The arrest of owner of the Finance and Credit Group Kostyantyn Zhevago by the French police in Courchevel ski resort and his forthcoming extradition to Ukraine may speed up the return of money stolen from the state. Prior to this, the process had been strangely stagnating for several years.
Banking history
K. Zhevago’s bank, serving the business of his group, was declared bankrupt by the National Bank of Ukraine in 2015. Its history is not much different from other "bankrupt" banks. Money, coming from depositors under deposit agreements, was stolen by issuing loans to firms associated with K. Zhevago himself and the bank’s management. These firms, in turn, withdrew money to foreign offshore accounts under the guise of payment for goods, which, of course, they did not receive in return.
Later, state money "leaked" from the bank in the same way. These were refinancing loans received from the NBU to support solvency, which was under threat just because of the theft.
It is necessary to clarify that the money stolen from depositors is, in fact, also state money. The Individuals Deposit Guarantee Fund (IDGF) settled with depositors on the debts of Finance and Credit Bank (F&C). The Ministry of Finance capitalized the IDGF by 98 billion hryvnia in 2015. The government continued to "pour" tens of billions of hryvnia into the Fund in subsequent years.
For a long time, the Fund and the National Bank unsuccessfully tried to recover damages in court by confiscation of K. Zhevago’s assets in Ukraine. Moreover, the media reported false information about this process. For example, the Internet archives are full of news with the headline "NBU received the Bila Tserkva CHPP for the debts of the Finance and Credit Bank". Whereas the text says that the State Enforcement Service of the Ministry of Justice only opened enforcement proceedings to recover the CHPP.
Later, similar proceedings were opened for the recovery of the Kyiv ship-repair plant and the Salyut Kyiv hotel, also owned by K. Zhevago. And this, too, was reported as a fait accompli. But to open enforcement proceedings and to carry out confiscation is, to put it mildly, not quite the same thing. Yes, in 2019, the NBU and the IDGF received court ruling to recover the property of the oligarch for 1.54 billion hryvnia. And as of December 2022, according to this ruling, it was possible to recover assets for as much as… 100 million hryvnia. This is a land plot in the Poltava oblast, which K. Zhevago received back in the 2000s for the Vorskla-Stal electrometallurgical plant (which was never built).
The state, represented by the NBU and the IDGF, was able to achieve relative success in litigation with the oligarch (since, as noted above, obtaining the necessary court decision and implementing it is far from the same thing in Ukrainian conditions) only when seizing insignificant assets of his group.
And its main asset (which made K. Zhevago a dollar billionaire), the Ferrexpo iron ore company, which includes the Poltava, Yeristovo and Belanovo Mining and Enrichment Complexes (Poltava oblast) continued to work for Zhevago...
Net income of Ferrexpo AG, million USD (according to the company’s data)
For 2020-2021 only, Ferrexpo brought its owner over 1.5 billion USD in net profit. It is clear that the financial results of the Bila Tserkva CHPP are not comparable with this indicator. Not to mention a non-working ship-repair plant and a land plot in an open field.
But in November 2020, the Kyiv Court of Appeal overturned the arrest of 50.3% of the shares of Poltava Mining and Enrichment Complex, imposed earlier at the request of the Prosecutor General’s Office. Moreover, this was a second removal of the arrest: the previous one dates back to January 2020.
Meanwhile, the second most important asset of the F&C Group, a large Ukrainian pharmaceutical company Arterium Corporation (Kyiv), generally remained out of sight of the NBU and the IDGF. The same happened to the Uzhhorod plant Turbogaz, the Kremenchuk meat-processing plant and the Omega insurance company.
But in February 2020 K. Zhevago managed to pull off a very profitable operation. The Fininvest company (associated with the oligarch) bought out the 4 billion hryvnia debt of the Finance and Credit Bank from the IDGF for... 216.6 million hryvnia.
In 2020-2021, Finact (another company related to K. Zhevago) bought out the debts of his enterprises to F&C for 20.695 billion hryvnia for 429.2 million hryvnia. It reminds of the story of oligarch Ihor Kolomoyskyi with Privatbank. There, according to the materials of the Kroll American agency (which was investigating the case at the request of the Ukrainian government), tens of billions of hryvnias were being stolen by its owner for years in a similar way. After the bank and its obligations to depositors were transferred to the state in December 2016, the NBU and the IDGF were seeking compensation from I. Kolomoyskyi in Ukrainian and international courts for several years. So far, the state has not received this money.
New perspectives
The difference lies in the fact that I. Kolomoyskyi is not a suspect in the criminal proceedings on embezzlement from Privatbank. Whereas in 2019, K. Zhevago received the corresponding status and was put on the international wanted list. By a very strange coincidence, he managed to leave Ukraine right before it happened.
