Auditors PricewaterhouseCoopers does not believe there is any merit to the $3bn lawsuit brought by Ukraine's largest commercial lender PrivatBank that was nationalised in late 2016, according to a statement published by the Ukrainian operations of PwC.

"We note that PwC Ukraine has not been served with any official documentation in relation to this claim and as such cannot comment in detail," the statement reads. "We do not believe there is any basis for this action and we will if necessary defend our position vigorously."

In late March, PrivatBank filed a lawsuit in the district court of Nicosia against Cyprus-registered PwC and its Ukrainian operations. the firm is the bank’s auditor and reported in 2016 that some 22% of the bank’s loans were to parties related to its owners. However, the National Bank of Ukraine (NBU), which was forced to take the bank  over at te end of the year, later found that some 98% of the loans were to related parties and the bank was effectively bankrupt with a $5.6bn hole in its balance sheet.

The claim seeks compensation of $3bn from PwC as damages for alleged losses, which, "PrivatBank asserts it has suffered as a result of serious and extensive breaches by PwC of its duties and responsibilities," primarily in auditing financial statements of the bank, the statement reads from Privatbank, which is now owned by the state.

The government nationalised Privatbank in December 2016 after it failed to fulfil a three-year recapitalisation plan. The High Court of Justice in England ruled in March that a number of companies associated with former owners’ of Ukraine's PrivatBank, Ihor Kolomoisky and Hennadiy Boholiubov, must provide detail on $1.9bn worth of transactions with the lender's funds received from other persons and froze billions of dollars of their international assets as part of the ruling.

Kolomoisky and Boholiubov have filed more than 400 counter lawsuits against the NBU claiming the bank was illegally nationalized. Former NBU governor Valeriya Gontareva threatened to bring criminal charges against the two owners if they did not return the stolen deposits by August last year, but nothing has happened.

According to PwC, the firm performed its audit of PrivatBank’s 2013-2015 financial statements in accordance with international auditing standards. However, "the audit opinion on the 2015 financial statements included a qualification in respect of related parties. transactions", the firm's statement reads.

As disclosed in the 2015 financial statements, in early 2016 PrivatBank and its major shareholders had agreed with the NBU a comprehensive restructuring plan. The day before the audit opinion on the 2015 financial statements was issued, on June 30, 2016, the NBU confirmed in a meeting with PwC Ukraine that this restructuring plan was on track. PwC Ukraine was not updated as to developments regarding that restructuring plan after the 2015 financial statements were signed," according to the auditor.

PwC added that the 2016 financial statements of PrivatBank show that to date the new management has not restated any numbers relating to 2015.

In the 2016 financial statements, management disclosed that in October and November 2016 (after the opinion for 2015 was issued) loans totalling UAH137bn were restructured - reflecting new currency, interest rates, repayment terms and collateral. An impairment charge of UAH135bn was recognised against these loans at the end of 2016, PwC added.

Earlier, Petr Krumphanzl, the new chairman of the board at PrivatBank, said that filing this claim against PwC is a logical and necessary step, in light of "the great responsibility" PwC had for auditing the bank’s financial statements.

"That firm failed absolutely to identify the ongoing operation of the huge fraud within the bank over many years which resulted in virtually the entire corporate loan book of the bank being non-performing and without any or any adequate security, Krumphanzl added. "It will now be for the Cyprus court to determine the claims being brought by PrivatBank against PwC in due course."

The stealing of depositors money by bank owners is a problem that has plagued banking sectors across the Commonwealth of Independent States (CIS), as bne IntelliNews reported in its long read “Russia’s daylight robbery,” and both Ukraine and Russia have started the laborious job of cleaning up their banking sectors with some success.

PrivatBank has instructed global litigation firm Quinn Emanuel Urquhart & Sullivan (UK) together with Cyprus law firms Antis Triantafyllides & Sons and Chrysses Demetriades & Co. to represent it in these proceedings against PwC.

Currently, the Ukrainian operations of PwC is challenging the NBU's decision to withdraw the bank auditing rights of the company in a Kyiv court after the international firm failed to identify alleged improprieties that led to a multi-billion capital shortfall at Privatbank.

The NBU has removed PwC’s local unit from the register of accounting firms authorised to audit banks because of the operation's "verification of misrepresented financial information in the financial statements of [PrivatBank]".

While banks lending to the companies connected to their owners’ industrial groups is normal in Eastern Europe, PrivatBank’s loan book was clearly an egregious abuse and little more than a scam to steal the bank’s deposits, as bne IntelliNews reported in an award-winning cover story “Privat Investigations” in November 2016 that caused a scandal in Ukraine and lead to the nationalisation of the bank a few weeks later.

Meanwhile, US-headquartered forensic firm Kroll has revealed the non-conformity of an audit report of the Ukrainian operations of PwC with real financial situation at PrivatBank, according to the NBU's statement published in January.

"The secret structure [in PrivatBank] carried out numerous operations of bank fraud and fabrication of reports by former management and directors of the bank under the leadership of former shareholders and in favour of former shareholders and a group of affiliated persons," the regulator's statement reads.

At the same time, according to Kroll, PwC's conclusions on PrivatBank's financial statements during 2007-2014 contained positive conclusions, and in 2015, the auditor provided a conditional-positive conclusion.