Ukraine court cancels central bank's move to exclude PwC from register of auditors

Ukraine court cancels central bank's move to exclude PwC from register of auditors
PwC was struck off the registry in Ukraine for failing to spot related party lending while auditing Privatbank's books
By bne IntelliNews May 30, 2019

The Kyiv District Administrative Court has cancelled the decision of the National Bank of Ukraine (NBU) to exclude local operations of PricewaterhouseCoopers (PwC) from the register of audit firms that are eligible for bank audits.

Currently, the Ukrainian operations of PwC is challenging the NBU's decision to withdraw the bank auditing rights of the company in a Kyiv court after the international firm failed to identify alleged improprieties that led to a multi-billion capital shortfall at Privatbank.

PwC was the official auditor of Privatbank and in its last audit said that about a third of Privatbank loans were to related parties. A bne IntelliNews investigation Privat investigations in November 2016 into the bank shortly after found that well over half the loans were to related parties. The article caused a scandal in Kyiv and local press investigations discovered more links. By December the National Bank of Ukraine (NBU) was forced to launch its own investigation and found that 98% of the loans were to related parties at which point the bank was nationalised.

The NBU is going to challenge the court's ruling, the central bank said in a statement on May 29.

The NBU has removed PwC’s local unit from the register of accounting firms authorised to audit banks because of the operation's "verification of misrepresented financial information in the financial statements of [PrivatBank]".

Meanwhile, US-headquartered forensic firm Kroll has revealed the non-conformity of an audit report of the Ukrainian operations of PwC with real financial situation at PrivatBank, according to the NBU's statement published in January 2018.

"The secret structure [in PrivatBank] carried out numerous operations of bank fraud and fabrication of reports by former management and directors of the bank under the leadership of former shareholders and in favour of former shareholders and a group of affiliated persons," the regulator's statement reads.

At the same time, according to Kroll, PwC's conclusions on PrivatBank's financial statements during 2007-2014 contained positive conclusions, and in 2015, the auditor provided a conditional-positive conclusion.

The former majority shareholder Ihor Kolomoisky has brought numerous cases against the state trying to recovery control of the bank. This year he won two cases in local courts saying the nationalisation was illegal, but those decisions were overturned by the Supreme court in May. Since then Kolomoisky has offer an “amicable resolution” where the state either pay him $2bn for the capital he claims was in the bank at the time of its nationalisation or give him circa 25% stake in the bank. Ukraine’s donors have said that any deal on these lines would be a “deal breaker” and would cut Ukraine off from its aid packages.

The NBU has injected over $5bn into the bank since taking it over of tax payers money – one of the biggest bank rescues in the entire Commonwealth of Independent States (CIS) since the fall of the Soviet Union.