Last week former CEO of Naftogaz Andriy Kobolyev was granted bail in the amount of 229 million UAH. He is suspected of embezzling this sum in the form of bonus paid for Naftogaz’s victory over Gazprom in the Stockholm Investment Arbitration.
The decision to grant bail was made by the Appellate Chamber of the HACC. Prior to that the investigative judge rejected the prosecutors’ request and found the suspicion against Kobolyev unjustified. We continue to closely monitor this case. Earlier, we have already described the essence of law enforcement officers’ claims against Andriy Kobolyev and our questions to the investigative judge’s decision in this case, which has already been canceled.
One of questions that was not answered in the decision of investigative judge, and position of the defence and the prosecution were opposite, was whether the law had been violated in the payment of bonus. The Appellate Chamber clearly established that violations did occur, and that the suspicion against Andriy Kobolyev was justified.
In turn, suspicion and preventive measure are not the verdict. In simple terms, the court made the decision that investigation and prosecutor’s office had sufficient grounds to continue investigation. At the same time, the Appeals Chamber disagreed with the prosecutor’s office about appropriateness of the suspect’s detention with bail in the amount of almost UAH 366 million. The Court of Appeal upheld the request only partially. Namely: it denied custody, but applied bail in the amount of 229 million UAH.
Let’s recall the background.
In December 2017 and February 2018, the Arbitral Tribunal issued two decisions.
The first is in the case of gas sale and purchase. According to it, Naftogaz had to pay Gazprom 2.1 billion USD, although the russians, on the contrary, tried to get about 80 billion USD for themselves.
The second is in the transit case. Here, Gazprom was obliged to pay Naftogaz 4.6 billion USD. Naftogaz employees were paid bonus in the amount of 1% from this amount. The total contractual bonus for all employees is more than 46 million USD, of which Kobolyev eventually received 10 million USD in 2018 and about 12 million USD more in 2021.
Kobolyev’s suspicion concerns the first payment in 2018, which amounted to 266 million UAH. The investigation believes that maximum allowed amount was 37.4 million UAH. According to the NABU and the SAPO, the payment of this bonus was made possible due to the number of related actions taken by Kobolyev.
When considering the request regarding preventive measure, several things are checked. Namely:
- reasonableness of suspicion – namely, existence of reasonable assumption that the suspect may have committed the crime. Such assumption cannot be unfounded, but must be based on certain facts, although it may not be confirmed during further investigation;
- existence of risks and possibility of imposing more lenient preventive measure;
- proportionality of the amount of bail and property status of the suspect.
Judges of the Appellate Chamber stated that conclusions of the investigative judge, firstly, did not correspond to actual circumstances of the case; secondly, when the investigative judge recognized the suspicion as unfounded, he established the number of circumstances that the defense had not referred to; thirdly, he did not assess any of the prosecution’s evidence that he examined, either individually or in the aggregate.
In November 2022, the same investigative judge considered the NABU’s request in the same case and then stated: “examined materials form to the investigative judge internal conviction that there is reasonable suspicion regarding possible abuse by officials of Naftogaz of Ukraine in the payment of bonuses to the company’s employees”.
The Appeal’s decision also states that the investigative judge prematurely tried to decide the case on merits when he was determining whether Kobolyev’s actions had all elements of the crime. The judge could not determine this issue at this stage, as he was not provided with all evidence collected by the investigation, and thepre-trial investigation has precisely to establish presence or absence of the crime.
Reasonableness of the suspicion
The Appeals Chamber made the conclusion that Kobolyev’s suspicion was justified: “nature and sequence of Kobolyev’s actions set out in the suspicion, as well as evidence provided in support, indicate that the crime may have taken place and further investigation is justified to establish all circumstances of the case”.
Unlike the decision of investigative judge, the Appeals Chamber carefully listed evidence and pointed out circumstances that confirmed this evidence.
In its verdict, the court found that bonuses were awarded to Naftogaz employees through the number of related actions in which Kobolyev participated. In simplified form, the bonus approval process looked like this:
- Kobolyev initiated request regarding payment of bonuses;
- consideration of this request by the Nomination and Remuneration Committee, which makes recommendations to the Supervisory Board on the amount of remuneration to members and the Chairman of Board;
- Kobolyev’s introduction of amendments and additions to the request regarding bonus payments;
- consideration by the Supervisory Board of issue regarding approval of payments;
- Kobolyev issued order on the basis of which bonuses were calculated and paid.