The way they were looking for a fugitive oligarch was also strange. According to the official statement, the Office of the Prosecutor General sent relevant appeals for the arrest and extradition of K. Zhevago to law enforcement agencies of 38 countries. But at the same time, they did not apply to Interpol for some reason.
Thus, for another 3 whole years, the oligarch continued to live abroad in grand style as if nothing had happened and continued to manage his business as the CEO of Ferrexpo.
The public appeal of President Volodymyr Zelensky with a proposal to "get in touch", made during a trip to the Kremenchuk Automobile Plant owned by K. Zhevago in 2020, was apparently ignored by its former owner.
Therefore, the enterprise was nationalized in December 2022. But not because of K. Zhevago’s billion-dollar debts to the state, but due to putin’s military invasion of Ukraine.
As follows from the January statement of the IDGF, the Fund also tried to recover money from the fugitive oligarch in the High Court of Justice (London). But this court refused to consider the case, deciding that it should be dealt with by (the most impartial and fair) Ukrainian justice.
It is true that the British court had previously made a similar decision on the lawsuit of the now state-owned Privatbank against I. Kolomoyskyi. However, representatives of Privatbank successfully challenged it. In 2019, the London Court of Appeal overturned the High Court of Justice ruling.
It is possible that the IDGF will be able to do the same in the case of K. Zhevago. But we must understand that this trial may take years, just like in the Privatbank case.
In the case of K. Zhevago, everything may turn out differently, if he is extradited to Ukraine from France. Obviously, a new round of legal confrontation is already beginning. In January, the Fund filed a lawsuit against the former owner of F&C in the Kyiv Economic Court.
The amount claimed for compensation is 46 billion hryvnia. Therefore, within the framework of this claim, all losses in the history of the Finance and Credit Bank are combined, including the aforementioned operations to buy back K. Zhevago’s debts for 1-3% of their face value. Whereas earlier, the courts considered various episodes of embezzlement separately.
In this case (assuming that the IDGF wins it not only in the Kyiv Economic Court, but in the appeal and cassation courts as well), an interesting story arises in the future.
Clearly, it will not be possible to compensate for such damage through the confiscation of the Bila Tserkva CHPP, the Kyiv ship-repair plant and the Salyut hotel. Even if we add Arterium, Turbogaz, the Kremenchuk meat processing plant and Omega to this list, they are not worth that kind of money. Although, of course, these are more valuable assets.
The Belanovo Mining and Enrichment Complex project is in its initial stage.
In fact, the construction of the Belanovo Mining and Enrichment Complex has not even begun yet
This means that the funds recovery will have to be done via the main assets of Ferrexpo. Of the total iron ore pellet production of 11.2 million tons (in 2021), about 8 million tons came from the Poltava Mining and Enrichment Complex and only 3 million tons from the Yeristovo Mining and Enrichment Complex.
Therefore, the Poltava Mining and Enrichment Complex is the main production unit of Ferrexpo. But in September 2022, during the russian war against Ukraine, the Northern Economic Court of Appeal (Kyiv) ruled in favor of the russian business group VSE.
For many years, its representatives have been trying to challenge their own deal (dated 2002), demanding to cancel the sale of 40.1% of the Poltava Mining and Enrichment Complex to K. Zhevago’s company. And in the end, they succeeded. During the war with russia!...
This decision has not yet been implemented, as there are legal nuances associated with the transfer of shares. However, in the case of foreclosure on the debts of the F&C owner via the Poltava Complex, it turns out that almost half of the plant no longer belongs to him.
Earlier, OstroV noted that for 8 years after the start of russia's military aggression against Ukraine, VSE, unlike other russian business groups, felt very comfortable in Ukraine.
Only in November 2022, its assets in Ukraine were "frozen" by decision of the Pechersky District Court (Kyiv). These are controlling stakes in regional energy distribution companies.
In Zhytomyroblenergo - 95.54%, in Khersonoblenergo - 99.99%, in Kirovohradoblenergo - 72.9%, in Chernivtsioblenergo - 96.78%, in Rivneoblenergo - 93.24%.
At the same time, VSE has other assets in Ukraine. For example, a share of more than 40% in the Dneprospetsstal plant (Zaporizhzhia), the largest manufacturer of special stainless steel in the post-Soviet area.
For some reason, the court ruling does not apply to them. Moreover, "freezing" and confiscation are not the same thing.
Therefore, the return of the entire amount of losses inflicted by "effective private owner" K. Zhevago to the state remains in question even if the IDGF succeeds in the Kyiv Economic Court and subsequent courts.
As for the Finance and Credit business empire, its history should probably be considered complete. This is indicated by the fact that K. Zhevago left the board of directors of Ferrexpo. It was announced on December 29, two days after his arrest.
Vitaliy Krymov, OstroV