Financial Truth. Case 2.

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Depository puppetsWho lies behind the division of National depository system of ukraine?

Alexander GinsburGAdvisor to Y.TymoshenkoRepresentative of Oakcroft Investments Ltd (offshore), controlling 54% of shares in UICE

Alexander shlApAkFirst Deputy of Head of Secretariat of the President of Ukraine, Former Deputy of Head of National Bank of Ukraine

Georgiy berAdze First Deputy Minister of the

Cabinet of Ministers, Member of Supervisory board

member of UICE

Volodymyr stelmAkhHead of National Bank of Ukraine

Anatoliy bAlyukHead of SSMSC

petro GermAnchyk Head of Supervisory

board member of UICE

Volodymyr petrenkoMember of SSMSC

Vasiliy roGoVoy Head of Supervisory

board member of AUSD

nikolay shVetsoV Chairman of MFS

Depository and AUSD boards

borys timonkinChairman of Ukrsotsbank,

Head of MFS Depository Supervisory board, Member of AUSD Supervisory

board

ukrainian interbank currency exchange (uice)

All-ukrainian securities depository (Ausd)

mFs depository

Case papers:

Deposits or Depositories?All-Ukrainian Securities Depository creation will be the most expensive project initiated by National Bank officials. Where did 153 millions UAH from deposits vanish?p.4

recapitalizeDGovernment support of problem banks turned into the most appalling fraud of the XXI century. Who makes a fortune from the problems of Ukrai-nian depositors?p.10

air traDersMonopolistic business on ratings sale in Ukraine became the matter of state police bodies.p.13

On wasted

deposits,

problem banks

and phony

ratings

2

J Ou r

n al i

s ti C

i n q u i r i e s

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editorial

after the first publication of journalistic investigations devoted to the creation of All-Ukrai-nian Securities Depository we could hardly expect such a resonance not only in society but also among authorities. Just few days after the publication ideologists of AUSD

creation together with American agency USAID convened press-conference with official aim to “dispel myths regarding MFS-AUSD merger and become more open to public”. But AUSD cre-ators were not able to mask their anger for long. As a result, the conference transformed into public lash of journalists who “try to have a finger in every pie”. We didn’t plan to develop this topic in the second publication of our financial investigations, but activity of some “dignitary” authorities of National Bank and Securities and Stock Market State Commission forced us to continue our story of AUSD creation. Moreover, the pressure was not only on mass media, but also on Ukrainian banks that were on their last legs, to participate in “ambitious project of main banker of Ukraine”…However, is it possible to consider this project only as a project of Mr. Stelmakh? After the first publication, some other players were spotted in “AUSD case” – Mr. Alexander Ginzburg, advisor to the Prime-Minister, and Mr. Georgiy Beradze, First deputy Minister of Cabinet of Ministers of Ukraine, “famous” for his role in the takeover of Ukrainian inter-bank currency exchange and creation of authorized rating agency “Credit Rating”. Moreover, exclusive activi-ties of “Credit Rating” already provoked interest of law-enforcement authorities. At the mo-ment, two above mentioned “gentlemen” are included into the Council for Recapitalization of Ukrainian banks. Big question is – are such odious people able to implement banks’ success-ful recovery?

“as far as ausD is a joint stock company, so all questions re-garding joint stock company and all interrelations, including corporate, refer only to shareholders. When journalist writes that someone constructed some building, bought something, hid some money … What does it matter? if i start talking now – where did you hide money, why did you buy this, and why did you buy here and not there? excuse me, but there is folksay – what is that to you? there is also a sound ahead of the saying – oink, oink. What is that to you? it is shareholders business – what they are buying and how they are spending money.”

Vladimir petrenko, member of securities and stock market state commissionfrom speech on USAID conference “Development of Ukrainian depository system: practical aspects of MFS-AUSD merger”, April 16, 2009.

nO COm

ments

“pigs are not guilty”, journalists are not pigs!

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4 www.finpravda.com.ua

Deposits or depositories?that is the question *

* - from the tragedy “Hamlet” (W.Shakespeare)

The Ukrainian banks are striving to hold those 150 billion UAH deposited by the private clients to them. More often the clients are fac-ing flat refusal to give their savings back. The acute shortage of resources in the bank system influenced directly almost all Ukrainian citizens, deprived of the opportunity to get a credit from a bank. Furthermore, one third of the popula-tion considers such a deficit as a serious prob-

lem being unable to get their own money back neither from their deposit nor from current bank accounts.

The problem of liquidity is not just a local issue of the separate banks – it is systematic. At the moment, the list of swindling banks con-tains 21 financial institutions, delaying payment of the sum of 7.1 billion UAH (3.6 billion UAH from which constitute liability for individuals).

Deeply troubled situation in the eleven banks forced NBU to undertake direct management over them. Similar situation in other banks has prompted government to grant ‘assistance’ at the amount of 20 billion UAH under the condition of their nationalization.

During the last six months the commercial banks received rather a serious sum of money at the state debt expense as compared with our lame GDP– it is 100 billion UAH, which was aimed to ensure recovery of the national bank system. But the recovery isn’t happening and our government is considering the possibility of redemption of such banks into the state prop-erty. This, admittedly, requires new 24 billion UAH state borrowings, which, however, will not secure nationalized banks from the bankruptcy.

Meanwhile there are problems in the econ-omy as well as in the bank system growing like bubbles, which are going to burst at the near-est future. Business turned out to be deprived

While the bank clients are trying to save their deposits, national bank of ukraine is busy with new commercial depository creation, fleecing money from state treasury to put up its creation. despite of the public opinion and stock market participants’ critics, the nbu officials are very firm in their resolve. meanwhile, the process is more likely to be a whistle past the graveyard. on the eve of

may holidays the decision was made to increase the equity capital of the oJsc All-ukrainian securities depository (Ausd) by 73 million uAh in addition to the existing 80 million uAh. Whether Ausd would become the central depository after such pumping money in it; that is the question. this place is taken, after all. What are the bankers establishing at their client’ expense?


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of the investment recourses as well as of any kind of financial replenishment for maintenance of its everyday operational activity. That means they have to declare losses increasingly, and to reject paying their debt liabilities more and more frequently. National bank has been repeatedly criticized on the fact that the funds trusted by the state on the bank system recovery fail to return into the real economy neither in a form of cred-its nor in a form of returned deposits. So where do the savings of Ukrainian depositors vanish? What are the representatives of the Central Bank engaged in?

The answer is simple: they are engaged in their own commercial projects. One of them is the AUSD creation (it is the second year of the involvement of the Ukrainian Central Bank un-der the personal auspices of its Head into this project). Why is this project so deeply discussed by the public and so rigidly tabooed by the bank officials? Is it really possible for the new deposi-tory project to become the last shelter for many officials of the Ukrainian Central Bank. A rather profitable “business” on government securities service together with many employees will move to such last shelter as well as control over all the Ukrainian shareholders? Let us analyze every-thing in its turn.