It was Kobolyev, as the chairman of the board, who initiated payment of bonus when he signed submission to the Supervisory Board in early April 2018. However, it contained empty spaces in the column of recommended amounts. At the same time, the issue of bonus payments in 2017 was initiated by the board in front Supervisory Board, not Kobolyev alone, and amounts were immediately indicated.
As the suspect explained, in 2018, the issue of bonuses was not brought to the board because all its members wanted to get certain share of bonus and therefore had conflict of interest. Therefore, he decided to appeal to the Supervisory Board on his own. However, by the same logic, he also had the conflict of interest. Although it is logical that no one other than the board or its chairman can initiate the issue of bonuses in front of the Supervisory Board.
Kobolyev also explained that in 2018, the win was much bigger and more significant event than in 2017. According to him, it was different “type of victory,” according to which Naftogaz did not have to pay anything to Gazprom. The victory then concerned the interim decision of the Arbitration Tribunal to dismiss Gazprom’s appeal to recover fine from Naftogaz.
Such explanations are criticized. It turns out that in case of more significant victory, the initiative of the chairman of the board alone is enough to get bonus, and in case of less significant victory, the entire board is the initiator. Although the opposite would seem more logical.
Another important difference, according to Kobolyev, was that in 2017, the board meeting was chaired by someone other than him. According to Kobolyev, this was because of his position that the bonus should be paid only after final victory, not after interim decision. However, the board decided otherwise, and he could not but obey this decision.
Nevertheless, in 2017, the Supervisory Board approved payment of bonus in the permissible amount (Kobolyev received 12.5 million UAH). All levels of approval took into account the bonus limitations set out in the Resolution of the CMU № 859 “On Terms and Amounts of Remuneration for Managers of State-owned and Communal Enterprises and Associations of State-Owned Enterprises”. The board previously discussed this issue at separate meeting. At the same meeting, in presence of Kobolyev, one of members of the board spoke about existence of regulatory restrictions on the amount of bonuses. By virtue of this, as well as his familiarity with his contract and collective bargaining agreement, Kobolyev could not have been unaware of or misunderstood the regulatory restriction on bonuses.
Instead, on April 17, 2018, Kobolyev signed amendments to the submission, in which he determined that total amount of bonuses for all employees should be 46.3 million USD. The addendum already had 10 million USD amount opposite his name, and separate clause stating that the chairman of the board could redistribute the amount of bonuses due to him among any Naftogaz employees at his discretion.
Kobolyev stated that he made changes to the submission after the meeting of the Remuneration Committee. According to him, the Committee agreed on the bonus in this amount without his participation and only dictated to him what amount of bonuses the Supervisory Board was going to approve. That is why he amended the submission. As for the right of the Supervisory Board to reallocate its 10 million USD to other employees, Kobolyev said that this idea was discussed, but later everyone decided that it was inappropriate.
The court found that the Resolution of the CMU № 859 applied to the situation with Naftogaz. The position of suspect and his lawyers was exactly the opposite. The main argument of the defense was that the provision on the Supervisory Boards was introduced into the resolution only in 2020, and it simply did not exist at the time of bonus payments. Kobolyev also said that the reason why the resolution was applied in 2017 when submitting the bonus application, there should be a need to ask people who had prepared it.
The court found that version of the government resolution in force at the time applied to bonuses for chairmen and members of the boards of public joint stock companies (such as Naftogaz). In addition, the Collective Agreement of Naftogaz contained direct reference to the Resolution № 859 on the regulation of salary of the chairman of the board. For the court this was unconditional confirmation that the Resolution applied to Naftogaz.
The SAPO also pointed out that Kobolyev allegedly misled members of the Supervisory Board and failed to inform them of legal restrictions on maximum amount of bonuses. The appeal stated that this allegation needs to be further verified during investigation, noting that although the Supervisory Board decides on payment of bonuses independently, it reasonably had the right to expect that CEO of Naftogaz was acting in good faith and in honesty. However, the decision does not conclude that Kobolyev acted in bad faith or in dishonest.
