Bonnie and Clyde accused of looting Ukraine's stricken Delta Bank

By bne IntelliNews March 23, 2015

Graham Stack in Kyiv -


Ukraine's failed fourth largest bank Delta Bank suffered massive siphoning off of funds in the run-up to its collapse on March 2, local media reported, citing sources in the National Bank of Ukraine (NBU). Delta Bank's insolvency was the second biggest ever in Ukraine, although it was among scores of banks to fold since 2014.

According to the Zerkalo Nedeli weekly, prior to its collapse, the bank made suspect loans totalling some UAH4.3bn ($272mn) to 12 local companies that appear to be shell companies – one of which bore the telling name of notorious bank robbers “Bonnie and Clyde”.

The Ukrainian shell companies then moved the funds to UK and British Virgin Island shell companies in a time-honoured fashion used by numerous market players: as advance payment for import contracts, a common means of moving funds out of the country in contravention of currency regulations.

Delta Bank also on paper held nearly $0.5bn on correspondent accounts in Austrian banks, nearly all of which had to be written down in December-February as having been pledged against loans to the bank. UAH4bn on a correspondent account in Ukraine's Privatbank was also written down after claim to the funds were reassigned to unknown third parties, according to Zerkalo Nedeli.

Also in the months prior to Delta's collapse, the volume of retail deposits of less than UAH200,000, which are guaranteed by state deposit insurance funds, grew from UAH13.4bn to UAH16.7bn as corporate deposits were apparently broken up and re-categorised as belonging to individuals.

Dubious schemes

Delta Bank was declared insolvent on March 2 and the insolvency announced by the NBU on March 3. The timing is significant: Later on March 2, Ukraine's parliament passed a law increasing criminal liability of bank owners and management in the case of funds being siphoned from banks, but any irregularities associated with Delta Bank's insolvency will likely not fall under the new law.

In a speech that NBU head Valeriya Gontareva tried to deliver to parliament on March 6, but which had to be aborted after heckling by critics, she said that since 2014 illegal actions by shareholders and managers had caused a total of UAH58bn in losses ($2.5bn), prompting 239 criminal investigations.

Her speech did not specifically mention Delta Bank, which has denied any wrongdoing. “We did not siphon off any assets from the bank,” Mykola Lagun, Delta's founder, chairman and majority owner, said in a March 18 interview.

Gontareva blamed “the actions of owners of banks which have been removed from the market” for the recent wave of devaluation, alongside psychological factors such as the war in East Ukraine and statements by populist politicians.

“If we had had such an instrument [as the March 2 law] earlier, the amount [stolen] would have been significantly less, since shareholders and managers would have to think twice before siphoning off assets and blaming [subsequent insolvency] on the crisis,” she wrote in the speech, which was later published on the NBU website.

İn a report on Ukraine published on March 15, the International Monetary Fund warned that “opaque ownership structures and lending schemes have made it difficult for the NBU to limit effectively banks’ exposures to insiders". The "balance sheets of intervened banks turned out worse than the books indicated", and as a result, “little value has so far been recovered from the assets of failed banks", it added. The IMF put the cost of Ukraine's bank restructuring in 2014-2015 at 9.25% of GDP.

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