Alliance for Corruption. How a small bank supports the anti-corruption system of Ukraine

The recent resignation of the head of the state company Ukrenergo, which is responsible for the operation of distribution networks in Ukraine, Vladimir Kudrytsky, has raised the question among experts and market participants regarding the effectiveness of state crisis management in the energy industry.

Following large-scale attacks on energy infrastructure by the Russians at the end of August, and ahead of one of the most difficult heating seasons for Ukraine, these challenges are becoming more acute.

However, in addition to energy problems, the new management of Ukrenergo will have to solve others, probably related to global corruption both at the level of the courts and at the level of higher patronage in the state. An example is the story of the small Ukrainian bank Alliance, linked to the old elites, which is trying to build on decades of anti-corruption efforts.

Following large-scale terrorist attacks on the energy infrastructure, Ukraine is suffering from a catastrophic shortage of electricity – both generating and distribution capacity. Thanks to the heroic efforts of power engineers who, under bullets and bombs, are restoring power lines, light is supplied to Ukrainian buildings, hospitals and industrial enterprises in conditions of unstable schedules. The cost of restoring power systems is measured in years and tens of billions of dollars. Funds for this are being sought all over the world. The country has become significantly dependent on the import of electricity, the construction of new diversified alternative sources and the technical condition of nuclear generation units.

Against this background, over the past few months, attacks have unfolded in the information space of Ukraine against the key governing body in the energy sector - the distribution system operator Ukrenergo. Since the beginning of autumn 2022, the company has faced a variety of absurd accusations - from allegedly corrupt procurement of transformers to the purchase of body armor at inflated prices at the beginning of the war. And recently, the High Anti-Corruption Court ordered the National Anti-Corruption Bureau, and subsequently the State Bureau of Investigation, to open a case against the ex-chairman of Ukrenergo, Vladimir Kudrytsky, allegedly due to corruption charges.

According to the local anti-corruption publication Our Money, representatives of the Ministry of Energy and the Office of the President could have been behind the first attacks. They allegedly intended to take control of cash flows from the export of electricity to Europe, its distribution, and subsequently over the funds for restoring energy networks after the end of the war. Recently, Kudritsky was dismissed from his post by decision of the Supreme Commander-in-Chief Headquarters. The new management will likely get rid of all the inefficiencies of its predecessor.

However, there remains one important matter that cannot be personalized to the personality of the former director. And which at the same time is a litmus indicator of the true anti-corruption intentions of the leadership in Ukraine.

Energy corruption

We are talking about a small, but in its own way arrogant Ukrainian bank - Alliance. The plot of his case consists of participation in a scheme to plunder more than 700 million UAH. funds from Ukrenergo, which was investigated by NABU until the beginning of 2024. The essence of the story is this. In the fall of 2021, Alliance Bank issued a bank guarantee to United Energy for the purchase of electricity or any other trade transactions. A bank guarantee, as a general rule, means that if the buyer is unable to pay for the goods, the bank will do so for him. At least that's how the system works in the world.

Alliance issued guarantees to United Energy for more than UAH 1 billion, which critically exceeded the credit risks per client. But that was only half the story. When United Energy turned to Ukrenergo for the supply of electricity in March 2022, it did not pay for the goods, citing the guarantee. The alliance refused to meet its obligations, citing formalities.

As a result, a situation arose where Ukrenergo (and in fact the state of Ukraine) suffered losses (various estimates range from UAH 700 million to UAH 1.7 billion, depending on whether penalties and fines, as well as other payments, are taken into account). Therefore, NABU opened and investigated criminal proceedings. The defendants were Ukrenergo officials who supplied electricity to an unreliable counterparty, a bank, and the buyer United Energy. The latter is part of the orbit of influence of Igor Kolomoisky, a well-known oligarch in Ukraine and the United States, whom Washington has repeatedly accused of money laundering schemes for the purchase of American real estate.

In criminal proceedings, NABU put the head of the board of Alliance Bank, Yulia Frolova, on the wanted list. Now she is hiding abroad. In parallel, Ukrenergo filed a commercial claim with Alliance for the return of money - the figure of UAH 1.2 billion appears here, since we are talking about additionally accrued penalties. The Supreme Court of Ukraine recently ruled that in cases involving bank guarantees, payments must be made unconditionally. Therefore, the fate of this payment is virtually determined: Alliance Bank will have to settle accounts with the state, as well as be held liable under criminal charges.

Additional charges

However, along the way, the financial institution managed to entangle itself in another corruption scandal, also associated with anti-corruption authorities. In economic and criminal proceedings, the interests of Alliance Bank are protected by the well-known Ukrainian company Miller. Its public face is a veteran of the Russian-Ukrainian war, activist and volunteer Masi Nayem, brother of the former head of the Reconstruction Agency Mustafa Nayem. The latter was recently fired from his post, along with Deputy Prime Minister for Reconstruction Alexander Kubrakov, literally before the arrival of American auditors who were supposed to check the use of US taxpayer funds for the reconstruction of Ukraine.