Housing problem The article ‘Newest de-pository technologies … from foam and concrete (Zerkalo Nedeli dated at 28.03.2009), published more than month ago, deals with the spending of the lion’s share of the AUSD’ equity capital on the acquisition of a range of real estate buildings in Kyiv. It is worth mentioning, that the AUSD capital was raised by NBU from its resources and from the resources of the biggest commer-cial banks being controlled by the bank regula-tor. Responsible for another central depository creation on basis of this new institution officials reacted roughly on the published journalistic inquiry. We failed to hear intelligible comments and explanation of the AUSD transactions, though. “Weighty” arguments in support of ex-pediency of two buildings in Tatarka district with the total area more than three thousand square meters and two hundred square meters land plots acquisition come to lame excuse – “if we bought, then we were supposed to do it. It is not your business! ”

Here are some utterances ideologists of the project stated at the conference “Development of the Depository System of Ukraine: AUSD and MFS Depository integration” organized by the USAID on the eve of the AUSD decision on increase of equity capital by 73.1 million UAH.

Mr. Vasiliy Rogovoy, AUSD chairman and advisor to Mr. Vladimir Stelmakh, head of Na-

tional Bank of Ukraine, explained that the real estate objects had been bought for the central office of the newly created depositary. There is no reason to doubt the transparency of the deal because the buildings were selected on terms of tender. «We announced a competition, esti-mated nearly 14 options and chose the best one according to its price», - stated Mr. Rogovoy. I wonder what the main Ukrainian banker's advi-sor meant by saying «the best option according to its price» taking into consideration the fact that the price for two almost alike buildings paid by AUSD differs more than twice. According to the purchase agreement, the buildings cost 13.8 million UAH and 32.2 million UAH. AUSD paid another 5 million UAH for two land plots where the buildings are situated. Even the averaged price is considerably higher than average mar-ket prices.

It is worth mentioning the location of the fu-ture central depository office. It will be located in the «picturesque» neighbourhoods of mental

hospital, morgue, cemetery, and in addition to such a range of sightseeing – grocery bazaar and jail. Tastes differ, though.

The comments made by the member of Securities and Stock Market State Commission (SSMSC) Vladimir Petrenko, who is responsi-ble for the depository system development, put present at the conference journalists in shock: «As it is a joint stock, all the issues connected with joint stock, and relations, including corpo-rate, concern only its shareholders. Some jour-nalist may write about building of some kind of a hut, some purchase made, some money disap-peared... It has nothing to do with that! If I would say now – where your money is, what you did buy, why you didn’t buy there.. I am so sorry, but the answer would be: this is not your f.. business! It is purely the shareholder’s business, what they bought, how they spent their own money,» - said Mr.Petrenko at the same conference.

private interests Let us leave the expres-sive utterances of Mr.Petrenko with no com-ments, as top-ranking official may have a right to some extend. The new depository controlling

stake really belongs to the private banks, the lion's share of which belongs to foreigners. That is the problem. When we look deeper into the matter we realize that 25% of the equity capital of the OJSC AUSD was raised at the expense of NBU resources, i.e. at the expense of govern-ment funds. On the request of NBU, banks gave the rest of the money – not dividends of banks’ owners, but those deposit funds, which National Bank had prohibited to give back to depositors.

However, there is nothing to be surprised with. After 18 years of Ukrainian independence, there are many state officials who still live guid-ed by the USSR motto: “If everything belongs to everybody, it belongs to me too”, distinguishing barely the private and public.

Anyway, the fact remains. Only on real es-tate frauds via AUSD, 50 million UAH was ex-propriated from bank depositors and the state since the beginning of this year. This is major part (to be precise 64%) of the total amount put up by top Ukrainian banks and NBU in the new institutional market player. What is more impor-tant is the fact that they shamelessly used our money for their project. It is the money, which we entrusted so easily to the banks and paid taxes so conscientiously to the budget.

Whether our savings will be returned and participants of large-scale fraud will be punished is a rhetorical question. Even the thee months long investigation of NBU activities conducted by the Parliament special committee’ failed to prevent Central Bank top managers from fleec-ing Ukraine to fill up AUSD equity fund while the aim of its creation and resources used for that remain unclear, even for those whose money it was.

Initially the idea of the new depository crea-tion was presented by Securities and Stock Mar-ket State Commission under the noble pretext. The long-lasting corporate conflict between MFS Depository shareholders allegedly turned into an obstacle for the development of the effective do-mestic stock market preventing the emergence of modern depository technologies, while Na-tional Depository of Ukraine (NDU) was featured as ineffective institution. Behind the scenes of NDU and MFS disputes the AUSD ideologists has promised brand-new depository technolo-gies. In particular, they repeatedly declared their intention to acquire the modern software for new depository from the OMX Swedish Company, producers of the best depository technologies in the world.

But.. It is said that a noble intention needs a good effort too. The first steps of the newly created top-management were criticized roughly by the market participants. First, the model of or-ganisation of the new depository excluded from

63.75%of ausD equity capital was spent on the purchase of real estate and land in the capital of ukraine

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its shareholders the majority of the professional market participants. Some banks, mostly with foreign capital, now constitute the sharehold-ers of new stock market institution according to this model. Second, flag-officer and herald of the latest project became National Bank of Ukraine and Mr. Vladimir Stelmakh, its head. «The independence» of the Central Bank gave its management the possibility of manipulating not only the legislation, but also banks which activity it is supposed to regulate. The Law of Ukraine “On National Bank” defines NBU as not having a right to establish business partnership, except for those serving its needs. Neverthe-less, it didn’t prevent from raising 80 million UAH. Even so one fourth of these funds – 20 million UAH – for the new depository “donated” National bank itself. Funds accumulation didn’t go without well-known Ukrainian administra-tive resources. According to the credible data, money was almost extorted. The banks-share-holders of AUSD were practically blackmailed by the regulator with its goodwill in the refinanc-ing issues. As the result, regulator laid 19 banks’ balance-sheets wasted at the sum of 3 million UAH taking from each of them at the beginning of a crisis and mass deposits flow-out. These figures are not the last one, though. When many of the commercial banks turn out to be not able to settle accounts with their clients, they still will be forced to partake in new depository equity capital increase as NBU has already made deci-sion to double AUSD capital (increase at 73.1 million UAH).

Blackmail bankers The question arises: why did the banks take that unnecessary steps already being the shareholders of the existing depository?