We should add here that on January 23, 2023, former members of the Supervisory Board Claire Spottiswood, Bruno Lescua and Ludo Van der Heyden published public statement on one of social networks, stating that bonuses were approved unanimously by the entire Supervisory Board in full compliance with international corporate governance practices. However, for some reason detectives have not taken their statements yet as part of investigation. Instead, one of members of the Supervisory Board (Serhiy Popyk), who was interviewed, stated that if he had known that the law set limits on maximum amount of bonuses, he would not have voted for such bonuses.
Assessment of existing risks
The court stated that there were three risks in the case:
- risk of absconding from investigation and court;
- risk of influencing witnesses or experts;
- risk of destruction or distortion of documents.
Judges considered the risk of absconding to be present, in particular because Kobolyev is reasonably suspected of committing particularly serious crime for which he could face up to 12 years of imprisonment, and therefore he may want to avoid punishment. In assessing this risk, judges referred to the decision of the ECHR in the case of Iliykov v. Bulgaria, namely the phrase “severity of provided punishment is essential element in assessing the risk of absconding”. Although in fact, in this decision the ECHR just stated that severity of charges alone cannot justify long periods of preventive detention.
However, judges of the HACC did not justify existence of risk of absconding solely by the severity of punishment. In addition, they pointed out the following:
- over past four years, Kobolyev has crossed the border 85 times, including spending almost the year outside of Ukraine last year;
- Kobolyev has three minor children, so restrictions on leaving the country during the martial law do not apply to him;
- his ex-wife, children, mother and common-law wife live abroad, and therefore he has no strong social ties in Ukraine;
- he has significant financial resources, with the help of which he can reside outside Ukraine for a long time.
As for his regular trips abroad, Kobolyev returned to Ukraine every time. Given his activities and presence of relatives living abroad, the number of trips does not seem surprising. And any flight abroad would have put an end to the suspect’s public career. As for the second allegation, the obligation to hand over passports resolves this issue. We can agree with the other two arguments of the court. It is not about the lack of social ties, but rather about the center of life interests.
The Court of Appeal separately assessed the conclusion of investigative judge that Kobolyev had returned to Ukraine to assist investigation. They called it assumption that was not based on materials of the case. However, they did not specify what specific materials this assessment was based on.
Judges justified the risk of destruction or distortion of documents by the fact that pre-trial investigation is still ongoing, not all evidence has been collected, and in the proceeding “measures have been repeatedly taken to conceal documents that are essential to establishing circumstances”.
The investigation has indeed been going on for a long time, namely since July 2018. The NABU was granted temporary access to Naftogaz’s documents related to bonus payments through the court. However, they were unable to physically obtain documents, as they were transferred in October 2018 to foreign law firm that represented Naftogaz in the Arbitration. Naftogaz did not keep copies of these documents. Documents were allegedly needed by the law firm to determine the distribution of costs. The prosecutor, on the other hand, stated that the Arbitration had determined the allocation of costs before the law firm received documents. Allegedly, this was the reason why the investigation was blocked for almost three years. The court decision states that these documents were also not provided as part of the NABU’s requests for international legal assistance.
The decision also states that Kobolyev has close relations with current and former employees of Naftogaz, who, on his behalf, can destroy or distort documents or evidence. However, it is not clear why such documents have not been seized yet and what exactly “close relationship” is.
Judges justified the risk of influencing witnesses and expert by the fact that not all witnesses have been questioned yet, Kobolyev continues to communicate with Naftogaz employees, maintains friendly relations with some witnesses, and issued the power of attorney to one of current members of the board of Naftogaz, who also had received bonus in 2018. Judges made the conclusion that Kobolyev could potentially use his authority and connections to persuade them not to give truthful testimony during pre-trial investigation or to change it in the court. It is unclear how this correlates with the court’s position that Kobolev does not have “strong social ties in Ukraine” when assessing the risk of absconding.
As for the expert, judges simply pointed out that economic forensic report had not been conducted yet. Therefore, this is not enough to justify the risk of influencing the expert.
Judges refused the prosecutor’s office to keep Kobolyev in custody with bail in the amount of almost 366 million UAH, but applied bail in the amount of 229 million UAH. Judges stated that they took into account validity of the suspicion, severity of punishment, amount of Kobolyev’s income in 2017-2022, his lack of criminal record, and absence of information about any other suspicions or preventive measures that would have been applied to him previously.
