PrivatBank Allegedly Laundered Billions of Dollars for its Main Shareholders
The culprit is thought to have been the Cyprus branch of the bank
Photo from National Bank of Ukraine
The former founders and majority shareholders of PrivatBank are accused of laundering around $5.5 billion. The two, Ihor Kolomoiskyi and Hennadiy Boholiubov, allegedly used the Cyprus branch to funnel billions of dollars in and out of multiple accounts and, eventually, out of the bank into hidden accounts.
This scheme was reported by OCCRP, the Organized Crime and Corruption Reporting Project.
The OCCRP details how the structure of the Cyprus branch allowed this to happen without investigators in Ukraine being made aware of the financial misdeeds. And it goes on to explain how the process was carried out until the bank, on the verge of collapse, was nationalized in late 2016.
At the time the PrivatBank Cyprus operation was set up, it was designed to be treated like any other domestic branch of the bank, being no different in its operations than one located anywhere inside Ukraine.
This allowed funds to be transferred from Ukraine to Cyprus using internal banking systems and not the SWIFT system that is used to transfer funds between different banking institutions. SWIFT would have been necessary had the bank in Cyprus been set up as a separate full subsidiary of the parent company in Ukraine.
Once in Cyprus, the funds cycled into and out of multiple accounts multiple times. Some of the funds would eventually wind up in secret accounts in Switzerland, Austria and Luxembourg out of the reach of any investigators or, more importantly, the Ukrainian government.
In addition to Cyprus, the scheme also utilized a subsidiary operation in Latvia to help with the money laundering. The Latvian office was also implicated in helping to launder $2 billion from Russia as well as the theft of $1 billion from Moldova.
In 2015, regulators in Cyprus performed an inspection of the branch there and discovered that large sums of money were leaving Ukraine. The regulators also imposed a 1.5 million euro fine on the bank in October 2016, just weeks before the bank was privatized.
By this time, it was too late to recover any of the missing funds. Once out of Cyprus, the money disappeared into the shadowy world of international banking leaving the Ukrainian government, and, ultimately, the people, to cover the financial deficit and keep the bank from total collapse.