After doing nothing about the $5.5bn that oligarch and former owner of PrivatBank Ihor Kolomoisky allegedly stole from his bank, the Ukrainian state has named the former CEO of the bank as a suspect in the related fraud investigation on February 22.

Prosecutors have named former PrivatBank CEO Oleksandr Dubilet along with his first deputy, Volodymyr Yatsenko, as suspects in the embezzlement of UAH136mn ($4.8mn) in 2016 before the bank was nationalised.

Ukraine’s general prosecutor forced a private jet carrying Yatsenko to land after he tried to flee the country on February 22. He has now been taken into custody. The local media reported that Dubilet is in Israel. The identity of the third person remains unknown.

The arrest and charges come as Ukrainian President Volodymyr Zelenskiy apparently has launched an offensive to deal with “The Oligarch Problem“ which is undermining his authority and attempting to capture the state, a problem that is common throughout the former Soviet Union (FSU), where corruption is the system.

PrivatBank is the biggest commercial bank in the country and was set up by Kolomoisky. The bank was nationalised in December 2016 after the central bank found a $5.5bn hole in its balance sheet. The regulator’s investigation was partly prompted by the scandal that broke out following the publication of a bne IntelliNews cover story “Privat investigations” detailing the related party lending, after bne IntelliNews got hold of the bank’s loan book.

The Ministry of Finance took over the bank and pumped over $5bn into it to prevent its collapse, one of the biggest bank bailouts in post-Soviet history and money the Ukrainian state could ill afford.

Since then, the state-appointed management team has turned the bank around and it is now the most profitable in the sector.

In general, the National Bank of Ukraine's (NBU) clean-up of the sector has seen dozens of oligarch-owned banks closed down, but the sweeping reforms have left the sector in a much healthier state, which got through the shocks of 2020 without difficulty and still in profit.

PrivatBank still suffers from very high non-performing loans – what the new management call the “fraud loans” from the scams used by the previous management to whisk money out of the bank – of over 80% of the loan book, but these have all been provisioned for and are slowly being written down. PrivatBank estimates it will take at least three years to clean up its balance sheet completely.

Criminal investigation

The case that has been opened against Yatsenko is new and significant development. The National Anti-Corruption Bureau of Ukraine (NABU) has only managed to indict one senior official so far, but he was never prosecuted. Roman Nasirov’s arrest a few years ago was billed as the “first big fish” to be netted. The head of the government’s financial control office and a personal friend of former President Petro Poroshenko, he was accused of giving an order that cost the state budget UAH2bn (€70mn). But within a month Nasirov was released from custody in Kyiv after his wife posted the UAH100mn (€3.5mn) bail in the case, and eventually not only were the charges dropped, but he also unsuccessfully ran for president in 2019.

NABU is independent of the government, which has been working hard to undermine its powers. On February 15 the government proposed a bill that would allow it to dismiss the well-respected head of NABU, to the International Monetary Fund's (IMF) chagrin, which had insisted the body be set up to fight corruption. Moreover, according to local reports the bill originated with the president’s office.

The charges against Yatsenko come from General Prosecutor Iryna Venediktova, who was appointed by Zelenskiy in March last year, indicating these charges are part of Zelenskiy's wider campaign against the oligarchs.

Zelenskiy imposed sanctions on the leader of the pro-Russian Opposition Platform – For Life leader Viktor Medvedchuk on February 23, after the government closed down three of his TV stations. Medvedchuk is a personal friend of Russian President Vladimir Putin and one of Zelenskiy's main political rivals. He is also a business partner of Kolomoisky and co-owns several more TV stations.  Medvedchuk has also had business with Kolomoisky’s Privat Group in the past.

The PrivatBank managers case is a litmus test of President Volodymyr Zelenskiy’s willingness to crack down on corruption, which he has so far failed to do.

Privatbank’s previous owners, Kolomoisky and his partner Gennady Bogolyubov deny any wrongdoing.