World Bank office becomes case study of Ukraine's legal problems

By bne IntelliNews December 8, 2014

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Men wearing military uniforms, and reportedly bearing arms, burst into the Kyiv building where the World Bank is headquartered on December 5, according to media reports,  in an apparent attempt to seize the building. The episode is the latest episode in a battle over control of the prestigious office building, and is not related to the activity of the World Bank, media reported.

World Bank staff were prevented from leaving the building, according to Forbes Ukraine, which quoted sources saying that the men were armed, although this was not visible from photos showing helmeted men wearing army fatigues. The men later left the premises after police arrived.

This is the latest move in a long-simmering dispute over the prestigious building, valued at around $12m-$16m, but before the 2008 global financial crisis worth as much as $40m.  Control over the building has recently passed to mid-ranking National Credit bank, according to Forbes and Interfax, as the result of controversial court decisions. The previous owners have launched a campaign to regain control of the premises.

The original developer and owner of the building - via holding company Lira-2000 - was the former chief architect of Kyiv, Serhiy Babushkin and his ex-wife, Forbes and Interfax report, in an extremely convoluted case. Babushkin apparently lost control of Lira 2000 to his ex-wife and her business partner, but National Credit bank, allegedly on behalf of Babushkin and new partners, in its turn seized control over Lira 2000 in September 2014, thanks to what Babushkin's wife says were dubious court decisions recognising falsified loan guarantees ostensibly provided by Lira 2000 and called in by National Credit bank. 

Both sides have tried to drag the World Bank into the corporate conflict, with Babushkin's wife holding press conferences in September 2014 calling on the World Bank to cease all payments to Lira 2000 "on moral grounds".

While the World Bank is not thought to have been targeted by December 5's raid, the case illustrates the problems with Ukraine's legal system that causes the World Bank to rank Ukraine at 96th place in the world for investment climate, in its Doing Business 2015 ranking. 

The case also highlights new problems with Ukraine's investment climate deriving from the Russian-backed separatist insurgency in East Ukraine: According to Forbes and Interfax, Babushkin regained ownership of Lira 2000 using a decision by a court in the rebel-held Luhansk region.

This is the second high profile case of corporate raiding featuring international investors and court decisions based in the rebel-held territories. The rebel-held territories in Luhansk and Donetsk region are de jure part of the Ukrainian legal space, but de facto a legal black hole.

US citizen Dorian Foyil, former owner of Foyil Securities, on November 19 accused the purchasers of his brokerage of stealing $1m still owed to him from the company, in a case in which the US embassy intervened on his behalf.  Foyil accused the new owners of the brokerage, now known as AP Securities, of stealing funds due to him via firms registered in the city of Donetsk region, currently under the control of pro-Russian rebels, and thus outside the writ of Ukraine's law enforcement organs.

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