Ukraine’s PrivatBank financial fiasco – were IMF loans ‘misdirected’?

THE FOLLOWING IS A COMMENTARY:

Recent articles in Ukraine’s press have exposed yet another major scandal. One of the major banks which has recently been nationalized, PrivatBank allegedly helped Ukraine’s President Poroshenko launder 30% of its loans, while the other 70% were outright stolen by officials of the International Monetary Fund (IMF), Ukrainian press alleges. Regardless of the veracity of some of these claims, U.S. should not take the money flight from Privat Bank lightly. If the allegations are true, the PrivatBank financial fiasco will have tremendous impact not only on Ukraine but on Europe and U.S. allies. Any misappropriated funds must be returned and deployed according to their legitimate purpose.

Here is the story that recently unfolded in the press. Per Ukrainian and Russian press (apostrophe.ua, iland.tv, from-ua.com, antikor.com.ua, vlasti.net, and many others), the International Monetary Fund (IMF) loans “passed” through the recently nationalized PrivatBank and ended up on the accounts of shell companies and nominees leading all the way up to the entourage of the President of Ukraine and Ukraine’s ex-Finance Minister Natalia Yaresko. Prior to being nationalized, PrivatBank was controlled by a notorious Ukrainian-Israeli business tycoon, Igor Kolomoyski.

This became known after the audit of PrivatBank by the global powerhouse audit and advisory firm Price Waterhouse Coopers (PWC). Officially, the information has never been made publicly available due efforts of certain Ukrainian elite (bureaucrats, elected officials, and oligarchs that rule Ukraine). PrivatBank persistently shies away from comments, but PWC services contract got canceled, and a new auditor was brought in. This is reported by publishing houses “Ministry of Finance” and “Delo.”

The audit of the annual financial statements of PrivatBank will now be led by Ernst & Young (E&Y), another top tier accounting firm. Ukrainian press claims that a source at the PrivatBank said that its Supervisory Board had selected this new auditor, but officially a contract has yet to be finalized. Per Ukraine’s media, however, the previous audit reports were not to the National Bank’s liking.

It recently became known that the problems of the previous audit concerns assessment of pledged assets in PrivatBank. Ukraine’s National Bank believes that PWC drew improper conclusions. Consequently, the auditors were not simply “fired”, rather the anti-corruption bureau of Ukraine insisted that the Ukrainian office of PWC be closed altogether. “We have questions concerning PWC’s assessment of pledged assets in both PrivatBank and another operating bank, which we can not name. Almost all of their reports we saw contained serious shortcomings making them poor and unprofessional,” stated Ihor Budnyk, Director of Risk Management Department of the National Bank of Ukraine.

Under the pressure from the National Bank of Ukraine, the State Property Fund revoked PWC’s audit license, but the accounting giant received a new certificate after 6 days.

What did the international auditors dig up in PrivatBank? For what reason did they end up being “witch-hunted”, inquires Ukrainian press? It is likely that PWC reports contain the answers, but they have not been made public. A source at PWC reports that the audit results were sent to the US entity that financed Ukraine’s loans intended for public use. According to it, the auditors discovered the misuse of large loans, which were transferred to Ukraine (and to NBU, in fact) through the International Monetary Fund.

The auditors found a “chain” by which the IMF’s money was transferred by the National Bank of Ukraine to the accounts of nationalized PrivatBank under different “economic” pretexts. Further, this money was directed through alternative channel through PrivatBank, allege numerous Ukrainian articles. Purportedly, the audit found out that the money was received by front entities from the entourage of key figures in the Ukrainian administration. Then, IMF decided to conduct a financial audit of the National Bank of Ukraine for misuse of credit tranches. Ukraine anti-corruption agency, NBU neither confirms, nor refutes this information.

There is not much doubt that the financial audit of the National Bank of Ukraine will take place. The experts who had access to the PWC audit results concerning the use of IMF loans said that Ukraine had received only 30% of the money allocated for reforms. It was these 30% that the leadership of the country passed through the bank and hid in private accounts.

Where is the remaining 70% of the loans? According to some Ukrainian press, these funds did not reach Ukraine. They were allegedly carved up by structures affiliated with the Managing Director of the IMF, Christine Lagarde, Assistant Secretary of State for European and Eurasian Affairs, Victoria Nuland, and U.S. retired diplomat Madeleine Albright. There are other well-known names on the list. Ukrainian media further asserts that the main objective of IMF auditors in Ukraine will be to manipulate documents and facts in such a way as to underpin a legitimate use of loans by officials in Ukraine. Both NBU and IMF will do everything to bury the facts that may expose mass corruption to the Trump Whitehouse.

What are the consequences of this alleged international scam for Ukraine? They are dire. In fact, if the IMF loans were “misdirected” or pocketed, it will be Ukrainian people who will have to return these millions along with interest. After all, the funds were officially allocated for reforms and anti-corruption efforts (ironically). To this end, it would be in U.S. best interest to investigate the alleged financial fiasco at Ukraine’s PrivatBank, and, if the allegations prove true, encourage Ukrainian and European authorities to hold the culprits accountable.