What is the case about?
PJSC Commercial Bank PrivatBank v. Kolomoisky and ors opened in the Rolls Building on 12 June, 2023. The trial is currently ongoing and expected to last a total of 14 weeks. PrivatBank is Ukraine’s largest commercial bank, with over 20 million customers, which equals to around half of Ukraine’s population of 44 million. PrivatBank was nationalised in 2016 after regulators found 5.5 billion USD missing in its balance sheet. The nationalisation cost Ukraine six per cent of its gross domestic product, making it one of the largest banking collapses in Europe relative to national output.
PricewaterhouseCoopers (PwC), former auditors for PrivatBank, is facing a separate lawsuit for allegedly turning a blind eye to the fraudulent activity.
Ihor Kolomoisky and Gennadiy Bogolyubov, the defendants in the case, are former owners of the bank, having owned over 80% of its shares before the bank’s nationalisation. It is alleged that just under two billion USD of the missing 5.5 billion USD was syphoned to companies controlled by the pair through various loans. PrivatBank is now claiming back the allegedly fraudulently loaned 1.9 billion USD plus interest of up to 2.5 billion USD from Kolomoisky and Bogolyubov and their associated companies.
The pair were noticeably absent from the trial and are not expected to give testimony.
The long-running litigation, which has been pursued in English courts since 2017, is expected to be closely watched by politicians and investors as a test of Ukrainian President Volodymyr Zelenskyy’s commitment to tackle corruption and build a healthy financial system amid the Russo-Ukraine War.
Some context: Kolomoisky’s relationship to Zelenskyy
Corruption has crippled the Ukrainian economy since it left the Soviet Union in 1991. Ukraine’s supposed transition towards an electoral democracy would turn out to be a false display, as powerful oligarchs inherited and devised new economic structures to hold onto power.
One of those oligarchs was Kolomoisky. He established PrivatBank in the early 1990s and made his fortune acquiring billions in assets through a series of controversial takeovers. Among those acquisitions was 1+1 Media Group, one of Ukraine’s largest media conglomerates.
1+1 Media Group broadcast Zelenskyy’s hit TV series Servant Of The People from 2015 until 2019. The TV series is a political satire comedy where a high-school history teacher is unexpectedly elected the President of Ukraine after a video of him making a profane rant against government corruption in his country goes viral on YouTube. Zelenskyy went on to make his announcement to run for President on the TV channel 1+1 on New Year’s Eve in 2018, just four months before the election.
Zelenskyy, who had no political experience before his election to the Presidency in April 2019, campaigned on values similar to his character on Servant Of The People. He called for economic reform and an end to corruption. On April 21, 2019, Zelenskyy won by a landslide victory of 73% of the ballot, leaving former President Petro Poroshenko trailing behind with 24% of the ballot.
Kolomoisky was considered an early supporter of Zelenskyy due to their media connection. Many were unsure whether Zelenskyy would follow through with his campaign promises and directly target an oligarch who had helped in his rise to power.
Ultimately, Zelenskyy did follow through. His government adopted anti-oligarch legislation to reduce their influence, though this law has its controversies. He also pushed through a law that would prevent former bank owners from regaining their assets in the courts. News broke on September 3, 2023 that Kolomoisky was arrested in Kiev as part of a government fraud investigation by the Ukrainian government.
The Russo-Ukraine war also negatively impacted the country’s oligarchs as they sought to minimise losses in business ventures rather than consolidate and protect their political positions. Speculation has already begun over who will be in power when the dust settles.
What are potential global considerations?
The outcome and effects of PJSC Commercial Bank PrivatBank v. Kolomoisky and ors will be one to watch when considering the growth and investment potential in a post-war Ukraine. It will be a key indicator of Ukraine’s intentions to build a healthy banking system and financial stability. It will also be an indicator of how Ukraine participates in the global political stage as it hopes to join the European Union (EU).
In April 2023, the International Monetary Fund (IMF) approved a 15.6 billion USD loan to support Ukraine’s economy as the Russo-Ukraine war continues. The move was viewed as controversial. Firstly, it bypassed an IMF policy to avoid lending to countries in conflict. The IMF previously enforced this policy in 2021 by stalling money it had promised to Ethiopia after the northern part of the country became embroiled in a civil war. The loan to Ukraine has been criticised as a show of “blatant favouritism” to serve the interests of Western countries over countries in the Global South. All 80 member countries pay into the IMF. Funds are allocated based on voting power, which depend on a member country’s quota. A quota is representative of a member country’s “relative economic position” and is calculated using the IMF’s quota formula. Quotas are reviewed at least every five years.
Yet another reason why the move is controversial is because it will add to Ukraine’s already huge debt burden, which is only continuing to swell as the war continues. The IMF’s debt package is likely to impact the country’s economic sovereignty in the future, as it will need to agree to terms that may be painful in the short run.
Greece is a key case study of how tough and painful IMF terms can be. In part due to the negative impact those terms had on the Greek economy, Greece became the first developed country to default to the fund in 2015. To prevent capital flight leading up to the default, former Prime Minister Aléxis Tsípras imposed emergency capital controls, such as limiting bank withdrawals to 67 USD per day and declaring a bank holiday after the European Central Bank (ECB) refused to extend an emergency financial lifeline to prevent the IMF default. The ECB is the central bank of the EU. It manages the euro and implements EU economic and monetary policy.
All this has potential implications for Ukraine’s aspirations to join the EU. Ursula von der Leyen, President of the European Commission, told Ukraine in 2022, “You are part of our family, your future is our union, and our union is complete without you.” President of the European Parliament Roberta Metsola has called for official negotiations for entry to the EU to be started with Ukraine next year. These are important gestures, but as Lisa O’Carroll, a writer for the Guardian notes, there are several considerations still to be made, not least of all Ukraine’s financial position.
As the Russo-Ukraine war continues, only time will tell how Ukraine’s economy will begin its path to recovery and whether it will succeed in its political aspirations to join the EU. The decisions made in PJSC Commercial Bank PrivatBank v Kolomoisky and ors is likely to signal which way the wind will blow.