It is the regulator or its head to be precise to be blamed for. Bankers partook in the AUSD creation in pursuit of earning from the officials the goodwill in refinancing matter. Expediency of the so called integration of MFS Depository and AUSD is rather dubious. As a matter of fact, the institutions have much in common. First, the controlling stake in both depositories belongs to the commercial banks influenced by NBU. More than 52 per cent of MFS Depository shares be-longs to banks, 14 of which are also new deposi-tory shareholders controlling at the same time 51 per cent of AUSD shares and 25 per cent of MFS Depository. It is estimated that as the result of such “merging” by means of MFS Depository shares and of additional AUSD shares issue ex-change, the stake of the group of 14 banks in the joint depository capital will be increased from 25 per cent to 40 per cent. Second, the direct man-agers of the MFS Depository and AUSD are the

same persons: Nikolay Shvetsov – chairman of MFS Depository and AUSD, and Yurij Shapoval – vice-chairman of MFS Depository and AUSD, while the AUSD has no staff at all. NBU might have changed the name of MFS Depository into AUSD except for making bankers finance the new institution, which is doomed to take MFS Depository over. It could have saved more than tens of millions hryvnas, spent aimlessly by AUSD on the office buildings purchase as MFS Depository has its office. More scrutinized anal-ysis of such a “merging” shows it clear that is was not really merging of the two self-sufficient institutions, but in fact it was the rebranding of MFS Depository (change of its name).

I wonder why the creators of the MFS Depository rebranding scheme have chosen more expensive way. Let us advance a hypoth-esis which has a right to exist. Even smattering analysis of the circumstances under which “the AUSD project” has been promoted makes it

evident that blackmail and bribery are the ba-sic instruments of its realization. As blackmail was described before, let us turn to bribery issue hereinafter.

shady investment The AUSD creation has not turned out to be the break-through at the market as it was expected by its God fathers. Created more than a year ago the institution has still nothing to be proud of. The last year the only AUSD income item was interest yield from the equity capital deposited with the banks (UAH 3,599 million). Nevertheless, the chiefs of the depositary managed to receive media coverage for one of the biggest scandal on the Ukrainian stock market. Without any operational activity they mastered the shareholders’ money – the state one as well as money of Ukrainian bank depositors.

Notably, being involved in such fraud schemes, AUSD does not have any licence yet. And it has no opportunity to get it as, except for the requirement to the equity capital, there are such licensing rules prescribing the necessity to have special equipment, qualified staff, etc.

Despite of the loud declarations, AUSD failed to buy soft from OMX. It is not surprise

that there is no funding left at the AUSD. The only possible way out of this extremely awkward situation – a lot has been promised, nothing had been done - is the purchase of the MFS De-positary complete property complex. Even if the MFS Depository technologies are considered to be out-of-date, a real bird in the hand is better than the OMX technologies in the draft.

Do the MFS Depository shareholders have the right to sell its complete property complex given the fact that the lion’s share of the MFS Depository property (almost 60 per cent) was provided as the technical aid of the US govern-ment to the government of Ukraine within the framework of the mutual agreement on techni-cal assistance?

According to the agreement, Americans granted the Ukrainian Cabinet of Ministers tech-nical assistance at total sum of 5.3 million USD. The considerable part of this assistance (com-puters and office equipment) was provided to MFS Depository as to the recipient of the techni-cal aid from the US government. In particular, MFS Depository received computers, phones and other equipment on a total sum of 2 million UAH. Besides, Americans invested about 800 000 USD in purchase of office premise located in the middle of the capital city.

In 2003 all property transferred by the US government has been distributed between the private shareholders of MFS Depository by the means of denomination of the shares from 5 to 12,4 thousand UAH. The state assistance was not distributed between the shareholders in equal parts, but proportionally to their share at the MFS Depository equity capital, which had neither legal nor moral grounds. The project in which the international technical aid to the Cabinet of Ministers became a private property didn’t look as bad as the present deal on MFS Depository property complex sale to the new depositary.

It is not the point how the shareholders han-dled the assistance. The point is that the compu-ter facilities are out of date factually and morally, and special software hasn’t even been used at the operational activity of depositary. Obviously, the main value of the MFS Depositary property is far not in its technologies. More so the Ameri-can help is a myth: it didn’t work a single day be-cause this very product was made especially for the Indonesian market and couldn’t be adapted to the Ukrainian legislation. The main value is the unique database i.e. insider information on shareholders of Ukrainian enterprises, accumu-lated by MFS Depository in the course of seven year of the unfair competition. In fact, MFS De-pository monopolized the activity and was play-ing the role of the only possible depository for

80 mil. uaH was taken from deposi-tors for ausD creation; 20 mil-lion “donated” National Bank of ukraine


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global certificates placement. The memorandum signed between Ukraine

and the USA had prohibited conducting deposi-tory activity by National Depositary of Ukraine (NDU), established in 1999 by NBU and SSMSC, until 2006 when the agreement was denounced. Nevertheless, due to financing from the state budget NDU managed to develop itself during 10 years of its existence. Unlike AUSD, which continues raising money for dubious projects, funding invested into NDU (more than 70 million UAH) has turned out into modern technologies. Today Securities and Stock Market State Com-mission, the stock market regulator managing 86 per cent of NDU, is not willing to develop this institution and gives its preferences to AUSD. Taking into consideration such attitude of the state officials it is not so hard to predict scenario of the further «development» of the National de-positary system. The first step was the takeover of MFS Depository. Then those who organised the process of denationalisation of the owner-ship rights in Ukraine will do their best to take National depository over. Without such step pri-vate depositary isn't likely to become the central one even if it is called all-Ukrainian. According to the legislation in force, the central depositary of Ukraine is NDU.

However the history of establishment of the central depository of Ukraine is known to have more than just this example of the national law violation by the Ukrainian state bodies, as well as by the foreign organizations consulting our officials.

On one hand, the issues of the central depository functioning are settled by the law. There is the Concept of Stock Market of Ukraine Functioning and Development ratified by the Verhovna Rada, one chapter of which deals with the system of National depository. There is the Law “On The National Depository System And Specificities Of The Computerised Securi-ties Circulation System Of Ukraine”. There are decisions of the National Security and Defense Council of Ukraine on protection of the investor rights and the decree of the president of Ukraine which implements all the legislation. All these legislative acts state that the central depository of Ukraine is National Depository, 84 per cent of which belongs to the Ukrainian state. In other words, there is legitimate central depository in Ukraine which is named National Depository of Ukraine, and tens millions from the state budget

has been funded into it, which have been turned into modern technologies of depository record-keeping and settlement.

On the other hand, such state bodies as Na-tional Bank, Securities and Stock Market State Commission, USAID, which are supposed to be conducting their activity exclusively within the framework of Ukrainian legislation, are violat-ing it while establishing alternative central de-pository. And they create it on the basis of the complete property complex, 60 per cent of which belongs de jure to another state.

ukrainian Depositary paradox It is hard to explain what is going on. In the backstage of the public discussion are many questions which are not likely to be answered honestly. For ex-ample, why do NBU needs the third depository? Notably, NBU took part in the organisation of all the three depositories. What was the matter with two previous institutions?

