The case of Pryvatbank: connection between Surkis and Kolomoyskyi, which judges don’t see

Nadiya Burdey for Economichna Pravda

Former co-owners of the nationalized Pryvatbank continue to fight for lost deposits in the institution. Why do judges ignore arguments of the bank and the NBU?

“Judges of the Grand Chamber are under pressure through the media and the Internet. The Grand Chamber of the Supreme Court decided to send the appeal to the Prosecutor General’s Office and the High Council of Justice”, stated judges of the Supreme Court on April 27.

They refused to consider the case regarding the appeal of the family of oligarch Igor Surkis against the state Pryvatbank. The meeting was postponed on June 15.

On that day the Supreme Court had to make final decision on connection between the family of Surkis with former owner of Pryvatbank Igor Kolomoyskyi. The decision on non-recognition of such connection could cost the state more than 29 billion UAH and would unblock the proceeding on legality of nationalization Pryvatbank.

Few days later, the Supreme Court explained that it considered publications in the media and Facebook as pressure, which, in the opinion of the court, are aimed at undermining authority of judiciary.

“Assumptions of authors of these publications and posts are combined with statements regarding receipt of illegal benefits by judges of the Grand Chamber of the Supreme Court, conspiracy with plaintiffs’ representatives, and contain threats”, according to the statement of the Supreme Court.

Indeed, there were publications in the media, but the Supreme Court did not cite examples of threats.

This is not the first lawsuit that has attracted attention of journalists. Such attention is quite justified, because the case could cost tens of billions UAH for the state. Why are judges concerned about press releases if they are confident in their position? Perhaps they doubt the legitimacy of court decisions of previous instances?

District Administrative Court and Kyiv Administrative Court of Appeal made decisions in this case in favor of Surkis brothers behind closed doors. Media did not have opportunity to describe facts on the ground of which courts had taken the side of oligarchs.

Instead, judges of the Supreme Court had to hold the consideration of the case and announce their decision publicly in front of dozen TV cameras.

Authors of this material do not have intention to put pressure on judges of the Supreme Court. Their purpose is to analyze events in this case in lower courts.

Media connection

The story began in 2016. Then, on the eve of nationalization of Pryvatbank, the special commission of the NBU recognized Igor Surkis and more than thousand other individuals and legal entities connected with Igor Kolomoyskyi’s Pryvatbank.

Money of related parties, namely, about 29 billion UAH, which were kept in accounts in Pryvatbank, were exchanged for shares of this institution, which the state bought on the next day for one UAH. That means that in the process of withdrawal of insolvent Privatbank from the market with the participation of the state the bail-in procedure was applied.

The bail-in procedure regarding Pryvatbank was forced conversion of deposits into new shares of the bank, which were issued in December 2016 during nationalization of the bank, and then eventually with all “old” shares of the bank (100% in total) were repurchased by the state (represented by the Ministry of Finance) for 1 UAH.

Igor Surkis and other family members kept 1 billion UAH in Pryvatbank. To return them they sent the appeal to Kyiv District Administrative Court in December 2016 with the request to cancel the decision on recognition of Surkis as related party and to declare invalid agreements on purchase of shares and recovery of 1 billion UAH.

Connection of Igor Surkis with Igor Kolomoyskyi and Pryvatbank confirms the oligarchs’ joint ownership of the number of assets. In particular, we are talking about three media: TV and Radio Company Studio 1+1, Gravis-Kino and TV Company TET.

However, there is one problem. Data on owners of these companies must be submitted in the Unified State Register of Individuals and Legal Entities, but there is no information on beneficiaries of these companies in the Register. This is violation.

Judges of District Administrative Court referred to this violation when they had made the decision in favor of Surkis. According to judges, if information about owners is not submitted in the Register, they cannot be used in the litigation.

However, data on owners of Studio 1+1, Gravis-Kino and TV Company TET are kept by another state body, namely, the National Council on Television and Radio Broadcasting. The National Bank used this official and open information in recognizing Igor Surkis as related person with Igor Kolomoyskyi.

