they could be wrong about Gontareva.

While Taruta admits that some of the recent demonstrations outside of the NBU were paid for, he says he doesn’t know by whom, and says that, unfortunately, the nature of Ukraine’s political battles means that some political forces will always take advantage of a situation.

Lack of professionalism  

Researchers at Ukraine’s Anti-Corruption Action Center, a nongovernmental organization, say that although most of the banks have been justifiably closed and groups with vested interests are taking revenge, the NBU’s conduct relating to Bank Myhkailivskiy, Delta Bank, Platinum Bank, and others either indicate they lack professionalism – or that there is corruption.

“Lots of times, before the banks were closed, they siphoned off money out of the banks,” said Tetiana Shevchuk of the Anti-Corruption Action Center.

According to Olga Veretilnyk, also of the Anti-Corruption Action Center, officials at the NBU manipulate the fact that much of the information isn’t publicly available because of banking secrecy laws, and what is available is difficult for ordinary people to understand.

“If you take into account the fact that there were NBU supervisors who can see all the accounts, why didn’t they react?” added Shevchuk.

“The NBU has different instruments, it’s the same with introducing administration at the proper time – they have instruments to block the money, to stop money laundering. They are authorized to carry out monitoring and block strange and suspicious transactions. So those insider loans (used to siphon money off) – they could have blocked them, 100 percent.”