The majority of the stakes in AUSD belongs to the private investors (!) with considerable amount of stakes belonging to National Bank. Here we have two completely opposing con-cepts. According to one of them, the central in-stitution of market infrastructure should be nec-essarily controlled by the market participants. In accordance with another, the state should play leading role in creation of the central depository. The first conception has been implemented in MFS Depository; the second is represented by NDU. It is absolutely clear that only the in-stitution with strong state positions should take

priority when record-keeping will be switched to the book-entry form. For many years the stock market infrastructure of Ukraine has been devel-oping in line with the principle “market will settle everything”. Such approach resulted in infra-structure stagnation as well as deepened seri-ously the existing economic problems. Even in the USA, the bulwark of neoliberalism, all the fi-nancial community recognized the extreme con-fidence in market self-regulation to be the cause of the financial crisis. Nowadays the crucial role of state in monetary, investment and financial market is widely recognized. The matter of state support of market formation is even more acute for the emerging market economies.

What is this struggle about? Who is behind depository project using money of the Ukrainian depositors as a cover?

Devil is in details. Let us mention some in-

teresting statistics. At the beginning of the year the nominal value of shares kept on the MFS Depository accounts amounted to 66 billion UAH. The volume of the depositary assets is im-pressing, but giving the full picture of market the results of the long-lasting activity of the commer-cial depositary seem to be not so impressive. The majority of shares as well as of other securi-ties is materialized. The record-keeping of own-ers is held by registrars. The registrars are ill-famed due to the numerous corporate conflicts and raider attacks, which have almost become the national peculiarity of the ‘market’ economy of Ukraine. The registrars possess data on the shareholder in the amount of more than 186.9 billion UAH. In future the record-keeping will be switched into the book-entry form, and it will be held by the central depository. It is obvious that in case AUSD gets the status of central deposi-tory, all those figures kept in the shadow of its shareholding companies would get the direct access to the list of all the registered securities owners. The list previously mentioned is an in-valuable source of insider information.

As it was stated by Vadim Grib, the chair-man of the supervisory board of ‘TEKT’ com-panies group: ‘The market will get just another corrupt institution. Everybody understands that after all shares switched to the book-entry form within the coming two years (in line with the new Law ‘On Joint Stock Companies’), the only ex-isting depository may face two prospects: first, significant increase of financial flows; second, disposal of an enormous database. We will ex-

perience insider information leakage, while it is evident that people involved in these schemes are struggling for information flows, for data, with the help of which one can make good money’.

It must be the reason of AUSD willingness to pay MFS Depository shareholders from 125 to 165 thousand UAH for each share while their face-value is 12.4 thousand UAH. At the same time the legal issues of such sale of the MFS Depository complete property complex with shareholders database is receded into the back-ground. As well as the question: who is to pay for the new depository creation?

Notably, the creation of alternative central depository has been characterized with such distinguishing features of contemporary Ukraine as blackmail, bribery, existing law ignorance. n

if ausD gets the status of central depository, all those figures kept in the shadow of its shareholding companies would get the direct access to the list of all the registered securities owners.

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Nowadays the problem of Ukrainian banks recapitalization itself is very sharp and signifi-cant for the majority of our people – only “Nadra Bank” concentrates approximately 4,6% (4th place, 9,5 billion hryvnas, as of January 1st, 2009) of deposit investments of Ukrainian peo-ple. And there are also Ukrprombank (3,9%, 5th place, 7,9 billion hryvnas) and Rodovid-Bank (1,7%, 14th place, 3,5 billion hryvnas), where the part of people’s investments is essential as well. On the Government level it seems to be necessary to solve this problem and not to al-low millions of our people to irretrievably lose their savings (as people should not rely on the Fund of assurance of deposits of physical per-sons – its funds are even not enough to pay off the half of debts on population’s deposits in Nadra-Bank). Besides, the officials have even created the Council on the State’s role in banks recapitalization under the Ukrainian govern-ment.

Actually, one can give an advice. At present, the State named seven banks for recapitalization, though the temporary admin-istrations have been already introduced in 11 banks, and 26 more applied for consideration to the Ministry of Finance. It should be noticed that everyone who is under the program of bank recapilization has similar problems but nuances of their activity differ considerably. And practi-cally each of them is profitable one.

For instance, let us consider bank “Kiev”. It is known that the financial institution actively issued credits to the companies which dealt with real estate development in the capital of Ukraine. However, after the collapse came to the real estate market bank “Kiev” stopped its activity. But it has so many apartments taken in pledge that, even according to today’s costs drop of 2-2,5 times, their actual selling value makes up 4,3-4,5 billion hryvnas. The bank by

chance turned out to be in the list of challengers for the State aid, didn’t it? The question seems to be rhetorical.

Or let us consider, for example, “Ukrprom-bank”. Therein in exchange for “the proper” recapitalization one can own a powerful petrol station business operating under the ANP trade mark. This means more than 350 petrol sta-tions all over Ukraine. Perhaps, the temporary administrator of “Ukrprombank” has already received an offer. It is based on the temporary bank administrator announcement regarding court blocking of the transfer of this collateral to “Privat” group as it was said to buy this network during the New Year holidays. Besides, one can require from “Ukrprombank” owners the rights for the household retail network “Foxtrot”.

So, who are those officials called to guide the process of recapitalization through crisis, misbalanced banking system and through not the last point in our country, exorbitant appetite of authorized businessmen?

Now then, we can upset ourselves and you: too familiar and recognizable faces, espe-cially, in certain delicate aspects of this activity.

Game worth a total of 44 billion hryvnas The “leaders” of the Ukrainian recapitaliza-tion are the ideologists of the establishment and members of the mentioned governmental Council – Alexander Ginzburg and Georgiy Be-radze. The amount of budget money allocated for the rescue of “problem” banks (in the State budget 2009, 44 million hryvnas are allocated for the recapitalization of problem banks) could not pass by such active people without atten-tion. Even the visible part of an iceberg is too impressive, in order not to excite the imagina-tion and appetites of younger officials. Truly, the trick could not be put through without the Chairman of the National Bank Vladimir Stel-

makh. By the way, the mentioned above trio has also successfully established its reputation in the process of the foundation of All-Ukrainian Securities Depository.

So, the natural question arises; who are these people – the new “power behind the throne” of the Ukrainian financial market, the new business- sympathy for the Prime-Minis-ter, her adviser – Alexander Ginzburg and the First Deputy Minister of the Cabinet of Ministers Georgiy Beradze?

Alexander Ginzburg is rather sinister character of the national financial market. All bankers together are just kids in comparison to him. In 2007 he artfully seized the Ukrain-ian interbank currency exchange and excluded the member of “Getman” team Oleg Andronov. Before that Ginzburg concentrated banking and not only banking information of strategic impor-tance, having received the status of the only authorized rating agency for his “Credit-Rating” company. He successfully manipulates this in-formation and practically blackmails all banking and non-banking sectors.

