The National Bank of Ukraine backs the decision by the Security Service of Ukraine  to initiate criminal proceedings against former employees of the Corporate Non-State Pension Fund of the National Bank of Ukraine (hereinafter – the Fund) on charges of alleged embezzlement and financial fraud (legalization of funds). 

The current management team of the Fund makes every effort, to the extent possible, to cooperate with the investigation team to facilitate the investigation into the case.

At the same time, the National Bank of Ukraine communicates that based on the analysis of annual financial statements of the Fund that was conducted by the audit company, Baker Tilly Ukraine LLC, serious breaches of the Law of Ukraine On Non-State Pension Provision, other applicable Ukrainian laws and NBU regulations have been found with regard to the investment activities of the Fund. The audit inspection has revealed violations that point to fraudulent financial transactions that led to the Fund and its members incurring losses. Based on the analysis of the Fund’s operations, it has been revealed that 

the former management team of the Fund (that was in office until November 2014) adopted investment decisions that were incompatible with the provisions of the Investment Declaration of the Fund, and were in no way justified by economic, financial or market analysis and the investment evaluation of issuers.

Investment decisions were not based on calculations and cash flow yield analysis. No assessment of issuers’ financial standing and liquidity position was made. The true size of investment costs was not assessed under a financial model. Furthermore, the former management team of the Fund approved decisions to deposit funds held by the Fund with commercial banks without making a preliminary assessment of their financial standing and solvency. Presently, the Fund is compelled to write off some assets due to the loss of funds placed with banks that are under liquidation, as well as due to the impairment of funds invested in so called “junk securities”. Therefore, the former management team of the Fund went beyond their mandate and acted against the interests of the Fund and its members.

The Fund currently continues to operate as normal, while following the conservative strategy and investing idle funds in government securities and depositing them with state-owned banks. As is the case with the entire National Bank of Ukraine system, the Fund undergoes transformation that would bring about changes to the asset valuation methods. The Fund is involved in joint efforts with the National Commission on Securities and Stock Market of Ukraine to modify the methods for calculating the net worth of the Fund. The asset valuation framework that is currently in place leads to distortions, causing the inconsistency between the estimated value of assets and their fair market value. A new asset valuation framework allowing the asset valuation to be carried out in compliance with the International Accounting Reporting Standards will soon be put in place.

For reference

The Fund was established in December 2007, when a pension contract was entered into between the National Bank of Ukraine and the Corporate Non-State Pension Fund of the National Bank of Ukraine. In 2012, the Ukrainian Academy of Banking of the National Bank of Ukraine and the University of Banking of the National Bank of Ukraine (Kyiv) joined the Fund.

To date, the employees of the National Bank of Ukraine are members of the Fund.

As a side note, following an audit carried out in October 2014, former Director of the Directorate of the Corporate Non-State Pension Fund was dismissed.

On December 3, 2014, Oleh Kurinnyi was appointed Director of the Directorate of the Corporate Non-State Pension Fund of the National Bank of Ukraine.