Judges also refused to impose obligation to wear electronic bracelet for Kobolyev. The reasoning was that under martial law and rocket attacks, there is round-the-clock possibility of evacuation, he will hand over his passports anyway, and he is member of the board at Kyivstar, so the bracelet could disrupt his normal business life.
When assessing possibility of imposing more lenient preventive measure, judges only indicated that they used the standard of “reasonable probability” that the more lenient measures could not prevent risks identified by the court. But they did not explain why they thought so.
Proportionality of the amount of bail and property status of the suspect
When setting bail in the amount of 229 million UAH, judges indicated what they took into account the following:
- Kobolyev’s income in 2017-2022 in the amount of 413 million UAH;
- receiving the second installment of the award in 2021 in the amount of 338.6 million UAH;
- ownership of Mercedes-Benz car, Bombardier watercraft, trailer for it, and works of art, including the collection of paintings;
- his common-law wife’s property, including 20,000 USD in savings and 67,000 USD in savings of her minor son;
- circumstances of the alleged offense;
- the size of incriminated crime, identified risks, and the fact that Kobolyev is member of the Supervisory Board of Kyivstar and rents house in Kyiv region for 100.000 UAH per month.
Separately, judges stated that the case did not contain any information about blocking or seizure of Kobolyev’s accounts, and the defense did not mention any circumstances that would make it difficult for them to post bail.
As the result of all this, judges came up with the amount of 229 million UAH, which is actually equal to the subject matter of alleged offense. However, the decision does not contain any mathematical formula for calculations. There is no explanation as to why the amount of alternative bail proposed by prosecutors was too high.
Kobolyev was also assigned the number of responsibilities. Namely:
- to come to detective, prosecutor, investigative judge or court at every request;
- not to leave Kyiv without permission of detective, prosecutor or court;
- notify detective and prosecutor of change of residence;
- refrain from communicating with certain witnesses;
- deposit all passports for traveling abroad and passport of the citizen of Ukraine.
There are obvious gaps here. In particular, judges wrote in the decision that Kobolyev rents house in Kyiv region, but he is obliged not to leave Kyiv without permission.
At the moment, we are talking about assumptions, not allegations of the prosecution. When choosing the preventive measure, the court did not consider merits of the case, did not examine all evidence collected in the criminal proceeding, and did not establish presence or absence of the crime in Kobolyev’s actions. The purpose of preventive measure is to ensure proper procedural behavior of the suspect through certain restriction of his personal rights.
This also means that at the end of investigation, the investigation and prosecutor’s office may conclude whether the illegal payment of bonus was actually the result of intentional actions by Andriy Kobolyev (what is actually being charged today), or whether there was negligence, or whether there is no crime at all. In first two cases, the case will be fully considered in the court, and only the latter will make the final verdict.
So far, after what we have heard in the court, we have no doubt that the suspicion is justified. However, we have impression that investigation is incomplete and that detectives have not completed their work. In particular, the question arises as to why all members of the Supervisory Board have not been questioned yet, why economic forensic report has not been conducted, and whether we will hear anything about assessment of actions of other persons involved in the payment process.
At least it is already known that they were unable to pay full amount of bail for him, and the prosecutor’s office filed new request, where prosecutors again ask for custody with the same bail in the amount 366 million UAH.
In our opinion, this request of the prosecutor’s office is excessive in this case, both in terms of custody and increase in the amount of alternative bail. It is obvious that prosecutors continue to insist on their initial request for custody with bail in the amount of 366 million UAH (actual amount of the first tranche of bonus in dollar terms). However, when determining another preventive measure, the court may also determine house arrest or new amount of bail without custody.
But the question of why Kobolyev did not pay bail is also important in this context. His official income, as announced in the court, allows him to have necessary resources. However, he actually states that his accounts abroad are blocked because of this case. It is not known yet what amounts of money have been blocked, by whom and on what grounds.
The SAPO, in its turn, has officially stated that Kobolyev’s accounts have not been seized or blocked in any proceedings of the NABU and the SAPO.
Finally, we would like to address the HACC, which posted the decision on its website for several hours with “closed” personal data, which was visible when the text was copied. Of course, this violates rights of persons mentioned in the text and may have negative consequences for the proceeding. But the worst thing is that such mistakes can create serious risks to safety of Andriy Kobolyev and his family.
The least that can be done today is to issue official public apology from the court, bring those responsible to justice, and prevent this from happening in future.