The influence of Ginsburg, based on this information, has not been known to public till recently. Just like the interrelations with corrupt-ed officials who hold secondary positions in the bodies of the executive power during dozens of years and with the help of administrative meth-ods frustrate the efforts of each chief executive who is not in favor. But one after another.

Back to glorious 90-th, at the beginning of his business career, Ginsburg put his stake on the stone milling together with Oleg Bondar (present mayor of Irpen) having organized “Intro-Plus” company that supplied stone even for the reconstruction of Christ the Saviour Ca-thedral in Moscow. Today, Mr. Bondar himself preferred not to speak much about his partner, mentioning only that in 1994 Ginsburg was the

re: capitalized

recapitalization in ukrainian style is the greatest trick of the 21st century that will become a prominent part of books of all times and people! the “leaders” of the process are the ideologists of the creation and members of the council on the state role in banks recapitalization under the ukrainian government – Alexander Ginzburg and Georgiy beradze.

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marketing director of the enterprise. In the re-cent interview to “Investgazeta” newspaper (#13, “Fund man with a secret”) there appeared a brief history of our “hero’s” work experience with dates, where it was pointed out that from 1992 till 1997, just after the graduating from Kiev institute of food technologies, he devel-oped investment projects on risks evaluation in London. But here arose a problem: Ginsburg worked in London from one hand, and hold Di-rector position at Bondar’s company from the other.

Besides, the mayor of Irpen himself, whose life was attempted triply recently, wrote on his web-site that marble and other materials pro-duced by his company were used during the reconstruction of Dormition Cathedral of Kiev-Pecherskaya Lavra, the Independent Square, the Central Railway Station, the area in front of Verkhovna Rada and Secretariat of the Presi-dent of Ukraine, complex “Mandarin Plaza” etc. He did not refer to Ginsburg’s merit.

And even more, Ginsburg still remains one of the co-owners of the company up to now, together with Oleg Bondar and Oleg’s brother Igor – the citizen of Russian Federation. It is Igor, who managed to get the contracts for re-construction of Christ the Saviour Cathedral. But Ginsburg just invested the part of his fa-ther’s savings.

It should be mentioned that Ginsburg’s fa-ther was working at Regional retail association (RayGastronomTorg) of USSR up to time of in-dependence and saved up a little cushion. The son persuaded father to spend money and thus got the part of Brazhenka minefield in Zhytomyr region. And a good marble source of profit as well.

This project helped him to change the apartment in Rusanovka district to Gorodet-skogo Street about what he proudly mentioned during the interview. Let us notice, that he got the apartment from his relative – Mark Gins-burg, who moved to USA and set up a number of companies in Ukraine including veterans gar-den association. Noteworthy the businessman Evgeniy Imas used to live in the neighboring apartment. He had close relations (at least in 90-th) with Aleksandr Tkachenko and Vladimir Satsuk who was famous for his business activi-ties in Zhytomyr region at that time.

After that, Ginsburg told with pleasure about his favorite cars - Lexus LS 460, Range Rover and forgot to mention VAZ 2108 which was bought for his father’s money, and MER-CEDES-BENZ S500 which appeared simul-taneously with the foundation of the agency “Credit - Rating”. And now we proceed to the most interesting things.

“undetected crook” The idea to earn money by pseudo-national rating selling could not be realized without active assistance of an-other person who Ginsburg for unknown rea-son mentioned in his interview – “the power be-hind the throne” of the central executive power bureaucratic system Mr. Georgiy Beradze. Mr. Beradze enjoys to repeat behind his bosses backs that these “dumbheads come and go, but I was employed by grandpa Masol”. To their faces he is of course always competent, polite and punctual. In general he is real undetected crook.

Beradze’s father held the leading position at “Mikron” factory (former Korolev association) and taking advantage of old connections easily found a job for his son in the Cabinet of Min-isters at minor clerk position. Did Ginsburg’s father assist him in this process? Everything is possible. Nevertheless, Beradze and Ginsburg have already been together for a long time. Several years later Georgiy Beradze sister - Ekaterina started her carrier in the Ministry of Finance. Gradually they started up unprece-dented activity on capturing the informal power in financial sector of the country.

Almost all the companies that manage as-sets or trade securities or invest in capital con-sider that this is Georgiy Beradze who repre-sents their interests in the authorities. With the help of bureaucratic methods he is able to block the way of any document, organize or to the contrary stop financing through his connections in the Ministry of Finance (which are under the control of his sister), he is a member of super-visory boards of State banks, and no decision is taken without him in State commission on se-curities and stock market. When Ginsburg took under his offshore fund the Ukrainian interbank currency exchange, Georgiy immediately be-came its member.

The system of his influence is based first of all on personal connections – with the instru-ment of executive power from one hand and with leaders of financial groups – from the other hand. This is real financial mafia which attends enclosed out-of-town restaurants over and over again and makes decisions how to rob the country. Such meetings are attended by such “shadows of the past” as Petr Germanchuk and Igor Mityukov (ex-Ministers of Finance), Vasiliy Rogovoy (ex–Vice Prime-minister). By the way, at present Mr. Rogovoy is an advisor to Vladimir Stelmakh and is Chairman of the Supervisory board of All-Ukrainian Securities Depository. And owing to Georgiy Beradze and Aleksandr Ginsburg who is considered to be a think-tank of this gang, they are more alive than anyone and are still robbing the homeland.

Following “Credit Rating” interests Beradze together with A.Baluk (Chairman of the State commission on securities and stock exchange) provided the legislative regulation on the oblig-ingness of national scale ratings for a number of businesses. First of all this applies to securi-ties market and reinsurance. The correspond-ing regulation was inserted by Georgiy into the law on taxation of profits and was immediately lobbied in Verkhovna Rada in Ginsburg inter-ests.

In 2007 Ginsburg on his personal behalf and on his offshore company “Oakcroft” start-ed buying up and concentrated shares of the Ukrainian interbank currency exchange. The Ukrainian interbank currency exchange occu-pies big building at Podol, Kontraktova square. But the exchange was not operating for a long time. After Vladimir Getman death, it turned into poor, ordinary, a mere apology of an exchange, and generally specialized in auctions on oil and gas. Just after Ginsburg and partners started running the stock exchange the facilitator of this buy-out - Georgiy Beradze, became the member of its board, and immediately a great landplot in Obolon district – 113 hectare – was sold via Ukrainian interbank currency exchange for 1 billion hryvnas. It was sold by the Kiev Mu-nicipal State Administration.

However, Ginsburg bought exchange not to trade landplots.

Exactly as Ginsburg pushed the exclusive rights for “Credit-Rating” regarding ranks to se-curities, reinsurance etc., he planed the Ukrain-ian interbank currency exchange to become an authorized and exclusive exchange of the Ministry of Finance.

