- Covid-19 Guidance New
- Editor's Preface
- League Tables New
- Ukrainian Legal Market
Practice Areas and Industries Review
- Aircraft and Airports Finance
- Alternative Dispute Resolution
- Anti-Money Laundering
- Banking Disputes
- Business Crime
- Business Immigration
- Business Protection
- Capital Markets
- Commodities Arbitration
- Competition Investigations
- Contract Law
- Corporate Disputes
- Corporate Governance
- Corporate Intelligence
- Counterfeiting and Piracy
- Criminal Process
- Cross-Border Debt Restructuring
- Currency Regulation
- Due Diligence
- Energy Efficiency
- Enforcement of Foreign Awards
- Family Law
- Financial Restructuring
- Financial Services
- Free Trade Agreements
- Government Relations
- International Arbitration
- International Civil Procedure
- International Tax
- IT Law
- Jurisdiction Issues in Commercial Procedure
- Labor & Employment
- Medicine & Healthcare
- Mergers & Acquisitions
- Non-Performing Loans
- Political Prosecution
- Private Clients
- Procedural Actions
- Project Finance
- Public-Private Partnerships
- Real Estate
- Renewable Energy
- Role of Experts in International Arbitration
- Secured Transactions
- State Aid
- Tax Controversy
- Trade Remedies
- Transfer Pricing
- Unfair Competition
- World Trade Organization
Who Is Who Rankings
- Antitrust and Competition
- Banking & Finance, Debt Restructuring
- Capital Markets
- Corporate and M&A
- Criminal Law/ White-Collar Crime
- Energy & Natural Resources
- Information Technologies, Telecommunications & Media
- Intellectual Property
- International Arbitration
- International Trade: Trade Remedies/WTO, Commodities, Commercial Contracts
- Labor & Employment
- Pharmaceuticals & Healthcare
- Private Clients: Wealth Management, Family Law
- Real Estate, Construction, Land
- Tax and Transfer Pricing
- Transport: Aviation, Maritime & Shipping
- Law Firms Profiles
- Lawyers Profiles
Attorney-at-Law, Partner, VB PARTNERS
The Special Aspects, when Defending a Bank’s Shareholders and Top Managers in Criminal Proceedings
According to statistics, the banking sector is the main employer for leading Ukrainian law firms. As a rule, we are talking about supporting litigations, debt restructuring and recovery, and supporting bankruptcy proceedings against bank debtors.
However, the number of requests for legal assistance in criminal proceedings has risen significantly recently.
Previously, law-enforcement officers looked more toward liquidated banks, taking an interest in their top managers and shareholders. The situation has changed and now successfully functioning banks and even the “holy of holies” — the National Bank of Ukraine — are under the gun.
A key provider of cases for law-enforcement agencies is the state-run Deposit Guarantee Fund. According to their statistics, as of 1 December 2019, the Fund sent 5,692 Crime Incident Reports to law-enforcement agencies. According to their estimates, the total sum of losses is UAH 374.925 million. 31 (thirty one) notices of suspicion were served and 39 (thirty nine) cases were submitted to court.
Law-Enforcement Agencies’ “Target Audience” in Banking Sector
The key target audience of law-enforcement officers are the top managers and shareholders of banks. The managers involved in investigated transactions, particularly loan managers, experts on pledges, appraisers are also at risk.
Particular attention should be paid to state-owned banks, since their status allows law-enforcement officers to talk about misuse (embezzlement) of public funds, when entering into any unsuccessful banking transaction.
The circle of their interests varies widely from issues of allocation of refinancing, transactions involving insiders, discounts while entering into assignment agreements, collateral (security) sufficiency and quality to negligence, when finalizing a bank’s active transactions.
Increasing Criminal Law Pressure on Banking Sector
Criminal banking cases are at the head of the top news list. The end of 2019 was especially “rich” in such cases. Serving a notice of suspicion to Konstiantyn Zhevago, the top manager and shareholder of Finance and Credit Bank, and the seizure of a part of his assets, as well as serving a notice of suspicion to the ex-managers of Vector Bank, Mikhailivsky Bank and Pivdencombank, and this list is much longer.
We can highlight as among the most resonant suspicions the serving of a notice of suspicion and gross detention of the Chairman of the Board of State-Owned Ukreximbank and, of course, a high-profile case brought by the National Anti-Corruption Bureau of Ukraine (NABU) against top officials of the National Bank and Oleh Bakhmatiuk, a VAB Bank shareholder. Serving suspicion notices to the National Bank Board’s members is an “innovation” that was not permitted earlier by law-enforcement officers.
The last case is evidence of the NABU entering the “banking market.” There are about five large bank cases on their radar, which have been investigated for more than two years. Hundreds of investigative actions and dozens of examples of international probes throughout Europe, from Lithuania, Latvia, and ending with Austria, Switzerland and Luxembourg.
The Security Service of Ukraine is not standing on the sidelines either, and is currently investigating a group of cases related to embezzlement at liquidated banks and the use of the correspondent accounts of foreign banks.
