How Ukraine's financial elite plundered the nation

Ukraine has been described as the most corrupt country in Europe. Much of the reason has to do with the seemingly unopposed fashion in which Ukraine's well-connected oligarchs have looted the country.

Illegally transferring company ownership and bank fraud are the weapons of choice

Sky Mall in Ukraine is the subject of a legal dispute over its ownership. (visittoukraine.com)

Transparency International describes Ukraine as the most corrupt country in Europe. On its Corruption Perceptions Index Ukraine ranks 130th out of 168 countries, a ranking it shares with, Paraguay, Iran, Nepal, Nicaragua and Cameroon.

Much of the reason for that ranking has to do with the seemingly unopposed fashion in which Ukraine's well-connected oligarchs have looted the country using two key strategies: raiding companies and bank fraud.

Bank fraud

After the fall of communism and the opening up of the banking sector, dozens of Ukrainian banks took in billions of dollars in deposits from ordinary Ukrainians.

But as fast as the money came in, it went out in the form of loans to the banks' owners, their cronies and their shell companies, seemingly with no intention that they would ever be repaid.

When the banks started to collapse, the National Bank of Ukraine — with now-President Petro Poroshenko on its board of directors — was slow to step in. According to the Kyiv Post's Legal Quarterly, the delay gave the banks' owners time to finish stripping and laundering assets.

Any savings over $8,000 were wiped out. Up to that amount, savings were insured by the Ukrainian state, which is to say the Ukrainian taxpayer.

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Then the liquidated bank's assets were seized by the state and sold at unpublicized auctions, where many were scooped up on the cheap by the same insiders. That practice finally came to an end this year when Ukraine switched to e-auctions based on a technology related to bitcoin. 

In all, Ukraine's Deposit Guarantee Fund estimates that nearly $15 billion was stripped from the state and from ordinary Ukrainian savers, with much of that money being shipped overseas.

Raiding companies

Political insiders and the economic elite, including some who hold seats in Ukraine's parliament, have also enriched themselves by raiding companies.

Like the insider-lending racket, there is nothing particularly sophisticated about this fraud.

It simply involves claiming that someone, or their shell company, is the true owner of somebody else's asset. The person making the claim then bribes the corporate registrar to falsify the records or bribes the courts to find in their favour, or both.

A London court recently found that Ukrainian lawmaker Oleksandr Granovsky, a major ally of Poroshenko, is involved in a lengthy ownership dispute over the Sky Mall shopping centre in Kyiv.

The London Court of International Arbitration recently ruled that Granovsky and his senior partner, Andrey Adamovsky — whose company Stockman Interhold S.A. is also named in the dispute — had to return shares of the company to its rightful owner, Hillar Teder's company Arricano Real Estate.

According to the the Jewish Chronicle, this is not Adamovsky's first brush with the law. The U.K. newspaper reports that a court in the British Virgin Islands ruled in 2015 that he "defrauded former business partners to the tune of $34.7 million."

with files from Peter Zimonjic