Development interest At the same time Ginsburg was involved into the project of Kontraktova square reconstruction following the project of architect Uilyam Geste (early XIX century): it was the Ukrainian interbank currency exchange ran by Ginsburg that was appointed a customer for the building. The friendly assistance was given by Ginsburg’s business partner – M.Tabachnik which brother Vice-Prime-minister D.Tabachnik lobbied the necessary decision in the Cabinet of Ministers. Together with the rights to develop the territory adjacent to the exchange building its owners should also get in property the land under the new building after finishing of all works.

The influence of Aleksander Ginsburg and Georgiy Beradze on some aspects of state au-thorities’ activities in financial sphere needs at-tention of law enforcement authorities and the public. As minimum…n


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the discontent with work of rat-ing agencies grows in the world every day. in ukraine the situation is aggravated also with that rat-

ings are appropriated only by one com-pany – a monopolist in the market of rating services RА «Credit-rating». however apart from claims to methodology and bias, there are also legal questions to Alexander Ginzburg's child - «Credit-Rating» agency. As it became known, law enforcement bodies initiated criminal cases against three subcontractors of RА «Credit-Rating», rendering false information-analytical serv-ices to the agency.

Rating agencies sometimes are called as “the fifth power”. How-ever subjectivity of rating agencies became one of key factors of world financial crisis burst. The shocking situation when the company pays to rating agencies for its ratings, had at last drawn the attention

of Euro Parlia-ment that as a first

step prohibited them to render financial con-

sultations to the clients. US Securities and Exchange Com-

mission (SEC) is ready to forbid issuers to pay for own ratings completely. When these let late, but true, trends will reach Ukraine is unknown. Ukrainian rating paradox is intensified by «the fifth power» being concentrated in the hands of one person – owner of the unique in Ukraine authorized by SSMSC rating agency «Credit-Rating» – Alexander Ginzburg. The recession has lowered the demand for rating agency services also in Ukraine. With decrease in a monetary stream the interest in it is also gone even from the side of shareholders who have concentrated on other projects. In particular, in March, 2009 participants of the market have learnt that Mr. Ginzburg had sold it back in the end of the last year. And the owner of the agency did not name the mysterious buyer. State bodies have not considered the necessity to somehow react on

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sale of rating services market monopolist. As well as earlier with the sale of Ukrainian in-terbank currency stock exchange to offshore Oakcroft company. Antimonopoly committee of Ukraine and SSMSC preferred not to no-tice a transfer of all information on a financial condition of the Ukrainian enterprises to a third party. Even if to consider that the same Oakcroft became the new owner of rating agency, the dangerous precedent of concen-tration of the financial information in private hands is created. Apart from claims to meth-odology and bias, there are also legal ques-tions to Alexander Ginzburg's child - «Credit-Rating» agency. As it became known, law enforcement bodies initiated criminal cases against three subcontractors of RА «Credit-rating» that were rendering false information-analytical services to the agency.

the draconian project The largest world rating agencies cause more and more discontent of investors around the world. They have overslept events of 1997-1998. It has taught them nothing. In crisis of 2007-2008 they already became co-organizers. It is due to their ratings investors all over the world bought not only the complicated finan-cial tools representing «salad» from the most different obligations, including the extremely risky ones.

There are no other investors. Whether rating agencies will pay for fatal errors? In Europe and America they were strongly blamed. The American authorities even have tried to expose them as main originators of financial crisis. They perfectly realized, the risk of occurrence of a crisis situation is how-ever great, but continued to stamp high rat-ings even to companies that did not deserve it. Such conclusion was made by the com-mittee of the House of Representatives on supervision and the governmental reform of the US Congress.

Fitch Ratings, Moody's and Standard and Poor's gave the highest ratings of reliability to a wide range of risky assets, including to infamous mortgage bonds. And it has misled everyone, as millions of investors relied on their independent objective estimations.

Agencies, in their turn, tried to justify that their traditional methods had simply given failure in conditions of constantly complicat-ing financial market. «It is now obvious that techniques which were used for drawing up of ratings of the mortgage securities issued from the end of 2005 to the middle of 2008 did not work», – confessed Diven Sharma, the head of Standard&Poor's. But officials

from the Congress commission insist that it was not an error at all: because of the con-flict of interests, activity of the largest rating agencies was initially defective.

EU, for example, also has strengthened control measures over rating agencies. Mem-bers of Euro Parliament criticized activities of the mentioned agencies not only for not warning about signs of approaching financial and economic crisis, hiding the important in-formation, overestimating and underestimat-ing evaluations, participation in speculative operations, but for direct lobbing interests of the largest American corporations in Europe. It’s worth to remember last year scandal in Germany when federal authorities accused Standard&Poor's for unreasonable decrease in rating of steel giant ThyssenKrupp. Some suspected agencies for performing a politi-cal order. Besides, high level of monopolistic control by three leaders over the market also was not suitable for the European authori-ties.

In Ukraine, ratings were always treated by the market as additional tax on business. Five years ago, SSMSC decree of 08/12/2004 obliged companies with state participation in authorized capital, companies with strategic value for economy and safety of the state or occupying monopoly position, to receive a rating of financial reliability of the author-ized rating agency in case of bonds issues. Besides, all issuers who are issuing bonds, intended for public sale should have ratings. And «Credit-Rating» became this authorized agency. According to financiers, by this de-cision market participants were obliged to pay for services that in other countries either did not exist at all or provided for free. And situation was intensified by the monopoly as only one agency – «Credit-Rating» received authorized status via tender. But the truth is that the conditions of the tender were cre-ated exclusively for «Credit-Rating». Among them was a point that the participant should have operational experience not less than two years and perform ratings on a national scale. And these criteria in Ukraine followed only mentioned «Credit-Rating» agency. And market participants received one more pos-sibility to drain capital from companies.

One month after the announcement of SSMSC results, the initiative group of rep-resentatives from «UkrSibbank», «Ukrsots-bank», FUIB, «Khreschatik», «Raiffeisen-bank Ukraine» and «ING Bank Ukraine» prepared a letter to the Prime-minister of Ukraine, the Minister of Justice, heads of the SSMSC and Antimonopoly committee with

the purpose to cancel the decision of SSM-SC as of December, 8th, 2004 N542 «On introduction of obligatory ratings of subjects and instruments of the stock market».

Participants of the stock market also underlined that SSMSC decision N542 was accepted with violation of the valid legisla-tion and without consideration of opinion of the market. Besides, «tender on selection of the authorized agency on summer 2004 has been conducted unclearly and had a discrimination character. A consequence of it was the dependence of almost all partici-pants of the stock market from one specific commercial organization - Rating Agency «Credit-Rating» which has been selected on so-called «competitive» basis», - was told in the letter.

