16 January 2018
The results of an
independent investigation by the company Kroll have been presented to the
National Bank of Ukraine. The investigation has identified that PrivatBank was
subjected to a large scale and coordinated fraud over at least a ten-year
period ending December 2016, which resulted in the Bank suffering a loss of at least USD
Key findings of the
Extraction of funds. There are clear indications that loan proceeds
were used to purchase assets and to finance business enterprises inside and
outside of Ukraine for the benefit of former shareholders and their
origins of funds. The mechanisms used to disguise the origin and
destination of loan funds demonstrated the characteristics of a large-scale money-laundering
The volume and timing of
the transactions within minutes of each other and with no declared connection
between the entity repaying the loan and the original borrower and the
extensive use of Special Purpose Vehicle (SPV) companies based in off-shore
jurisdictions, demonstrated indications of a concerted attempt to disguise the
true nature of the economic purpose from regulatory and other stakeholders for
the benefit of the former shareholders and their affiliates.
Bank within the bank. Central to the coordinated manipulation of the
loan book, and extraction of benefit was a shadow banking structure within PrivatBank. The secretive structure processed and
facilitated the movement of the proceeds of hundreds of loans worth billions of
USD to parties related to the former shareholders and their affiliates. This
shadow banking structure used hundreds of employees embedded within the bank.
administration of the loans. The shadow bank administered the related party corporate loan portfolio.
It issued new loans, typically used to repay principal and interest on existing
related party loans (Recycling Scheme), and was the architect of fund flow
mechanisms to disguise the origin and destination of the loan funds, presenting
a façade of an ordinary client-focused bank. The Bank attracted funds from private and
commercial depositors from Ukraine and other countries, which facilitated the
Loan Recycling Scheme.
This long term hiding of such a large exposure to related parties
required PrivatBank to make repeated false
representations of its financial position. This misrepresentation could only have been achieved through multiple instances
of banking fraud and false
accounting by the former management of the bank.
Balance sheet. Prior to nationalisation in December 2016, more than 95 percent of
corporate lending was to parties related to former shareholders and their
affiliates. Towards the end of 2016, 75% of the loan book was consolidated into
loans to 36 borrowers related to the former shareholders and their affiliates.
The majority of these loans remain overdue and unpaid, resulting in a loss to
the Bank of at least USD 5.5 billion.
The results of the
Kroll investigation confirm previous conclusions of the National Bank.
The National Bank
confirms its readiness to share the results of investigations with law
You can also find
results of the investigation via
The investigation by
Kroll is consistent with Ukraine's commitments to the IMF, as set out in the
Memorandum, “to perform a forensic audit of PrivatBank’s
operations to identify whether wrongdoing or bad banking practices took place
prior to the bank’s nationalisation“.
Founded in 1972, Kroll is headquartered in New
Since the financial crisis of 2007 and resultant
enhanced global regulatory environment, emerging market central banks,
governments and financial institutions have increasingly called upon Kroll’s
expertise to enhance their compliance awareness and processes, and investigate
instances of fraud, bribery and corruption.
Recent case studies include:
Working for the Icelandic government-appointed Resolution Committee to
investigate whether unlawful transactions had contributed to the collapse of Glitnir Bank
Working for the National Bank of Moldova to investigate the collapse of
three financial institutions which requires a state bail out of $1 billion
Investigating the financial network used by Iraqi dictator Saddam
Hussein to hide assets in the West on behalf of the Kuwaiti government.
Working for the Central Bank of Afghanistan to trace and recover assets
following the collapse of Kabul Bank amongst allegations of large-scale fraud
Working for the office of Special Prosecutor in Sierra Leone to conduct
an asset search investigation into former Liberian President Charles Taylor
For more information