Put Ihor Kolomoisky on all the international sanctions lists

The Ukrainian oligarch Ihor Kolomoisky should be put on every international sanction list as his selfish efforts to regain control of Privatbank threaten to cause a major economic meltdown for the whole country and a decade of misery for the entire population of the country.

The stakes could not be higher. The fate of 38mn Ukrainians depend on the passage of a draft banking law, which passed its first reading at a dramatic midnight vote on March 30.

Since then, seven deputies linked to Kolomoisky have introduced over 16,000 amendments to the law ahead of its second reading now slated for April 13 – a new record for the legislative body.

Analysts say that if procedure is followed then it will take six months to plough though the paperwork. The April 13 Rada session will be a test for Ukrainian President Volodymyr Zelenskiy and will determine the country’s direction for years to come. If it is not passed then Ukraine could default on the circa $2bn of debt that comes due in May, plunging the country into economic chaos, similar to what Russia suffered in the 1990s after it defaulted on its debt in 1998.

Kolomoisky has denied having anything to do with the introduction of the amendments – and no one believes him. This is a classic oligarch trick, used by the Russian oligarchs too. They can ignore the rule of law and use bribes and at times violence and murder to grab the assets they are after. But they also use the legal system to their advantage when it suits them.

Foreigners who find themselves on the receiving end stand little chance of winning, as Telenor found to its cost when it took on Alfa Group’s Russian oligarch Mikhail Fridman in a shareholders dispute for control of mobile phone company Kyivstar. Telenor hired lawyers and pointed to its shareholder agreement, but every time it won a case on its merits, a court in some far flung Ukrainian region overturned the result within 24 hours and they had to go back to square one.

“There are over a thousand of these courts,” Trond Moe, the head of Telenor’s representative office in Ukraine told bne IntelliNews at the time. “This will never end.” Telenor eventually gave up and sold its stake, despite being the majority shareholder.

According to analyst speculation Kolomoisky “used his influence” to “persuade” the deputies to submit those amendments. And that is the essence of the problem. I have to stick to the rules and Kolomoisky only has to stick to those parts that suit him.

Westerners dealing with eastern Europe have to pretend the rule of law is in effect. Indeed, in Ukraine, which is wooing the West for aid and eventual membership of the EU, Zelenskiy’s administration has also got to maintain the fiction that rule of law is in effect.

You can’t just call “foul” on the amendments and nix them, as ironically that is against the law. The proper place to throw these amendments out is the Rada’s committee on banking, but that is reportedly headed and stacked with more Kolomoisky supporters. Kolomoisky has prepared his ground carefully. But that is why he is a top dog in a country as corrupt and chaotic as Ukraine. He is very good at this game. Because of this duplicity I have to write the following paragraph.

There is no evidence whatsoever that Kolomoisky paid any bribes, money or in any other way materially influenced the deputies in their decision to submit those amendments. There is no evidence of any sort that Kolomoisky has not stuck entirely to the letter of the law or that he abused the political or legal system in any way.

I leave it to the reader to draw their own conclusions as to the motivations of the deputies to submit 16,335 amendments to the draft law on banks, bill number 3260, at a time of national crisis that is likely to derail an imminent deal with the International Monetary Fund (IMF) and as such could cause a catastrophic economic crisis.

Nevertheless, Kolomoisky’s name should be added to every sanction list we have. The NBU has branded a string of attacks on its staff and former NBU governor Valeriya Gontareva last year as a “terror” campaign and named Kolomoisky as being behind those attacks. And there were several other incidents laid at his feet. Gontareva told bne IntelliNews last summer in London that Kolomoisky had threatened her and she afraid for her safety. Since then she has been knocked down by a car in a hit-and-run incident police say was “suspicious,” her house in Kyiv was burnt down in an arson attack and the car of her daughter-in-law was torched after someone doused it with petrol in the middle of the night.

The West has been extremely fast to impose sanctions on Russian oligarchs where the evidence against them is far more flimsy than this. Indeed, one of the principal objections to the personal sanctions regime is that it undermines the “innocent until proven guilty” principle that is the bedrock of the West’s legal system. Sanctions are the punishment for individuals who have not stood trial nor been convicted of any wrongdoing. They are sanctioned on the basis of political decisions made by governments that want to “punish” political regimes they disagree with.