The result did not make itself waiting for a long time – in March, 2006 in Ukraine has inflamed the first and, perhaps, loud-est rating scandal. The company “rated” by the agency declared a default on its papers. Twenty banks, investment companies and asset management companies, pension funds and private equity funds became hos-tages of notorious “Agroproduct” company from Nikolaev.

Following requests of suffered investors, SSMSC has been compelled to interfere with a situation. Then the regulator manage-ment led by Mr. Baliuk, promised to conduct an investigation on a default of bonds of “Agroproduct” and to punish all guilty per-sons within one month - till April, 21st, 2006. However later SSMSC members responsible for carrying out of investigation, repeatedly moved its terms, explaining that there was not enough information for the analysis of a current situation. All participants of two bond releases (series A and B) for a total sum of 50 million UAH - the issuer, the underwriter, and first of all rating agency «Credit-Rating» that estimated Agroproduct’s solvency got under the State commission’s eye.

As a result of powerful agency interests lobbying from SSMSC, investigation turned to be a mere profanation. Guilty persons were defined to be runaway owners who forged financial reports. But the Commission agents forgot to explain investors – “What for then are rating agencies actually needed if they cannot adequately estimate risks of is-sued securities?”

And it turned out that necessity of obliga-tory credit rating was really useless as inves-tors in Ukrainian bond market were mainly commercial banks and professional players of the stock market that independently car-


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ried out credit risks evaluation without cares for ratings of the authorized rating agency.

However, there were some attempts from the Government side to interfere with the conflict between participants of the mar-ket. SSMSC decision on the unique author-ized rating agency was cancelled from time to time by various legal acts. In particular, on November, 23rd, 2005 “IBI-rating” sent the letter to Antimonopoly committee of Ukraine (AMCU), initiating the investigation of a monopoly position of “Credit-Rating” on the market. In its turn, АМCU on December, 1st initiated a criminal case on antimonopoly law violation by SSMSC on the credit rating market. In its answer SSMSC declared that it would not cancel obligatory ratings. Attempts to “overwhelm” the rating “commitment” were carried out until the appearance of notorious letter signed by (at that time) First deputy Minister of justice Peter Krupko (nowadays Minister of the Cabinet and chief of one of the ideologists of agency creation) to the First Vice-prime minister Stanislav Stashevsky regarding cancellation Ministry of Justice decision of November, 8th on “cancellation

of state registration of SSMSC decision on «Measures of realization of the Concept of rating evaluation system creation»”. This let-ter became the starting point for creation in Ukraine a bureaucratic machine called «ob-ligatory rating».

After that the only consequence of abovementioned decision, was coming into force in January, 2006, the law №3201 «On modification of some legal acts» that essen-tially strengthened requirements to rating receivers. Compulsiveness of credit rating, that was questioned before, now became the rule of law. However, this law was neither brought for discussion in the government, nor was discussed at the level of ministries and departments. The draft law was not even adjusted in АМCU. As a result, Ukraine re-ceived legal act that created collision situa-tion.

According to the Law №3201, rating agencies, firstly, should obtain the license for a certain kind of activity, and secondly, they should be authorized by the SSMSC. And thirdly, they must be included in the state register of rating organizations. Only observ-

ing all these conditions rating agency has the right to conduct its activity.

As a result, according to the Law №3201, every (existing at that time in Ukraine) rating agencies includ-ing «Credit-Rating», could not carry out their activities. They did not have licenses, they did not have status of authorized agencies, and they were not included in the state register. There was a legal vacuum when ratings could be assigned either by all agencies, or by none of them.

Subsequently, on January 24, 2007, Commercial court of Kiev stayed

«Provision on definition of the authorized rating agencies» under lawsuit of social organization “Association of shareholders rights protection” (ASRP). Few days earlier, on January 22, there was first tender stage on selection of the authorized rating agency according to which LLC «Consulting-scale», LLC «Rurick», LLC «RА «Expert-rating», LLC «RА «IBI-Rating» were admitted to the second stage. JSC «RА «Investment-rating» (made an application with a delay), JSC «Ukrainian agency of the financial mar-ket» and LLC «Agency of the stock market» (both didn’t confirmed participation) were deselected. Judicial act was beneficial for “Credit-Rating” as the companies falling under the requirements of obligatory rating, were supposed to submit the annual reports with an obligatory rating till April 30. Besides, together with cancellation of the tender, mo-nopoly of “Credit-Rating” remained untouch-able. And why throughout several years the position of market participants was ignored?

the untouchables Interesting fact: the idea of the creation of «exclusive collector of additional exactions from Ukrainian issuers» belonged to three private people – Alexander Ginzburg, Georgiy Beradze and … Head of the Commission, Anatoly Baliuk. Not occa-sionally after working on «the rating project» these names again appeared in creation and lobbying of other «exclusive» companies parasitizing on Ukrainians. But let’s move forward step by step.

Alexander Ginzburg's company «Credit-Rating» was incorporated in 2001. Credit-Rating was the first rating agency in Ukraine committed to assessment of issuer's sol-vency and to assignment of credit ratings pursuant to the National rating scale. Since

2003 the agency's rating estimations have been officially recognized by Ministry of Fi-nance of Ukraine. (Unofficially, there were officials of exactly this Ministry who had the most direct relations with founders of the agency. Originally among founders of “Credit-Rating” except Ginzburg used to be Vladimir Litvin at that time Deputy Minister of finance, but later he quitted). But until recently Ginzburg was and is well-known only for his rating agency «Credit-Rating» that became unique domestic organization authorized to render ratings to Ukrainian issuers. Such monopoly position allowed Ginzburg to earn during last four years quite a lot (only corporate bonds were rat-ed for more than 90 billion UAH). In 2007, according to SSMSC report, there were

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991 bond issues with total volume of 44,48 billion UAH.

According to the strange coincidence of circumstances, such exclusive status of the authorized agency «Credit-Rating» received from SSMSC just when the Commission was headed by Anatoly Baliuk. When after “Block of Yulia Timoshenko” (BYT) victory in parliamentary elections, the armchair under the head of the Commission was very unsta-ble the time came for Alexander Ginzburg to help his friend, Mr. Baliuk. Still everybody remembers that chairmanship in SSMSC be-longed to BYT quota, and all experts unani-mously approved that Baliuk couldn’t remain as a head of SSMSC and new management would come to the Commission, but later BYT members changed their opinions re-garding activity of Mr. Baliuk and now no one suggests his displacement.

The idea to earn on sale of pseudo-na-tional rating could not to be realized without active participation of one more person – Georgiy Beradze. Due to his efforts following the interests of «Credit-Rating» legislative norm appeared on compulsion of national scale rating for variety of businesses. The corresponding norm was included by Mr. Beradze in the “Profit taxation law”, and was lobbied in the Parliament exclusively for Mr. Ginzburg interests.

