Rus­sia’s an­nex­a­tion of Crimea leaves penin­sula’s pop­u­la­tion in fi­nan­cial limbo

Ukrainian banks have hard time col­lect­ing loans from Crimean cus­tomers

Kyiv Post Legal Quarterly - - Contents - By Ok­sana Gryt­senko gryt­

Sev­astopol res­i­dent Olena Sokolan faces a dilemma. She re­fused Rus­sian cit­i­zen­ship, but the Ukrainian na­tional bank now treats her fi­nan­cial trans­ac­tions as those of a non-res­i­dent.

No longer able to ac­cess her Hr 100,000 de­posit at Ukrsib­bank from Crimea, she must rereg­is­ter her ac­count with a friend in Kyiv or take the money back to Crimea and bank as a Rus­sian na­tional.

“I don’t un­der­stand why I have to change my reg­is­tra­tion and be ashamed of my birth­place?” she told the Legal Quar­terly. “I’m a Ukrainian cit­i­zen and no bas­tards can blame me for oc­cu­pa­tion.”

Lawyers say that even if Sokolan and oth­ers don’t rec­og­nize the Rus­sian au­thor­i­ties in Crimea, ul­ti­mately they have to live there un­der Rus­sian laws.

“Res­i­dents of Crimea should re­al­ize the out­come of an­nex­a­tion,” said Ro­man Stepa­nenko, head of bank­ing & fi­nance prac­tice at Egorovpu­g­in­skyafanasiev& Part­ners, a Ukrainian law firm.

As Ukraine no longer has con­trol over Crimea, the Na­tional Bank’s de­ci­sion to grant peo­ple living there the sta­tus of non-res­i­dents was the only pos­si­ble op­tion for the Ukrainian gov­ern­ment, Stepa­nenko added.

When Crimean banks started the tran­si­tion to Rus­sia’s bank­ing sys­tem in April, some were eas­ily re-reg­is­tered in com­pli­ance with the

Rus­sian laws. Morskoy Bank, a popular lender be­long­ing to Rus­sian busi­ness­man Alek­sandr An­nenkov, had lit­tle dif­fi­culty tak­ing this path.

How­ever, Ukraine’s big­gest bank Pri­vat, con­trolled by Dnipropetro­vsk Gover­nor Igor Kolo­moisky, left the penin­sula af­ter its op­er­a­tions in Crimea were shut down. Sokolan is glad she didn’t have an ac­count at Pri­vat­bank. Her friends had to wait a month to with­draw money from cur­rent ac­count cards is­sued by Pri­vat­bank, while get­ting back a sav­ings de­posit is even more dif­fi­cult.

Anna Tka­chova, an as­so­ciate at Kyiv-based legal ser­vices provider, told the Legal Quar­terly that the as­sets of Pri­vat­bank have now been taken over by De­posit Pro­tec­tion Fund, an arm of the Rus­sian De­posit In­sur­ance Agency.

“Rus­sia de­clared Pri­vat­bank a bad bank and na­tion­al­ized its Crimean as­sets – ap­par­ently in or­der to pay Crimeans their money back,” Tka­chova said.

Oshchad­bank, a ma­jor state-run lender that used to have the big­gest net­work of branches on the penin­sula, suf­fered an even more dis­turb­ing fate. Armed men came to the bank’s of­fices and took them over.

“They took away all the net­work of bank’s branches, the ar­mored cars, the ATMS,” lamented An­driy Pyshny, head of Oshchad­bank. The bank lost an es­ti­mated $909 mil­lion and is fil­ing a law­suit against Rus­sia as a re­sult.

Given the sit­u­a­tion, the Na­tional Bank of Ukraine in­structed all Ukrainian banks to cease op­er­a­tions in Crimea on May 6. Since then the bank­ing sec­tor has been strug­gling to re­claim loans pre­vi­ously is­sued to Crimean res­i­dents, to­tal­ing $1.8 bil­lion. The res­i­dents, in turn, have been un­able to claim their de­posits.

The Na­tional Bank lost the equiv­a­lent of al­most $355 mil­lion in hryv­nia re­serves kept in Crimea. In Oc­to­ber, cen­tral bank gover­nor Va­leriya Gontareva met her Rus­sian coun­ter­part Elvira Nabi­ul­lina in Wash­ing­ton D.C., who promised to re­turn the re­serves. Nabi­ul­lina also promised that Ukrainian com­mer­cial banks will get their as­sets back too.

But Crimeans, en­cour­aged by the Rus­sian au­thor­i­ties to for­get their li­a­bil­i­ties, have lit­tle in­cen­tive to re­pay debts to Ukrainian banks.

When Rus­sian Pres­i­dent Vladimir Putin vis­ited the penin­sula in April, a man ap­proached him and asked what he should do about his car loan. “Use the car and don’t worry,” Putin an­swered.

By Novem­ber Rus­sia had changed its tone, with Mikhail Sukhov, deputy head of Rus­sian cen­tral bank, say­ing the Crimean res­i­dents will have to pay their debts “sooner or later” and sug­gested do­ing it through Rus­sian banks, though it re­mains un­clear how the money will get to Ukrainian banks.

Af­ter Sukhov’s state­ment, Crimean bor­row­ers are un­likely to run the risk of set­tling their debts with Ukrainian banks via in­ter­na­tional pay­ment ser­vices, only to face the Rus­sian De­posit Pro­tec­tion Fund ap­proach­ing them with a de­mand to pay it too.

Con­versely, if a per­son pays a debt to the Rus­sian fund – his or her obligations to the Ukrainian bank doesn’t dis­ap­pear, said Tka­chova from Asters. “Un­for­tu­nately, both op­tions leave too many loop­holes for bad faith lenders to ob­tain dou­ble sat­is­fac­tion and pro­vides no pro­tec­tion to good faith Crimean clients,” she said.

Com­pli­cat­ing the mat­ter still fur­ther, Anna Pushkary­ova, se­nior as­so­ciate at Lavrynovych & Part­ners law firm, said Ukrainian banks are now sell­ing their loan port­fo­lios to Crime­abased or Rus­sian debt col­lec­tion com­pa­nies, some­times at a very sub­stan­tial dis­count, to get at least part of their money back. For Sokolan and her fel­low Crimean res­i­dents, fi­nan­cial sta­bil­ity won’t be ar­riv­ing any time soon.

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