As he spoke with the Kyiv Post on June 20 at the Deposit Guarantee Fund, Kostyantyn Vorushylyn’s voice was constantly interrupted by angry protesters yelling from the outside entrance of the building.
They were people whose loans have not been paid out by Bank Mikhailovsky, which was declared insolvent on March 23.
The bank’s owner, Viktor Polishchuk, is accused by the National Bank of Ukraine of having stolen millions of dollars from Ukrainians using his shell company, Ekosipan. Polischuk is the owner of a luxurious shopping mall called Gulliver in downtown Kyiv as well as Eldorado, an electronics retail chain.
But Bank Mikhailovsky is not the only bank that has aggravated the public.
So far there are 77 Ukrainian banks that are going through the liquidation process, many of which may have as little as one performing loan. Vorushylyn is responsible for liquidating the banks and returning their assets to the state budget, and to the depositors.
Because of lucrative schemes run at many of these banks, at least $11.4 billion have disappeared from Ukrainian banks since 2014.
“It’s not that this angers me – I’m furious,” Vorushylyn said.
As of today, the Deposit Guarantee Fund has recovered only Hr 2 billion ($80 million) worth of assets through sales. It paid out Hr 74 billion (nearly $3 billion) to depositors for insured losses, but most of it was funded by taking out loans from the Finance Ministry and the National Bank of Ukraine. The money is to be paid back with an annual interest of 12 percent.
Poor sales
As of today, the fund hasn’t had to take out more money this year.
But that might change, as the fund is struggling to sell assets – mainly because of the weak judicial system, which should be punishing those responsible for deadbeat loans, and because of the highly bureaucratic processes of taking over insolvent banks.
“It’s very unfortunate, but not one shareholder, not one top manager has been held responsible for the deliberate bankruptcy of their bank. This is our problem, this is our pain,” Vorushylyn said. “Because of impunity, assets continue to be stolen.”
No responsibility
So far there have been almost 3,000 court cases filed where the Deposit Guarantee Fund referred to the General Prosecutor’s Office and to the law enforcement authorities. Of these, only six went to trial, and not one person has been held responsible, Vorushylyn said.
This, in turn, makes it very tempting for “someone else to use the same schemes.”
When asked what should be done to make sure that the asset leakage doesn’t continue, Vorushylyn ducked the question.
“The question is not for me,” he said.
He does, however, point to South Korea’s experience, where there are two prosecutors and 15 investigators working full-time on asset recovery issues for a similar fund.
“They are quite effective in getting back assets,” Vorushylyn said. He prefers this model, and says that he addressed the prosecutor’s office, Interior Ministry and Security Service of Ukraine many times about the matter, but has yet to get any response.
As of now, it is very difficult to identify who is working on which exact case, as there are many investigators involved.
‘No one to talk with’
“This is what happens: first one investigator works on a case, and then another one takes it from him, and then a third, and then documents get lost and technical problems appear,” Vorushylyn said. “And the process takes forever. And there is no one to talk with.”
“It’s as if everyone is… for returning the assets. No one says they are not. Everyone says that the ones who have stolen them should be held responsible. But we never have any final result.”
But one of the even more fundamental problems is that there is a general tendency for borrowers not to care about their credit history. Instead, they go to court.
“While in the whole world all borrowers are afraid of going to court, here we have borrowers that go to court for protection from the government,” Vorushylyn said.
Altogether, throughout Ukraine there are 150,000 court cases under way relating to banks that are undergoing liquidation. Surprisingly, the courts mainly find in favor of the fund. “Most of the time the judges make decisions that are balanced and correct,” Vorushylyn said. He said his fund wins 70 percent of the cases it brings.
The Deposit Guarantee Fund has also filed 170 civil cases when there is no way to open a criminal case or when there is no response coming from the general prosecutor’s office. But to do this, the fund has to hire lawyers, which is an expensive process.
Vorushylyn has constantly lobbied for the Cabinet of Ministers and parliament to change the law “to bring it back to the status when we didn’t have to pay for court fees.”
Changing laws
But to get concrete results, changing the legislation won’t necessarily help.
Vorushylyn echoes the words of many others in Ukraine, saying that it is much more important simply to enforce already existing laws.
“Maybe the law is not fully developed, but it is not bad,” Vorushylyn said. “The law today allows us to… go after the top managers and the shareholders.”
Public deadbeats
What does have to change in the legislation is the creation of a public list of deadbeat borrowers, so that Ukrainians can see who the crooks are and where their tax money goes.
“I personally support it,” Vorushylyn said. Officially “we have banking secrecy, but my personal opinion is that we don’t need to have any banking secrecy – banking secrecy is for a normal borrower… but for people who took away money this should be public information, so that everyone knows that they took money.”
Poroshenko connection
Some wonder, however, whether Vorushylyn is fully independent himself.
The most vocal criticism against him is based on his former connections to Ukrainian President Petro Poroshenko’s businesses, such as working previously for the International Investment Bank, Bogdan Corporation and Mriya Bank, which now belongs to Russian-owned VTB Bank. Vorushylyn denies any conflict of interest.
“There could only be a conflict of interest if Poroshenko would be buying assets. But believe me, he is not buying anything, and his companies are not buying anything either,” Vorushylyn said.
Looting assets
Regarding those who do steal, one of the biggest loopholes that allow banks to continue stealing assets is the long process it takes for a bank to be transferred to temporary administration, and then to be liquidated.
There is no quick-fix solution, Vorushylyn said.
“Banks systematically got ready for (liquidation). They were preparing ahead of time,” Vorushylyn said. “They knew that the life of their bank might come to an end.”
The head of the fund says that often times banks have professional lawyers and economists who prepare for the liquidation process far ahead of time. And it is still taking too long for the Deposit Guarantee Fund’s new staff members to understand the various fraud schemes.
“There is NBU surveillance, and we have our team of new people,” Vorushylyn said. “But on their side there are many more people thinking up ways to construct a system of asset extraction. And they’re not stupid people.”
Moreover, not all banks remove their assets right before the temporary administration comes in – some of them remove them much earlier.
But perhaps even a bigger problem is that the central bank’s surveillance team only has the right to observe, and not to take action on the spot when a violation is detected, according to Deposit Guarantee Fund’s head.
“The NBU must have the right and also the obligation to put in their own administration right away to replace the bank’s administration if the bank has problems,” Vorushylyn said. “The curator of the NBU can only observe, he can’t even stop any of the operations.”
