Pri­vatBank may have to pay mil­lions to Ihor Kolo­moisky


Ukrainian tax­pay­ers may have to pay mil­lions of dol­lars to two of the coun­try’s wealth­i­est oli­garchs, Ihor Kolo­moisky and Gen­nadiy Bo­holyubov, who had been ac­cused of de­fraud­ing Ukraine’s largest bank Pri­vatBank of bil­lions of dol­lars.

The two men owned Pri­vatBank be­fore the Ukrainian gov­ern­ment na­tion­al­ized it in 2016 and was forced to in­ject $5.5 bil­lion of tax­pay­ers’ money to re­place miss­ing cash. Its new, gov­ern­ment-ap­proved own­ers started pro­ceed­ings in the Lon­don High Court to re­cover some of those funds be­cause of con­cerns the two would be able to sub­vert Ukraine’s no­to­ri­ously cor­rupt courts.

But a vi­tal step in those at­tempts faced a po­ten­tially fa­tal set­back last week, when a judge ruled that Eng­land was not the cor­rect ju­ris­dic­tion for the pro­ceed­ings.

That could force Pri­vatBank to aban­don its ac­tion in the English courts and land it with bills for Kolo­moisky and Bo­holyubov’s le­gal fees of at least 7.5 mil­lion pounds (around $10 mil­lion) plus ad­di­tional mil­lions for its own ex­clu­sive Bri­tish firm of lawyers.

Pri­vatBank has said it will ap­peal against the judge’s de­ci­sion. But if it is not suc­cess­ful the bank must be­gin to com­pen­sate the two oli­garchs for their mas­sive le­gal fees this De­cem­ber.

The le­gal pro­ceed­ings con­cerned only whether English courts were the cor­rect ju­ris­dic­tion for any even­tual trial, and were not to de­cide on the guilt or in­no­cence of the two Ukrainian oli­garchs.

Pri­vatBank was hop­ing for such a trial in the English court. As a first step, in De­cem­ber 2017, its lawyers suc­ceeded in ob­tain­ing an or­der in the Lon­don High Court to freeze $1.9 bil­lion of Kolo­moisky and Bo­holyubov’s as­sets world­wide — cur­rently $2.6 bil­lion, in­clud­ing in­ter­est.

The bank had ar­gued that Eng­land was the right ju­ris­dic­tion be­cause three of the com­pa­nies used to shuf­fle money around in de­lib­er­ately con­fus­ing and com­plex bank trans­fers as part of the al­leged fraud were reg­is­tered in Eng­land.

In ad­di­tion, Bo­holyubov had lived in Lon­don, al­though he moved to Switzer­land, where Kolo­moisky re­sides, be­fore pro­ceed­ings be­gan. Nei­ther man ap­peared in court.

Last July the two men’s lawyers chal­lenged the freeze or­ders and ar­gued be­fore the judge, Jus­tice Tim­o­thy Miles Fan­court, that the English court sys­tem was not the right place for le­gal ac­tion against their clients. They de­manded that the freeze or­ders be re­scinded.

Fan­court mulled the de­ci­sion for months and last week agreed with the oli­garch’s lawyers that Eng­land did not have the ju­ris­dic­tion to deal

with the two busi­ness­men. How­ever, he al­lowed Pri­vatBank to ap­peal against his de­ci­sion and un­til the ap­peal pro­ceed­ings are ex­hausted, the freeze or­der against Kolo­moisky and Bo­holyubov re­mains in place. His full rul­ing has not yet been made pub­lic.

Richard Lewis, a part­ner at Ho­gan Lovells, the Bri­tish law firm rep­re­sent­ing Pri­vatbank, said they had known that the le­gal is­sues about ju­ris­dic­tion were so com­plex that they would prob­a­bly ap­peal in court for a fi­nal de­ci­sion. “We are con­fi­dent that they will be re­solved in the bank's fa­vor,” he said.

He said that ad­mis­sions by Kolo­moisky and Bo­holyubov’s side dur­ing the sum­mer hear­ings bol­ster the bank’s al­le­ga­tions that the two men used com­plex, sham trans­ac­tions to fun­nel out large sums of money. That, said Lewis, would help Pri­vatbank’s case “if, as we ex­pect, the bank's claims ul­ti­mately pro­ceed to trial in Eng­land.”

