Ukraine's largest bank PrivatBank, owned by the Ukrainian government, has filed a NIS 2.1 billion lawsuit against oligarch Igor Kolomoisky and his partner, Gennadiy Bogolyubov, the former controlling shareholders in PrivatBank, and against Israel Discount Bank (TASE: DSCT). The statement of claim alleges that Kolomoisky and Bogolyubov transferred the proceeds from a huge embezzlement to an account in Discount Bank. Kolomoisky and Bogolyubov now live in Israel, and also hold Ukrainian citizenship.
According to the statement of claim filed at the Tel Aviv District Court, Kolomoisky and Bogolyubov conducted "global cross-border transactions planned and executed over many years, while committing a series of civil wrongs and serious crimes on an unprecedented scale, including fraud, theft, and breaches of the laws against money laundering."
PrivatBank says that embezzlement committed by Kolomoisky and Bogolyubov over a decade caused it unprecedented damage. The bank alleges that the two men smuggled substantial funds to Israel and deposited them in an account kept in the name of a straw company, St. John, at Discount Bank.
According to PrivatBank, the alleged fraud by its two former controlling shareholders was conducted by causing the bank to grant a long series of huge loans for ostensibly legitimate business purposes to companies that were actually straw companies under their ownership. The money from the loans was deposited in the accounts of those companies in PrivatBank's branches in Ukraine or its branch in Cyprus. The statement of claim alleges, "They immediately transferred the money from hand to hand and from account to account in order to launder it and conceal the embezzlement through a labyrinth of bank accounts in the name of other straw companies that they also owned."
According to the statement of claim, in order to camouflage this embezzlement and fraud, some of the loans granted by PrivatBank were repaid, but that this was done using new loans from PrivatBank to the companies. "This is what PrivatBank did with its money, or rather money deposited in it by customers with deposits in it and by external lenders - to enrich the controlling shareholders," the lawsuit states, describing how Kolomoisky and Bogolyubov played with huge sums at the expense of PrivatBank's customers.
PrivatBank alleges that audits by the Ukrainian central bank revealed the granting of loans on a large scale to parties related to the controlling shareholders that had been deliberately concealed. This led to the discovery of "an enormous deficit was caused at PrivatBank by the set of toxic loans," which the statement of claim says culminated in PrivatBank "being declared bankrupt, forcing Ukraine to nationalize it in order to prevent its collapse, which could have destabilized the entire financial system of Ukraine." The lawsuit says that the Ukrainian government was forced to inject over $5.5 billion into PrivatBank in order to help it recover.
Explaining the connection between the alleged fraud and embezzlement described in the statement of claim and Discount Bank, PrivatBank states, "As part of the embezzlement, an extremely large sum of $1.2 billion was smuggled into Israel. The money was smuggled into Israel in a long series of systematic money transfers in 2007-2011 from the bank account of the St. John company."
The money was allegedly transferred to St. John's account at a Discount Bank branch in Haifa by means of "documents that appeared false and unreliable - the money was toxic." According to PrivatBank, what happened was "a clear case of money laundering and fraud… The questionable transfers should have aroused Discount Bank's suspicion that they had been conducted for illegitimate purposes or as part of money laundering scheme."
Published by Globes, Israel business news - en.globes.co.il - on December 19, 2019
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