Georgia’s London-listed TBC Bank is under investigation for “activities [that] clearly showed the characteristics of legalization of illegal income, i.e. money laundering, and other illicit acts”, according to a statement from the Office of the Prosecutor General (POG) of Georgia.
Largest Georgian lender TBC—included in the London Stock Exchange’s FTSE 250 Index since June 2017—responded to the announcement by saying it is the target of “dark PR” and a “deliberate attempt to discredit and tarnish its reputation”.
POG is probing events said to have occurred more than a decade ago. It said that in May 2008 two companies, Samgori Trade LLC and Samgori M LLC, received a loan worth $17mn from TBC, without the provision of any security and through an accelerated procedure. “As soon as the loaned funds were credited in the accounts of the companies, [TBC co-founder and chairman] Mamuka Khazaradze and [TBC co-founder and deputy chairman] Badri Japaridze borrowed the same amount which TBC Bank had lent to the aforementioned companies for the purpose of financing working capital,” POG added.
Loans written off ‘without grounds’
By the end of 2008, said POG, TBC wrote off the loans to the Samgori companies without any grounds and earlier than stipulated by banking regulations, prior to moving them to an external balance account and, in 2012, exempting the companies from liabilities owed when agreeing to transfer the liabilities to an offshore company. The offshore entity was said to have not yet made any repayment on the loan.
The loans “were written off in such a manner that these companies have not paid any commissions and these loans have not been repaid to the bank”, the prosecutors said.
Statements made by Khazaradze’s lawyer show that the bank chairman has stated that the loan made to him and Japaridze has been repaid from borrowings provided by unspecified natural persons. But, without explaining the point further, POG noted that Khazaradze and Japaridze were yet to repay a loan from the Samgori firms.
“Rumors… are nonsense”
“The rumors about money laundering are nonsense. The operation was absolutely open and transparent,” Zviad Kordzadze, Khazaradze’s lawyer, argued in comments reported by Georgia Today on January 9. He confirmed to the publication that Khazaradze had been questioned by POG representatives several days prior to the new year.
The owner of the Samgori companies, Vakhtang Tsereteli, said in a Facebook post quoted by commersant.ge that the borrowing of $17mn from TBC and the transfer of the lending contract to make the offshore company the debtor was legitimate business.
TBC Bank subsidiary TBC Bank JSC, meanwhile, on January 9 released a statement through the London Stock Exchange saying it had been fined Georgian lari (GEL) 1mn (GBP295,000) by Georgia’s central bank, the National Bank of Georgia, over historic “certain transactions” in 2007 and 2008.
It said the regulator claimed that these transactions, which the regulator believed were related to the chairman and deputy chairman of TBC, did not comply with relevant Georgian law concerning conflicts of interest.
TBC Bank JSC added that these transactions took place before its 2014 initial public offering and were already subject to a National Bank of Georgia inspection in 2008, which did not result in any action being taken at that time.
It was "unclear" if further sanctions would be imposed, TBC Bank JSC said, noting TBC had already challenged the fine in the Georgian courts and an injunction suspending the fine's payment had been issued.
The POG was also investigating the 2007 and 2008 transactions and TBC Bank's subsidiary, while denying the allegations, planned to "vigorously defend its position".
"It is not currently expected that these matters will result in any material consequences for the group," TBC Bank JSC said.
Opposition raises Ivanishvili factor
The move against TBC prompted some politicians to speculate that it might be linked to politics and in particular to Bidzina Ivanishvili—Georgia’s richest man who is a former prime minister of the country and the chairman of the ruling Georgian Dream party.
Gigi Ugulava, one of the leaders of the parliamentary minority party European Georgia, was quoted by Georgia Today as saying: “[Co-founders of TBC Bank Group and its chairman] Khazaradze were trying to get on well with Ivanishvili before but it did not work out… We see business cannot breathe freely.”
However, Georgian Dream MP and vice speaker of parliament Gia Volsky told the publication that he rejected the idea that political motives featured in the TBC case. “It is impossible to blame such a huge financial institution so groundlessly,” he said.
TBC Bank, together with its subsidiaries, says it is the leading universal banking group in Georgia, with a total market share of 38.4% of loans and 40.3% of non-banking deposits as of 30 September 2018, according to data published by the National Bank of Georgia.