In his judge­ment, Fan­court said: “Whether or not a fraud was in­volved will be a mat­ter for trial some­where, some­day.”

Pri­vatBank told the Kyiv Post it will in­deed ap­peal and has 21 days from the date the judg­ment was handed down to file an ap­peal. Its pub­lic re­la­tions rep­re­sen­ta­tive, Ukrainian firm CFC Con­sult­ing, said: “(Pri­vatBank) re­mains con­fi­dent that Lon­don is the proper place to have its claims against the for­mer share­hold­ers de­ter­mined.”

One of the key ar­gu­ments used by Kolo­moisky and Bo­holyubov's lawyers was that only a small por­tion of the al­legedly stolen $1.9 bil­lion went through the three UK-reg­is­tered com­pa­nies, out of around 130 com­pa­nies sup­pos­edly in­volved in the fraud. Pri­vatBank re­fused to say how it would counter that ar­gu­ment.

CFC said: “We can­not com­ment on the bank's grounds of ap­peal be­fore the ap­peal has been filed.”

Pri­vatBank tight-lipped

The bank was also re­luc­tant to dis­cuss what it may have to pay Kolo­moisky and Bo­holyubov, two of Ukraine’s rich­est men.

One of Kolo­moisky’s lawyers, An­drew Laf­ferty from Lon­don le­gal firm Field­fisher, told the Kyiv Post the judge “awarded the de­fen­dants in­terim pay­ments on ac­count of their costs (there­fore not the to­tal sums payable, but merely down pay­ments) to­tal­ing 7.5 mil­lion pounds, with 4 mil­lion pounds of that payable to Mr. Kolo­moisky within 28 days.”

How­ever, CFC said: “No, that is not cor­rect. Pri­vatBank has been or­dered to make ‘ in­terim pay­ments’ of 2.5 mil­lion pounds to Bo­holyubov and 4 mil­lion pounds to Kolo­moisky… we would ex­pect them to be re­turned if the bank's ap­peal is suc­cess­ful.”

Pri­vatBank did not want to say how much it was li­able to pay its own lawyers. If the bank’s ap­peal suc­ceeds, the spokesman added that “Kolo­moisky and Bo­holyubov would likely to be re­quired to re­im­burse (all of) the bank's costs.”

Laf­ferty said: “We are de­lighted for our client that the judge has found that the world freez­ing or­der should be set aside… The court found that the (world­wide freez­ing or­der) should never have been granted and that the claimant ar­ti­fi­cially con­structed the case to wrong­fully seek to join Mr. Kolo­moisky and Mr. Bo­holyubov to the pro­ceed­ings, and so the case should be struck out. Our client has al­ways main­tained that the bank's claims are po­lit­i­cally mo­ti­vated and mis­con­ceived, and will fail."

He said the judge also ruled hold­ing any case in Eng­land con­tra­vened Kolo­moisky and Bo­holyubov's rights to be sued in their own domi­cile — now Switzer­land.

Pri­vatBank is de­fended by Ho­gan Lovells, a pres­ti­gious Bri­tish law firm. In­quiries by the Kyiv Post show it was likely to have been se­lected be­cause of its past suc­cess­ful ex­pe­ri­ence in deal­ing with large-scale bank fraud.

Ho­gan Lovells rep­re­sented Kazakh BTA Bank (which also had a sub­sidiary in Ukraine) against its for­mer chair­man Mukhtar Ablya­zov and his en­tourage and for­mer BTA top man­agers ac­cused of de­fraud­ing the bank of at least $6 bil­lion.

They also had knowl­edge of lit­i­gat­ing against Kolo­moisky and Bo­golyubov be­cause they rep­re­sented an­other Lon­don-re­sid­ing oli­garch, Vik­tor Pinchuk, in a $2 bil­lion dis­pute over the own­er­ship of Krivyi Rih Iron Ore Plant.

A lesser known Ho­gan Lovells case in Ukraine in­volved agro­hold­ing Cre­ative Group.

Passersby pass by a branch of Pri­vatBank, the largest bank in Ukraine na­tion­al­ized from oli­garchs Ihor Kolo­moisly and Gen­nadiy Bo­golyubov in 2016, in Ch­er­nivtsi on Nov. 27, 2018. (Oleg Pe­tra­siuk)

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