August 1, 2018 / 3:28 PM / 4 months ago

Ukraine's PrivatBank was involved in fraud, London court hears

LONDON/KIEV, Aug 1 (Reuters) - Lawyers representing two former owners of Ukraine’s biggest lender PrivatBank told a hearing in London they did not dispute that the bank had made some fraudulent loans but contested their amount.

The hearing this week was part of a broader dispute between PrivatBank and the two former main shareholders, in which the bank has claimed that before it was nationalised in 2016 nearly $2 billion of the bank’s money was misappropriated.

The case is seen as a litmus test in Ukraine’s battle against corruption.

The Ukrainian authorities took PrivatBank into state hands in December 2016 and have spent nearly $6 billion so far to plug a hole in its balance sheet, caused by what the government alleges were fraudulent lending practices and money laundering.

Previously, representatives for the two former main shareholders - Ihor Kolomoisky and Gennadiy Bogolyubov - said there was no fraud because all the borrowed money was paid back.

But at the hearing in London their lawyers - who were seeking a reduction in a worldwide freezing order on their clients’ assets - conceded that some of the money may have been misappropriated but not almost $2 billion as argued by the bank.

“We say they could put forward a good arguable case for a loss of $248 million,” Mark Howard, the barrister representing Kolomoisky said, according to a transcript from the hearing.

Fieldfisher and Skadden, the law firms working for Kolomoisky and Bogolyubov respectively, did not immediately respond to a request for comment on Wednesday.

Former Finance Minister Oleksandr Danylyuk has said that lawsuits surrounding the bank were a “litmus test” for the effectiveness of Ukraine’s battle against corruption, which Kiev needs to succeed if the country is to retain the backing of its foreign creditors.

Kolomoisky and Bogolyubov have long disputed the assessment by the central bank and the government of PrivatBank’s finances and say it was nationalised for political reasons.

Recovering some of the PrivatBank money the government claims was lost would help shore up Ukraine’s finances as time runs out for the government to secure more aid from the International Monetary Fund to help service its growing debt.

Yaroslav Matuzka, the head of PrivatBank’s legal unit, said the hearing was “a significant step in the bank’s efforts to obtain proper compensation for the funds misappropriated by its former owners.”

Lawyers for PrivatBank are arguing that companies that borrowed money from the bank and companies that received money from it were linked to the former shareholders.

An investigation commissioned by the central bank in January found 95 percent of PrivatBank’s corporate loans had gone to companies linked to the former owners or their affiliates.

Editing by Susan Fenton

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