The obvious example is the inclusion of Russian oligarch Oleg Deripaska and his Rusal metallurgical company in the April 6 round of sanctions last year. While Deripaska clearly belongs to the top tier of Russian business, there is no evidence his relationship with the Kremlin is any different to that of any leading CEO to the government in any country.

Indeed, when the US Treasury Department (USTD) finally responded to requests for the evidence used to justify the sanctions on Deripaska it sent a risible list of articles that was little more than hearsay. The letter even included a claim that he cancelled the IPO of his car company GAZ “to hide money laundering activities” that was flat out wrong: the company already held its IPO in 2007, years before Deripaska took it over.

Putin used to actively engage with most of Russia’s business elite in regular meetings as bne IntelliNews reported in a cover piece “ZAO Kremlin” in 2007 but more recently he restricts himself to a small circle of businessmen he has known since he was a young man as bne IntelliNews reported in a cover story: “Meet the stoligarchs” in 2016.

And yet the USTD deemed Deripaska a suitable target for extremely harsh sanctions that caused chaos on the metals market when they were imposed. Deripaska seems to have been largely singled out in the April sanctions simply because he is high profile and vulnerable thanks to the international nature of his business.

The case against Kolomoisky is infinitely stronger. bne IntelliNews first raised the alarm in a November 2016 cover story “Privat investigations” that showed the loan book was stuffed with shell companies belonging to Kolomoisky. The NBU followed the scandal up with an audit of Privatbank books and found that 99% of the loans were to related parties. This was followed by a forensic audit of the books by corporate sleuths Kroll, which came to the same conclusion – with hard evidence – and even tracked down some of the money.

All this evidence is now being presented to courts in London and Cyprus where Privatbank is suing Kolomoisky for about $8bn in total in damages. The UK court has already ordered $2bn of Kolomoisky assets frozen for the duration of the trial.

But no charges have been brought in Ukraine. There is no active investigation into him or his affairs. He is free to move around the country and conduct business with impunity. Zelenskiy seems powerless or unwilling – it's not clear which – to stop the de facto effort to derail the banking law. Zelenskiy’s role in all this is unclear too.

On the one hand the president lobbied hard to get the first reading of the bill through and rallied his faction for it; on the other hand, some have reported that the bill could have been passed in its entirety on March 30, in all three readings at once, which is allowed by procedure, but the government chose to split it into separate readings.

If the bill is not passed then Ukraine will almost certainly face a default on its debt, a run on its reserves, a huge devaluation of the hryvnia and a deep economic recession that will go on for years, as bne IntelliNews has reported in a piece on the cost of default.

Despite the problems with imposing sanctions on individuals that have not been convicted of any crime, there is enough evidence already on the table to apply this tool to Kolomoisky. 

The livelihood and wellbeing of 37mn Ukrainians could be plunged into a decade of misery and poverty because of the actions of one man, who is purely motivated by self-interest, arrogance and greed. Indeed, Kolomoisky has made it clear in interviews that he thinks Ukraine should default on the IMF debt.

It should be made clear that he will become an international pariah and any and all of his overseas assets will be seized unless he steps back. Any bank, lawfirm, consultant or service company should be subject to penalties if they work with him or his companies. The international financial system should be closed to him.

He has significant assets and money in the US via Delaware dummy companies worth hundreds of millions of dollars; those assets should be frozen. Switzerland, Israel, the EU and US should put a visa ban on him. The sanctions should determine that, if he does stop the bank law going through, he does regain control of Privatbank, and he does keep the $5.5bn-plus that was looted from Privatbank, he will have nowhere to go, nowhere to spend it and will be trapped in Ukraine until such time as a new government comes in that is willing to put him on trial for crimes he allegedly committed whilst running Privatbank.

And imposing sanctions on Kolomoisky is unlikely to happen. The politicised nature of the sanctions regime means that Washington is unlikely to impose them on a Ukrainian citizen, as Ukraine is the US’ ally in its rivalry with Russia. The sanctions regime is a political weapon that is largely used against US geopolitical enemies – with Russia and Iran at the top of the list. As a US ally, US lawmakers are unlikely to use it on the citizen of an ally.