So, one of Miller’s lawyers, Alexey Nosov, was accused of trying to give $200 thousand in bribes in the interests of Alliance Bank in order to change jurisdiction. The bribes were planned to be given to NABU detectives and prosecutors of the Specialized Anti-Corruption Prosecutor's Office. A change in jurisdiction would mean that the chairman of the board, Frolova, would not be included in the register of corrupt officials, which means that the bank would have fewer reputational problems if she was found guilty. Or the lawyers already had in mind another law enforcement agency that would help “correctly” interpret the legislation in favor of the client.

It is doubtful that this operation could have been carried out without the knowledge of the management of Alliance Bank, although the latter actively denies any involvement. It is noteworthy that Alexey Nosov, among other things, is the son of Sergei Nosov, head of the regional restoration agency in Zhitomir. So, it is obvious that the Nayem brothers knew well who they were hiring as a lawyer. And it’s surprising that they could not predict such a corrupt step on the part of a colleague.

Shareholders with a train

For an outside observer, the history of Alliance Bank could put everything in its place. Even without going deeply into the documents, but only on the basis of open official data on the website of the National Bank and the Alliance Bank itself and from publications in the Ukrainian media, we can conclude that this institution is very specific.

First, let's take the key shareholders. Formally, the majority stake is owned by 68-year-old Alexander Sosis, an old player in the insurance and financial services market. However, as Ukrainian media write, the key role in the bank is played by the second largest shareholder, Chairman of the Supervisory Board Pavel Shcherban.

Pavel Shcherban is a 40-year-old entrepreneur with an emphasis in IT and the agricultural sector, however, the facts of his biography can lead to the actual beneficiaries of a financial institution. For example, literally 5 years ago he was one of the key shareholders of PJSC Yasnaya Polyana. This is a scheme joint-stock company that owned shares in the Soyuz captive bank. Soyuz Bank, in turn, was associated with a narrow circle of financiers close to the family of the fugitive president Viktor Yanukovych, in particular, with Sergei Dyadechko. In turn, these bankers were also associated with the Rodovid bank, to which the Ukrainian oligarch Dmitry Firtash was once involved.

Firtash, it should be recalled, has been under house arrest in Vienna for the last 10 years. At the same time, the American law enforcement system is trying to obtain permission to extradite him from Austria due to abuses in defense procurement.

It is noteworthy that a number of publications in Ukraine are convinced that Alliance Bank also actually belongs to Firtash or is part of his business interests. Despite the fact that the entrepreneur’s Group DF has repeatedly denied this, there is a number of irrefutable evidence on the network when Alliance Bank launched projects for the agricultural sector with the oligarch’s chemical enterprises, as well as other examples of how these two assets can be connected.

Problem bank

Another branch that is worth paying attention to is the state of Alliance Bank itself as a financial institution. According to official reports from the National Bank, the institution received numerous fines for abuses with domestic loan bonds, the purpose of which could be the legalization of criminal proceeds, the conversion of non-cash funds into cash, for example, to avoid paying taxes or unofficial payments. Even a people's deputy and his assistant took part in the scheme. Further, Alliance constantly ignored the analysis of clients’ financial transactions, bypassed financial monitoring requirements and turned a blind eye to suspicious transactions.

Also on the list of Alliance clients for a long time was the GlobalMoney payment system (in the media it was associated with figures from the time of Viktor Yanukovych), through which the attackers financed the activities of the illegal terrorist groups “LPR” and “DPR”. GlobalMoney was accused of withdrawing at least UAH 6.5 billion from Ukraine. Of these, about 800 million were withdrawn due to a scheme with an electronics trade operator - the Allo company, one of GlobalMoney’s partners in Ukraine, which sold “electronic money” directly at their cash registers. Alliance Bank was actually the issuer of these funds.

“Withdrawal of funds” is one of the articles by which the media can link the Alliance and its activities with Firtash. According to one of the proceedings, in 2017-2018, the management of Firtash’s regional gas companies could illegally withdraw funds through the bank, which led to a significant increase in debt to Naftogaz.

Despite the whole range of abuses, fines from the NBU, and criminal proceedings, in the last few years before the full-scale invasion of Russia and after it began, Alliance Bank regularly received refinancing from the National Bank. For example, in 2022, Alliance received almost UAH 2.8 billion. refinance, in 2021 – 1.3 billion UAH, in 2020 – 1 billion UAH. Such commitment to the Alliance on the part of the then management of the regulator looks all the more strange since the problems and riskiness of the institution’s activities were seen with the naked eye by both the business media and experts, who predicted it, if not a rapid exit from the market, then at least deep and multi-level checks (one of the credit agencies even withdrew the rating for the bank, which is actually a recognition of a pre-default state).

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Will the new management of Ukrenergo continue to sue for the UAH 1.2 billion it owns? with Alliance Bank in conditions of a total shortage of funds for the restoration of energy infrastructure? Will the National Bank continue to ignore the presence of such an “abscess” on the body of the financial system, which, in addition, also parasitizes on public funds? Will the courts continue to delay the case, waiting to see which way the political pendulum or economic weather vane will swing? And will the independent and impartial NABU ever continue to be ready to take the side of the Alliance in matters of persecution of their opponents, the Ukrenergo company? These are questions that need to be answered at all possible levels - from the company itself and its shareholder, the Ministry of Energy, to curators on Bankova Street, at the National Bank, the government, as well as among Ukraine’s international partners. After all, the quality of the passage and subsequent crises depends on how companies cope, among other things, with such challenges.