Playing by Slovyansky Rules Costs $1.2 Billion

Exactly a year ago the National Security and Defense Council (NSDC) discussed measures to put an end to the so-called shadow money circulation outside of banks. The session pointed out that capital was being smuggled out of this country due to shortcomings in the banking system. Various estimates say that $20 to $40 billion US has been carried out of Ukraine during the past ten years, with the greater part of this money being legalized in offshore zones. As the NSDC session noted, the activities of the Slovyansky Bank is a glaring example of siphoning money from this country’s energy and industrial sectors and of the application of conversion schemes aimed at smuggling capital abroad. (The Slovyansky Bank was one of Ukraine’s top ten banks, with overall capital of UAH 232.1 million as of January 1, 2000, and authorized capital of 4.29 million euros).

A year later, last Thursday, the Artemivsky trial court in Luhansk began hearing the criminal case against the former executives of the Slovyansky Bank. Whatever we think and say about the nation’s judicial system (and it really is riddled with shortcomings), there clearly are some changes for the better. As demanded by the defendants, the court will be passing its judgments on a collegial basis. Those under trial are seven former managers of the Slovyansky Bank, with Borys Feldman, Oleksandr Zaslavsky, and Yury Vinnytsky held in custody at the Luhansk pretrial detention center and the rest under a written pledge to stay in town.

After the defendants said they accepted the panel of judges (the question was, “Do you trust this panel of judges?”), the session was adjourned. The defense attorneys of Messrs. Zaslavsky and Vinnytsky moved their clients be released from custody to be replaced any other variety of pretrial treatment for health reasons. In addition, Vinnytsky’s wife is seriously ill and hospitalized. As the court seemed to be ready to make a decision in favor of the defense, the prosecution attorneys did not voice their opinion on this complicated matter and moved for a continuance.

This being the end of the first court session, the court nevertheless allowed the defense attorneys to speak to the defendants, as the guards patiently looked on.

Yet, this seemingly quiet court procedure was, in reality, full of dramatic points. Vinnytsky, Slovyansky’s former chief accountant, burst into bitter tears (really) when told by his counsel of his wife’s illness. On the other hand, Vasyl Orel, investigating this major criminal case (Feldman’s lawyer Andriy Fedur showed The Day Orel’s signature in the indictment), told The Day that the defense or, to be more exact, Andriy Fedur had tried to exert pressure on the investigators and quoted him as having said in the presence of witnesses, “I swear by my mother I’ll do my best to put you (Orel —Author) inside.”

That passions ran so high is quite understandable. The question is of the huge amount of money and perhaps a tremendous loss inflicted on our state and its citizens. The criminal case comprises 120 volumes, and the court slated to question 560 witnesses. According to court officials, it could take seven months to try this drawn-out case. The investigators (but not the judges) have found out that in 1996-1999 Slovyansky Bank executives gained unlawful excess profits as interest on deposits (360% p.a. in hard currency and up to 1630% in hryvnias) at the expense of their customers’ money.

Simultaneously, the bank’s rank-and-file depositors had their interest rates halved from 24% to 12%. The bank’s executives were also indicted for gross fraud and embezzlement amounting to UAH 11 million, abuse of office leading to UAH 335 million in property losses, and tax evasion amounting to over UAH 5 million (the investigation shows that the state incurred UAH 300 million in losses as unpaid taxes).

The actions of Slovyansky executives still being studied are likely to make it into criminology textbooks. The State Tax Administration press service emphasizes that other offenses of the defendants (subject to separate criminal cases) are examples of money laundering schemes unparalleled in world crime. While the largest instance of money laundering uncovered in the US in the National Heritage case featured an amount of $340 million, Slovyansky transferred $1.21 billion in 1996- 1998 to the accounts of bogus firms via the First Trading Bank in the Republic of Nauru. In addition, auditors claim, the loans Slovyansky extended to Ukrainian enterprises inflicted almost UAH 1 billion in losses on them. Receiving Russian natural gas on credit, the enterprises had to pay for it with high-liquidity products at prices several times below the market price, according to the tax authority press service.

Meanwhile, the defendants are completely free to prove their innocence in court. Mr. Feldman alone is being defended by a team of six led by prominent lawyer Andriy Fedur who told The Day, “Everything will be OK here. If you doubt this, please come to the court session where we will be examining all documents. The authorities spoke so much about the awful fraud allegedly committed by Feldman, but nobody in fact examined the documents. Sooner or later, they will have to accept my viewpoint that there was no misappropriation, no seven million.” According to Mr. Fedur, the charges leveled against Feldman “can’t stand up to criticism, and I intend to prove it.” Yet, sometimes this is done not so convincingly. For instance, speaking to The Day, the defense attorney read out the indictment item dealing with a loan his client received from a company where no other than he was the No. 1 person. The prosecution accused him of thus inflicting losses on Slovyansky. “What’s it got to do with this bank,” Mr. Fedur fervently asked journalists, “if the individual received a loan from himself?” Unaware of all the indictment details, the journalists backed down. But this incident became clearer when The Day received explanations from investigator Orel. As it turns out, Slovyansky, in which Feldman was vice president but played first fiddle (Fedur failed to tell us what percentage of bank shares his client owned, but the prosecution says he did almost as many as there are in the controlling block), just returned under a different agreement to a creditor of Feldman’s was the money he had borrowed. This, the prosecution claims, shows a simple pattern of personal enrichment and cheating the bank’s other depositors and shareholders. But the defense claims that Feldman cannot even be considered a Slovyansky employee, for he had never drawn any salary there. Conversely, the prosecution quotes the bank statute which says bluntly that vice presidents are also the bank’s managers. It is up to the court to rule whether this is so. It is important that the trial is going on with each side having an opportunity to defend its point of view. This is especially important in this case, for there has been far too much political speculation concerning Slovyansky.