Ukrainian bank files $3bn claim against PwC for audit breaches

PrivatBank, Ukraine’s largest commercial lender, has filed a $3bn legal claim against PwC saying that “serious and extensive breaches” at the auditing group allowed alleged accounting abuses that forced the state to nationalise the bank.

The Ukrainian attempt to secure significant damages from PwC in a Cyprus court marks the latest reputational blow to the “Big Four” accountancy firms that has prompted regulators to intensify scrutiny through probes and hefty fines.

Petr Krumphanzl, PrivatBank’s chairman, said in a statement on Monday that PwC “failed absolutely to identify the ongoing operation of the huge fraud within the bank over many years which resulted in virtually the entire corporate loan book of the bank being non-performing and without any or any adequate security”.

“It will now be for the Cyprus court to determine the claims being brought by PrivatBank against PwC in due course,” he added.

PwC Ukraine said it had not been served with any official claim adding that it “does not believe there is any basis for this action and we will if necessary defend our position vigorously”.

PrivatBank, which was previously owned by two Ukrainian oligarchs, said it had filed the legal proceedings on Friday in a Nicosia court against two PwC group affil- iates, one registered in Ukraine and another in Cyprus.

PrivatBank, which was nationalised in late 2016, cited a December High Court of London order freezing more than $2.5bn of “worldwide” assets belonging to the bank’s former oligarch owners Igor Kolomoisky and Gennady Bogolyubov.

It described the claims against PwC as “the next significant step being taken . . . to seek to recover substantial compensation for the huge losses it has suffered, the burden of which thus far has fallen in large part on the state of Ukraine.”

In July last year, Ukraine’s central bank pulled PwC’s domestic bank auditing rights, citing its alleged shortcomings in identifying the alleged fraud. The central bank revealed in January that an investigation by corporate consultancy Kroll had found that PrivatBank was “subjected to a large scale and co-ordinated fraud over at least a 10-year period . . . which resulted in a loss of at least $5.5bn” before the state stepped in.

“PwC Ukraine performed its audit of PrivatBank’s 2013-2015 financial statements in accordance with international auditing standards,” the accounting group said in a statement. “The audit opinion on the 2015 financial statements included a qualification in respect of related parties transactions.” There was no immediate response from Mr Kolomoisky or Mr Bogolyubov, who have in previous comments denied wrongdoing in relation to the financial woes that occurred at PrivatBank.