Lawyers of the NBU and Pryvatbank provided judges schematic representation of the ownership structure of these TV channels. Such schemes are submitted to the National Council every year by all TV channels. The above-mentioned documents included final beneficiaries: Surkis and Kolomoyskyi.

Submission of such reports is the requirement of the law. If this requirement is not met, the National Council may revoke the TV channel of the license. There have already been such precedents in Ukraine.

In April 2017, the broadcasting license of the TV Company TV Stimul from Kropyvnytskyi expired. The National Council refused to extend the validity of documents until the media provided information about final beneficiaries of the channel.

Oligarchs did not want to provide regarding documents, as the National Council demanded not only schematic representation of ownership structure, but also trust agreements. After one month of work with expired license the TV Stimul fulfilled the requirement of the National Council.

The TV and radio company confirmed that its final beneficial owner is Igor Kolomoyskyi, and the owner of significant stake is Igor Surkis. Only after that the National Council extend the license of regional TV channel. That means that then the National Council unintentionally established the fact of connection between two oligarchs.

Lawyers of the National Bank and state Pryvatbank tried to prove this fact on the example of three other TV channels in District Administrative Court and then in Kyiv Administrative Court of Appeal. However, evidence that TV channels submit to the National Council on their own turned out to be insufficient for judges.

The fact is that Igor Surkis does not own TV channels directly, but through the chain of companies. In particular, he owns them through Cypriot company Bolvik Ventures Ltd.

The oligarch’s lawyers took advantage of this confusing ownership structure. They referred to the fact that Surkis does not control Bolvik Ventures Ltd, and, therefore, he doesn’t control channels too. Due to this fact he cannot be considered the owner of significant share of three TV channels.

However, the Law “On Banks and Bank Activity” states that the person is the owner regardless of whether he controls the company or not:

“A person recognized as the owner of indirect significant participation, regardless of whether that person has direct control of owner participation in a legal entity or control of any other person in the chain of ownership of corporate rights of the legal entity.”

Documents that TV channels submit to the National Council every year according to the law “On Television and Radio Broadcasting” were not enough for judges.

Judges of Kyiv Administrative Court of Appeal called these documents “printout from the website of TV channel”, and schemes of ownership structure of TV channels, according to judges, do not confirm that Igor Surkis is the co-owner of the media.

This is strange position of judges. If the National Council on Television had such position, it would have to immediately revoke license of these three TV channels.

The appeal to London

Another argument about connection of oligarchs is Igor Surkis’ lawsuit against Petro Poroshenko in London court. Surkis demands compensation for damages due to non-fulfillment of the agreement, according to which Poroshenko had to buy Surkis’ share in 1+1.

On April 25, Dzerkalo Tyzhnya published this lawsuit, which begins with words: “The first plaintiff is citizen of Ukraine who is the beneficial owner of 25 percent stake of Ukrainian TV channel 1+1. That means that Surkis admitted that he was the co-owner of TV channel and, accordingly, the person related to Kolomoyskyi.

It would seem that this is enough. Surkis admitted data on oligarchs’ partnership, both oligarchs submit reports to the National Council every year, and they are also partners in this reports. However, these facts were not enough for Ukrainian courts.

Companies of Surkis

Companies, where beneficiaries are family members of Surkis brothers’, Igor and Grygoriy, are also trying to appeal connection with Pryvatbank. At the time of bank’s nationalization, 6.8 billion UAH were in accounts of companies related with Surkis brothers. To collect these funds representatives of Surkis companies booked two options.

The first. They tried through the court to oblige the bank to comply with terms of deposit agreements, which were concluded before nationalization.

In February 2017, six companies, namely Camerin Investments LLP, Sunnex Investments LLP, Tamplemon Investments LLP, Berlini Commercial LLP, Lumil Investments LLP and Sofinam Investments LLP, sent the appeal to Pechersk District Court of Kyiv with the request to Privatbank to comply with terms of agreements and prohibit write-offs or transfer of their funds.

