Only scapegoats seen found for billion-dollar bank frauds in Ukraine and Moldova

Only scapegoats seen found for billion-dollar bank frauds in Ukraine and Moldova
By Graham Stack in Berlin December 10, 2015

Two separate billion-dollar bank frauds in Eastern Europe in 2014 have gone unpunished – and in both cases law enforcement appear to have conveniently settled on scapegoats to take the blame, say observers.

Parallel to mass opposition protests in the heart of Kyiv, Ukraine’s largest ever bank fraud started two years ago – a fraud first uncovered when in February 2014 after president Viktor Yanukovych and his cronies had fled into exile a bne IntelliNews reporter pieced together scraps of a document. The scraps showed a top 10 Ukrainian bank, Brokbusinessbank, had disbursed a swathe of fraudulent loans to fictitious companies, which in turn led to $1bn being moved out of the country via a smaller bank, Real Bank.

Both Brokbusinessbank and Real Bank were controlled by Ukraine’s ‘Wizard of Gas’ Serhiy Kurchenko, a 28-year-old upstart businessman, whose has been accused of helping officials to allegedly steal funds from state energy company Naftogaz.

After acquiring Brokbusinessbank in July 2013, Kurchenko had brought in his own team of bankers to run what was then Ukraine’s eighth largest lender by assets. But as a member of the supervisory board of Brokbusinessbank he installed a banker with a strong international reputation, to whom he had no previous ties: Boris Timonkin, the long-serving head of UniCredit’s Ukrainian subsidiary Ukrsotsbank.

Kurchenko fled the country along with the president Yanukovych in February 2014, as the protests culminated in a bloody massacre on Kyiv’s Independence Square (Maidan). Timonkin left at the same time, although he claims this was for treatment for cancer, not for political reasons. But after the February 2014 revolution, criminal investigators pinned the entire blame for the massive bank fraud on Timonkin – labelling him the “leader of an organised crime group” – while Kurchenko’s placeman running Brokbusinessbank, Petro Pekur, walked away, his reputation intact, to head up another bank. “According to the criminal case against me, the only witness identified as testifying that I was the mastermind of the fraud is Pekur himself,” claims Timonkin, showing documents to this effect.

Ukraine has since failed to repatriate any assets allegedly stolen by Kurchenko, who is now based in Moscow. By contrast, in June 2014 German police arrested Timonkin at Berlin’s Schoenefeld airport. He was released on health grounds, pending a decision on extradition to Ukraine.

Timonkin tells bne IntelliNews in an interview that the reason for his arrest was that “I declined to pay bribes to the investigators”. In April 2014, after a new pro-EU administration came to power in Kyiv, Timonkin said he received demands from criminal investigators for a $500,000 bribe to “forget about him”. “I turned this down, because I believed the justice system would start to work properly under the new authorities,” explains Timonkin. “The fact is that I was not involved in the fraud so I did not have millions of cash to ‘share’ with the investigators. Then a month later I received another offer, this time for $1.5mn. I turned it down as well.”

Broke bank mountain

Timonkin explains that the fraudulent lending by Brokbusinessbank to Kurchenko’s fictitious companies, uncovered by bne IntelliNews, was paid back into the bank’s statutory capital, enabling the bank to then receive generous refinancing loans from the National Bank of Ukraine. But instead of strengthening the bank’s financial position, Brokbusinessbank lent the refinancing funds to Kurchenko’s original bank, tiny Kharkiv-based Real Bank, where Pekur had also worked prior to Brokbusinessbank. Real Bank moved the funds offshore – and then rolled down its shutters in February 2014.

“When Real Bank received refinancing loans from the National Bank of Ukraine, I asked Kurchenko to pay back the interbank loans to Brokbusinessbank. My mistake was not to have left the bank when he failed to do so. But I was preoccupied with my medical treatment, having received a cancer diagnosis. I was not running the bank, and after December 2013 I hardly had any further dealings with the bank. I never signed the document you found,” Timonkin says.

Timonkin now regrets having taken up with the notorious Kurchenko for a €100,000 per month salary. But no less a figure than the current head of the presidential administration, Boris Lozhkin, took far larger amounts from Kurchenko, he argues: Lozhkin sold his media holding to Kurchenko for a reported $340mn, with the deal closed in December 2013. Lozhkin has not confirmed the parameters of the deal, but says he received a fair price.