The cheap loan program, as announced by the Cabinet of Ministers will, in my opinion, become another promising case in a year’s time. The total value of the program is USD 2 billion. To receive a loan, an applicant should submit a business plan which should be implemented at the expense of its own funds (20%), and the remaining 80% may be granted by the state “as a loan” at just 5-9% per annum. Loans will be granted by accredited banks from state funds. And it is these accredited banks that will be responsible if the borrower is unable to repay the funds.
If I was in the place of private banks, I would think long and hard whether it’s worth taking part in this program. Participation in this initiative will inevitably result in having communications with the NABU’s detectives and Specialized Anti-Corruption Prosecutor’s Office (SAPO) prosecutors in the future.
A separate special procedural controller department has been established within the Prosecutor-General’s Office, directly investigating banking crimes. The availability of special “banking” units inevitably provokes new investigations and the serving of new notices of suspicion.
A high priority at state level allows investigators and prosecutors to use large resources and actively develop their own expertise in this category of cases. The present time cannot be compared with five years ago, when such words as a “letter of credit” and “correspondent accounts” frightened investigators. Today, the NABU, police and the Security Service of Ukraine are sufficiently professional and experienced at investigating banking cases.
Particular success has been reached in the field of international cooperation. Money “does not see” boundaries. The monetary flow in one case can be simultaneously investigated in five jurisdictions. Law-enforcement agencies have learnt successfully how to disclose bank secrecy, seize documents not only in Ukraine, but also abroad.
Their new skill is to seize assets in foreign banks. Banking secrecy has virtually ceased to exist. A key trend is active cooperation between investigators — replacement of the reciprocity principle for one of initiative. If the prosecutor of a European country sees in his/her jurisdiction any assets related to investigation in Ukraine, he/she blocks them at his/her own initiative and informs his/her Ukrainian colleague of this, attempting to help the latter to seize such an asset. Earlier, foreign prosecutors were active exclusively at the request of Ukrainian colleagues.
Problem Issues of Criminal Proceedings Involving Banks and Bankers
The so-called “bank crash” in 2014-2016 (mass cleaning and bankruptcy of a large number of banks) provoked a significant increase in the number of criminal cases, never before seen. As a result of this, the competence of law-enforcement agencies has increased substantially in recent years.
Among the difficulties, I would single out the complexity. For an efficient investigation or defense, it is necessary to be experienced not only in criminal law and process, but also have a good knowledge of corporate law, financial monitoring, and banking legislation.
Moreover, large banking cases are inevitably connected with international law, and transactions through several jurisdictions. Therefore, knowledge of English and understanding the mechanism as to how the international banking system functions are extremely important.
The key issue in banking investigations remains those examinations which establish a loss and confirm certain facts regarding cash flow. The quality of such examinations is not high.
It is worth mentioning the problem of decision-making by collegial bodies. There is an opinion that if a decision is made by a collegial body (board, credit committee), then it removes responsibility from its members. This conclusion is erroneous. Today, law-enforcement officers are ready to serve a notice of suspicion directly to each member of a collegial body if it is ascertained that his/her decision caused damage or was taken in violation of the requirements of the law and internal bank documents. Moreover, the Anti-Corruption Court’s practice in the NABU-VAB Bank case confirms this position.
Recommendations to Minimize Risks of Criminal Prosecution of Top Managers and Beneficiaries of Ukrainian Banks
To reduce criminal law risks, you need to follow 5 (five) simple rules:
Firstly, you should strictly comply with the formalities provided for by the bank’s articles of incorporation and internal regulations. If there were the slightest violations when entering into transactions the law-enforcement officer will interpret them not in favor of management. Attention to details and their strict observance is the key to eliminate problems in the future.
Secondly, you should regulate the issue of so-called “absentee meetings”, when a collegial adopts a decision without in-person meetings. On the one hand, this is normal modern-day practice in solving problems by means of an inquiry, a telephone call or e-mail. However, if this format is not provided for by the acts and normative documents of the bank in question, law-enforcement agencies will interpret this as a gross violation.
Thirdly, it is necessary to exclude from bank’s methodological documents any valuation categories without specific criteria. As an example, we can demonstrate an expression like “a body or an official should exercise control over…” If the term under study is not filled with meaning and unless you explain how the above-mentioned expression is manifested, and in what way it is realized, an investigator will interpret it as broadly as possible and, accordingly, will get a reason to accuse a bank’s officials of negligence.
Fourthly, your reaction to the National Bank of Ukraine’s separate acts. If the regulator has detected some violations and made some recommendations, it is fundamentally important for you to fulfill these wishes. Otherwise, their non-fulfillment will be interpreted as circumstances contributing to the perpetration of a crime, irrespective of whether or not this violation relates to the regulator’s recommendation.
And fifthly, please specially examine the business processes, internal regulations in respect of criminal legal risks. As a result, you should make appropriate amendments in order to exclude them. It would be helpful to deliver mini-training sessions for key officials of banks. Experience shows that the earlier that a potential problem is prevented or absorbed, the more likely it is to be resolved without negative consequences.