bank depositors still owed money
by Oleksander Kryvenko
Special to The Ukrainian Weekly
Oleksander Kryvenko is a free-lance journalist and lawyer from Kyiv.
KYIV - Nearly two years after the global financial crisis rattled Ukraine, tens of thousands of depositors of the nation's commercial banks are still holding out hope they will receive the money they entrusted.
Depositors of Bank ARMA in Kyiv found that government-appointed administrators and liquidators arc just as ineffective as the bank's employees had been themselves in managing finances, whether through carelessness or suspected criminal intent.
Bank ARMA depositors stage a protest
in Kyiv back in September of 2009
to demand the return of their money.
''It's not difficult to presume the further theft from already duped depositors of defunct banks, occurring at the stage of preparing to pay back guaranteed amounts," said Volodymyr Zavalyi, the deputy director of the Depositors Rights Defense Association.
About 18 commercial banks in Ukraine are currently faced with liquidation following the failed attempts of temporary administrators to make them viable. Several others, such as nationally known Nadra Bank, remain in limbo with the government of Prime Minister Mykola Azarov yet to determine its future.
As a result, several billion dollars in deposits nationwide remain unreturned, according to various estimates of several depositors associations.
The years following the Orange revolts of 2004 marked the first time Ukrainians began to trust banks and credit unions with their savings, having been traumatized by the Soviet collapse in 1991 and the billions in bank deposits that vanished overnight when the single state bank shut its doors.
Banks and credit unions attracted depositors, who were otherwise skeptical of financial institutions, with lucrative interest rates that were about 8 percent for one-year deposits of U.S. dollars and 25 percent for Ukrainian hryvni.
Yet, many Ukrainian depositors didn't research the bank where they deposited their savings. To this day, Bank ARMA's founders and owners are unknown.
Ukraine's business press reported that companies owned by Prime Minister Azarov and Communist Party of Ukraine Chair Petro Symonenko had large deposits in Bank ARMA, which could indicate their role as partners. But the politicians denied their involvement.
The Segodnya newspaper reported that the Communist Party chief's sons, Kostiantyn and Andrii, were among the private investors interested in bailing out the bank, which the father also denied.
Ultimately, no investor was found and the bank's temporary administration, appointed by the government, advised liquidating the bank altogether.
The growing trust and rising prosperity in Ukraine's financial services was devastated in October 2008, when the global crisis led the NBU to declare a nationwide moratorium on all withdrawals.
Months later, the NBU relaxed the rules to allow withdrawals only on those accounts in which deposit terms (ranging from one month to one year) were fulfilled. Yet, many banks were unable to straighten out their finances by the time the moratorium was lifted, causing more outrage among depositors.
The most high-profile case involved Nadra Bank, whose board chairman, Ihor Hylenko, fled to the Russian Federation before criminal charges were filed. He was accused of stealing a significant portion of the estimated $890 million that the government had earmarked for refinancing Nadra Bank.
Much of that money is suspected to have been drawn from the $10.6 billion in emergency loans granted by the International Monetary Fund (IMF) to the government of former Prime Minister Yulia Tymoshenko.
Mr. Hylenko was arrested by Interpol in suburban Moscow. However, since he's a Russian citizen, the government won't extradite Mr. Hylenko to face criminal charges in Ukraine, said the Procurator General's Office of Ukraine in June.
Meanwhile more than $1 billion in Nadra deposits has yet to be returned, according to estimates by various associations of depositors, who remain active in trying to get their money back.
For about 50 Bank ARMA depositors, September 11 will mark the first anniversary of the date they staged their first demonstration demanding their unreturned deposits.
The bank's hired private security guards manhandled the crowd, consisting mainly of elderly pensioners, and prevented them from entering the bank and meeting with officials, even as other clients freely exited and entered.
Afterwards, officers at the local police precinct in Kyiv's Holosiyivskyi District failed to investigate the incidents of excessive force against protesters and reporters.
With no solution in sight, the National Bank of Ukraine on February 22 approved the liquidation of Bank ARMA, which was supposed to prepare within a month the list of depositors owed. The liquidator, Ms. Slavkina, stalled in drafting and publicizing the list, which launched another wave of protests.
For smaller institutions like Bank ARMA, the list could have been prepared within a week or two, said Mr. Zavalyi, who is among Bank ARMA's depositors. It's his second experience with a failed bank (he lost money in a 2006 bankruptcy), which he said has given him the experience in knowing how to act.
By late March, only a handful had received their money. By then, the depositors' association, upset about the opaque conditions of the liquidation, accused Ms. Slavkina of incompetence. They placed pressure on NBU representatives, reluctant to meet with them, to ensure a transparent process.
When Ms. Slavkina finally submitted the list of depositors to the NBU in April, it contained errors, which Mr. Zavalyi alleged was another stalling tactic. Communication was also restricted as her staff avoided answering phones, without which it was impossible to schedule a meeting.
Mr. Zavalyi said he's convinced there's corruption behind the delays.
A common scheme involves officials at the Deposits Guarantee Fund, created by the government in 2002, skimming monthly interest payments off deposit money that is re-invested with another bank, while the administrator or liquidator fends off depositors demanding their money back.
"Between $9,000 and $11,500 a day can be made from the interest of the assets of the bank's unpaid clients," he explained.
The depositors filed complaints with the National Bank of Ukraine, drawing the response that Ms. Slavkina is accountable only to the NBU in fulfilling her duties as liquidator, a claim they allege contradicts Ukrainian law.
'The law states that information on the financial condition of a bank ceases to be confidential or a bank secret during liquidation,"' Mr. Zavalyi said.
Confronted with ongoing unresponsiveness at the NBU, which repeatedly ignored demands and complaints, the depositors filed a lawsuit in late June, demanding Ms. Slavkina's dismissal.
Their suspicions of a wide net of corruption were further legitimized when Judge Iryna Borysenko of the Economic Court of Kyiv stalled for weeks in reviewing the complaint, leading the depositors to demand her dismissal.
The depositors' agitation is mounting. By the end of December, the maximum amount required for defunct banks to return to depositors will drop from $19,000 to $6,400, providing another potential avenue for corrupt gains.
"The Deposits Guarantee Fund isn't conducting the liquidation with the bank depositors, thus violating the Constitution, laws and principles of the rule of law," Mr. Zavalyi said, summing up the current state of affairs.
"This is especially evident," he staled, "in the avoidance of the Guarantee Fund's leadership in fulfilling its direct responsibilities, the red tape and unprofessionalism in reviewing citizens' complaints, as well as the ignorance or ignoring - of officials of all levels - of written and unwritten norms, the absence of respectful relations with people hurt by the criminal acts of bankers."
Oleksander Kryvenko, a free-lance journalist and lawyer from Kyiv.
(The Ukrainian Weekly. - No. 38. - September 19, 2010, www.ukrweekly.com)