Timonkin argues that he had run UniCredit’s Ukrsotsbank successfully, steering the bank through the crisis of 2008-09 with its reputation intact, while forced to recognise the bank had no growth prospects. He was also voted "Banker of the Year" by both local weekly Business and the Financial Times.

By contrast, Pekur has worked at a series of second-tier banks, some of which went bust amid accusations of fraud. Immediately following the Brokbusinessbank-Real Bank fraud in March 2014, Pekur became deputy head of the management board of small National Credit bank, which went bust in June 2015. The bank is now being investigated for having laundered UAH7bn ($350mn), according to court records.

“I left National Credit in April 2015 after disagreements with the shareholder and played no part in any following events,” Pekur tells bne IntelliNews. Regarding Timonkin’s accusations, Pekur’s only comment was that he is “confident prosecutors and the courts are able to decide correctly who is telling the truth”.

Moldova Redux

In November 2014, a strikingly similar scheme was repeated in Ukraine’s small neighbour Moldova: fraudulent lending enabled around $1bn to be moved from one of the country’s largest banks, Banca de Economii (BEM), to a small bank under the control of the same shareholder, young businessman Ilan Shor, from whence the funds were moved out of the country.

And just as in Moldova, investigators appear content with arresting scapegoats. In October, Moldova’s former prime minister Vlad Filat was sensationally arrested in connection with the fraud – accused of demanding $250mn from Shor, whose business structures were the initial recipients of the fraudulent lending, before the funds were moved offshore. Filat is the only official to have been arrested for a scheme that needed backing across the board from law enforcement and financial market regulators.

Many observers regard Filat as a scapegoat for the massive heist amounting to around 20% of Moldova’s GDP, which created headlines around the world and caused international lenders to suspend support for the impoverished country. Instead, they point to Filat’s political rival, controversial oligarch Vlad Plahotniuc – alleged by his critics to control much of Moldova’s media, justice and law enforcement bodies – as being the ringleader of the fraud, with Shor as his frontman. Filat as prime minister had occasionally opposed Plahotniuc’s machinations, in word if not in deed, before being thrown out as prime minister in April 2013, one and a half years before the massive bank fraud played out.

In another parallel with Timonkin’s case, Filat’s arrest hinges on the testimony of Shor himself, as provided to Moldovan prosecutors. But Shor’s deposition is almost comical in attempting not only to absolve Plahotniuc, but to portray the oligarch as a ‘lone ranger’ fighting to stop the fraud.

According to Shor’s testimony, at a crucial meeting between him, Filat, new prime minister Iurie Leanca and Plahotniuc in October 2014, “at the end of the conversation, V Plahotniuc warned Filat that the bank [BEM] was already experiencing liquidity problems and that no funds should disappear from BEM”,  reads Shor’s deposition. “If it happens, and even if the people who keep their savings there don’t tear you apart, then I definitely promise you will get big trouble from me,” Shor said, quoting what he said were Plahotniuc’s words to Filat.

Filat is in detention and could not be contacted directly for comment.

Viorel Topa, an exiled critic of Plahotniuc, says there’s little doubt that Filat knew of the fraud and so should do jail time. “But only together with Plahotniuc and Co, and not at the behest of Plahotniuc’s prosecutors and judges. The mafia boss and Moldova’s principal robber has thrown a thief to the people in the hope that this would abate the protests, and distract from the main question: where is the billion dollars stolen in 2014?” Topa says.

The lawyer Andrei Nastase, one of the leaders of mass protests in Moldova sparked by the Moldovan bank fraud, accuses Plahotniuc of organising Filat’s arrest to trigger a political crisis and distract from his own part in the scandal. “Unless Plahotniuc is jailed or leaves the country, Moldova will remain a captive state, where the entire political class participates in the plundering of the country,” he says.

Plahotniuc for his part denies any role in the massive fraud. On October 15, the day of Filat’s arrest, he said any allegations regarding his connection to the fraud were “unproven and unfounded”. Earlier, in a rare press interview in September, Plahotniuc said: “I believe the chances [that it can be established who organised the fraud] are very good, because the [law enforcement] institutions are on the job and are benefiting from the assistance of some foreign specialists.”

If there is impunity for the parties committing such massive fraud, similar schemes could repeat at any time, warn anti-corruption campaigners. “Where the underlying structures remain intact, despite the fraud later coming to light, and even after a change in government... then there is nothing to stop such scandals repeating,” warns Transparency International’s Max Heywood.