9:37 AM Friday, January 19, 2018
Ukraine's Corporate Raiding: Still Wild East?
After Sofiyskiy Fitness Center, this summer sees attack on a healthy bank
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By J. Michael Willard

When I first landed in Kyiv in 1994 a common greeting — though perhaps a boastful exaggeration for some barroom expat cowboys —was “welcome to the Wild East”.

In those first weeks, the characterization seemed appropriate:

I witnessed outside Dom Kino two people gunned down; and in Donetsk, an explosion in a football stadium killed the intended victims, plus, as I recall, the equivalent of a hot dog vendor.

Several decades and two revolutions for freedom and dignity passed rather quickly for me -- sometimes I feel in the time it takes for the flutter of a hummingbird’s wing.

Other than the revolutions—one definitely a phony start and the other still being graded on the curve—much of my Kyiv span saw a relatively non-violent passage with an occasional business-related dustup here and there.

However, the war in the East with Russia (let’s not mince words here) is, of course, on all our minds -- with millions displaced and young soldiers dying nightly. Underpinning this heroic fight is the battle against widespread official corruption.

Corporate Raiding Chills Foreign Investment

The one constant over my 22 years in Ukraine was not so much the sporadic violence, but the nearly institutionalized corporate thievery that occurred.

It is called corporate raiding. This is often a benign term in the West where swashbucklers like Carl Icahn and T. Bone Pickens are often considered shareholder heroes who rescue mismanaged companies.

In Eastern Europe, it is often a very different situation.

A typical corporate raid is a collusion between authorities and a business power with the intention of fraudulently gobbling up another enterprise. Most frequently, they have a trumped up legal basis backing them up.

In the years Willard has operated in Ukraine, a high percentage of the issues in which we have been engaged involve fighting off corporate raiders, generally in the telecoms and natural resources fields.

Sergei Gorbachevsky of DV Bank, located on Naberezhno-Khreshchatytska, in Podil

Gorbachevsky Case

Recently, because of our previous activity, we were approached by representatives of Sergei Gorbachevsky, a respected banker who finds himself under siege, in and out of jail, and under house arrest.

On an early April morning, Gorbachevsky was arrested for a crime that, by definition, he could not have committed. Special forces with Kalashnikovs broke into his house, as if he were a dangerous criminal or a threat to national security. He was neither.

Gorbachevsky is a 39-year-old financial expert who capitalized and stabilized DV Bank, and provided about $1 million in taxes last year to the State Treasury. His bank employs 100 people.

All agree his institution is a success story. This is confirmed by the National Bank of Ukraine and by Deloitte, the international auditing company.

Raiders Target Healthy, but Vulnerable Companies

The banker’s arrest was no accident. It was an example of actions that sadly take place all too often in Ukraine when power structures are used to pressure a prosperous business into giving up part or all of its holdings.

At first, Gorbachevsky was held under night arrest with a dysfunctional electronic bracelet which caused militia to visit his home at all hours. One such visit—this one actually sanctioned and pre-announced—gave rise to a new charge when a cancelled—unusable— passport was found.

However, the judge, inexplicably, agreed with the prosecutor that it was possible for him to travel on cancelled documents. Therefore, he was kept under confinement. This decision now has been reversed. He is under night-time house arrest.

Investigation: No Wrong Doing Found

Despite his legal problems, Gorbachevsky believes the “old order” is on its way out, and that, in his case, justice will prevail. Thus far, after months of investigation, no wrong-doing on his part has been found.

Unfortunately all this — the impunity of the investigative bodies and the arbitrariness of the courts—occurs in Ukraine all too frequently. It is often difficult to distinguish the bad guys from the good guys. They often look the same and have official, authoritative titles and wear official uniforms.

In court, Gorbachevsky is falsely accused of using his professional skills to divert money from Intregral, a bank where he previously worked as an interbank trader.

Taking into account the bank’s stringent security and the principles of the Reuters Dealing System, such manipulation was impossible. Gorbachevsky simply did not have access.

The history of the bankrupt bank, where Gorbachevsky left eight months prior to its collapse also is indicative of mischief by authorities. Three of the five shareholders and the former head of the bank’s board skipped the country.

Tactic: Raid a Healthy Bank

Gorbachevsky views the situation as an attack on his DV Bank. He fears this is a tactic of people who consider his stable institution a target for raiding.

He is fighting back the only way he knows how against this collusion of corporate raiders. He is telling his story—to government officials in Ukraine and abroad, to opinion leaders and to the media.

The banker has an unimpeachable dozen-year record in his profession. Now his mission is to win release from house arrest, to clear his good name and to continue DV bank’s strategic course.

Meanwhile, the banker is kept under a cloud as the extra-judicial proceedings move at a snails pace.

Ukraine’s banking system has long been littered with under-performing, ill-managed institutions that deserve to be shut down. But this should not be used as a smokescreen for corporate raiding.

Michael Willard is a partner with his wife Olga in Willard Global Strategies with representatives in Kyiv, Istanbul and Orlando. Now a resident of Florida, where he has a consultancy business, Willard often travels to Kyivon business.

Posted June 26, 2017

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