The representative of offshore companies misled the court, because he knew for sure that money from companies’ accounts, as well as money from accounts of Surkis family, had been exchanged for the bank’s shares in the process of nationalization. Companies, as well as their beneficial owners, filed appeals against the NBU and Pryvatbank to District Administrative Court.

On April 15, Kyiv Court of Appeal ordered Pryvatbank to fulfill terms of the agreements that were terminated in 2016 and pay 6.8 billion UAH to companies of Surkis family. This news was published by almost every Ukrainian media on the same day.

Later, the Ministry of Justice, as the enforcement body, explained that: “The Ministry of Justice will not collect any billions from Pryvatbank at the moment, as there has been no court decision to collect this money from the bank. The court has obliged to comply with terms of deposit agreements but not to collect money”.

The Ministry explained that companies of Surkis will be able to receive this money if they win lawsuit to collect funds. Companies of Surkis have already filed such appeal.

At the same time, everything in Ukrainian legal system is not quite as the head of the Ministry of Justice says. Recently, the state executor obliged the bank to fulfill terms of terminated agreements and transfer 6.8 billion UAH to companies of Surkis.

This does not contradict the statement of the Ministry of Justice about possibility of collecting funds only according to the court decision: the Minister did not say anything about obligation to transfer funds.

The second option of collecting 6.8 billion UAH to companies of Surkis was booked in January 2017. They sent the appeal to Kyiv District Administrative Court with the demand to cancel the decision on their connection with the bank and collect 6.8 billion UAH from it.

The National Bank pointed out following signs of connection: beneficiaries of companies are members of family of Igor and Grygoriy Surkis, all companies have common legal advisor and are registered at one address, interest rates on corporate deposits were higher than market for ordinary clients of the bank.

District Administrative Court took the side of companies of Surkis. The case is currently being considered by the Sixth Administrative Court of Appeal. The proceeding has been suspended until the case on the appeal filed by these companies against the bank in District Court of Nicosia, Cyprus is solved, because their funds, namely 29 billion UAH, were in Cypriot branch of Pryvatbank.

Another important case depends on the decision in the case of Surkis. After nationalization of the bank Igor Kolomoyskyi’s and Gennadiy Bogolyubov’s former shareholder Cypriot Triantal Investments Ltd sent the appeal to Kyiv District Administrative Court to cancel the decision of the NBU on recognition  of persons related with Pryvatbank.

This appeal was filed in interests of all persons determined by the National Bank as related with Pryvatbank. If the appeal is satisfied, all such persons could collect from the state bank funds that had been exchanged for institution’s shares in the total amount of 29 billion UAH.

Judges deliberately delayed the consideration of this case. The panel of judges of District Court started to consider it on March 2018, but in fact the consideration of case began in April 2019. Judges delayed the meeting for about six months due to the plaintiff’s absence, having legal grounds to leave the appeal without consideration.

Finally, the court of first instance satisfied the appeal and cancelled the decision of the NBU regarding connection of 1,092 individuals and legal entities with Pryvatbank. The regulator has filed the appeal, but in case of loss, there will be preconditions for Pryvatbank to pay more than 29 billion UAH to persons recognized by the NBU as related.

The curtsy which judges of District Administrative Court made before Kolomoyskyi deserves special attention. They stated that the NBU has not proved existence of signs of connection between legal entities and individuals with Pryvatbank.

That means that judges stated that the National Bank did not provide evidence of connection, for instance, Surkis brothers or former wife of Gennadiy Bogolyubov with Pryvatbank. This is despite the fact that the plaintiff did not appeal presence of such signs in the lawsuit.

The appeal in this case is currently suspended until the Supreme Court makes the decision in the case regarding the appeal of Surkis on connection with Kolomoyskyi’s Pryvatbank.

Therefore, issues on 29 billion UAH and nationalization depend on the decision in the case of Surkis. Namely, it depends on Ukrainian justice.

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