Gradually Ginzburg and Beradze carried unprecedented activity on acquisition of the informal power in a country’s financial sec-tor. The given facts oddly correlated with two subsequent personnel appointments: in November 2007, Deputy minister of the Cabinet of Ministers Georgiy Beradze was appointed as a Supervisory board member of UICE, (52,4 % of shares of this exchange via offshore Oakcroft Investments ltd belong to Alexander Ginzburg). And in March 2008, Mr. Ginzburg was appointed as Advisor to Yulia Vladimirovna. What was requested from Anatoly Baliuk for keeping him as a head of SSMSC, one could only guess. Last vivid examples of Baliuk lobbying efforts made for closed to him people are SSMSC proposals to the draft President Decree on urgent measures of capital market develop-ment and creation of All-Ukrainian Securities Depository.

Also SSMSC suggested obligatory ex-change listing for securities of the issuers with state shares in capital, and not less than 10% of shares of the privatized enterprises to sell exclusively through one stock exchange. One could easily guess that it should be Ukrainian interbank currency exchange that

is controlled by again same Alexander Ginz-burg, ignoring the fact that till now UICE has no active securities trading, and exchange shareholders structure one couldn’t name transparent.

Alexander Ginzburg's interest in own central depositary is more than obvious. First, incomes of rating business are not anymore significant. After a number of scandals and closing of the credit market, issuers found useless-ness of these ratings and began to withdraw them. Secondly, in case of getting the status of central depositary for the All-Ukrainian securities depositary they will receive a direct access to registers of owners of all nominal securities that is invalu-able source for insider informa-tion. The third reason is even simpler – real estate project of creation of architectural com-plex in Podol district (so-called Geste project).

After Mr. Ginzburg has taken control over Ukrainian interbank currency exchange, stock market players joked: «We used to have authorized rating agency, and we will have author-ized exchange also». After only half a year this joke didn’t seem to be joke. And in a year Central deposi-tary may be added to the list of «authorized» entities.

From the begin-ning of this year capital structure of the unique authorized by SSMSC rating agency became even more secret. In the interview to «Investment newspaper» the adviser to the Prime minister, the co-owner of the Ukrain-ian interbank currency exchange Alexander Ginzburg declared that he sold rating agency in the end of 2008. He told that he still remained a member of the Supervi-

sory board of the agency, but performed only strategic functions.

But why agency didn’t disclose data on new shareholders and who owns RА «Credit-Rating» and in what proportions still remains unknown. And such situation broke IOSCO rules for the rating agencies. If it is unknown, who are the shareholders of an agency, how


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it is possible to follow the request forbidding agency owners to be professional partici-pants of capital market?

However, there is nothing strange in this situation as when Alexander Ginzburg took control over UICE via his offshore company Antimonopoly committee of Ukraine and SSMSC were silent as partisans. Sadly that Ukraine is not the USA, where Antimonopoly committee and SEC are the strictest supervi-sors of any financial swindlers and crooks.

criminal cases Meanwhile the flash-like change of owners looks logical in terms of the conflict around the only rating agency in Ukraine. In increasing frequency market participants blame the Agency for earning money with phony ratings that realized in a collapse of the financial system of Ukraine. And there are confirmations of such activity.

According to the source in the law-en-forcement agencies, they initiated criminal cases against three subcontractors of RА «Credit-Rating», rendering false information-analytical services to the agency. And costs of such «services» hit imagination. Only ac-cording to the financial report, in 2007 Agen-cy received income of 41,638 million UAH., but the profit constituted hardly more 2,532 million UAH. The margin was wrote-off to «operational costs». And these operational costs were treated as payments to subcon-tractors of services in providing analytical services. But law-enforcement authorities were surprised both by the sums paid for these services and by the subcontractors who provided them.

So, 2,508 million UAH was transferred to LLC «Koral M». The company was incorpo-rated by the person working in the mine of Kalchik city (Donetsk region) that belongs to OJSC “Ilyich Iron & Steel Works”. ММК of Ilyich. Moreover, with the same address of “Koral M” compa-ny (Kiev, Chokolovsky parkway, 19) more than 100(!) com-panies are

registered. The similar scheme was used to pay for «information-analytical services» to LLC “Alain-BudInvest” (1,2 million UAH) and the Kharkov LLC «FОКОN» (3,15 mil-lion UAH). Thereby, law-enforcement agen-cies consider rating agency «Credit-Rating» actively using “one-day companies” cash-out scheme to avoid taxation. However, accord-ing to the source, the scope of activities of these companies may be much wider. One can guess some criminal and fraud schemes.

How may “one-day companies” as sub-contractors threaten RА «Credit-Rating»? According to the experts, if it turns that com-pany has unreliable contractor, it results in collection of arrears of profit tax, VAT tax and fines. Therefore, nothing remains for the company but to appeal against the decision at higher-level tax authority at first, and then to appeal at court. Sometimes, it may result in criminal cases, Maxim Kovtun says, man-aging partner of LBS Consulting company.

According to his words, tax authorities’ work on revealing tax avoidance operations with “one-day companies” is based on the collection of evidences of receiving illegiti-mate tax gaining. This work is made during on-site tax inquiry of tax payer as there is no sense in checking “one-day companies”: there is nothing to collect from them anyway.

However, to search one and only scapegoat in «ratings market» of our coun-try though is tempting, but incorrect. S o ,

financial authorities should probably start the analysis of themselves. АМCU and SSMSC probably held more information in compari-son with ordinary investors about dangerous tendencies observed in a monopoly position of authorized by SSMSC rating agency. Con-trolling authorities ignored alarm signals and made nothing for society protection. Proba-bly, it was more convenient just to close their eyes. More convenient and more profitable. It is not a secret that SSMSC authorities, and in particular Commission head Anatoly Baliuk, in every possible way promoted a monopoly position of the rating agency.

«Many probably saw negative tenden-cies in Ukrainian ratings market, but every-one hoped for the best, – the head of one investment company declared. I think they also did not expect such scale range. Prob-ably, somewhere they delayed, somewhere they played the wrong card, somewhere they were afraid to aggravate the situation». But such practice is dangerous for future as more critical situations may appear. If authorities seeing all risks continue to keep silence about it (just for the sake of «not to inflate panic» among people), they will harm people even more. n

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deposits For clients or depositories For bAnkers?New commercial depository creation by National Bank looks like a feast in time of plague. Recently, the decision was made to increase authorized capital of OJSC “All-Ukrainian Securities Depository” from 80 mln UAH to 153 mln UAH. But whether AUSD becomes really Central Securities Depository even after such “pump” is a big question. The place is not vacant. So, what are bankers creating at the clients cost? Zerkalo Nedeli №17 (745), 16 May 2009http://www.zn.ua/2000/2675/66203/

president supported ssmsc proposAl on centrAl depository creAtion on the bAsis oF nAtionAl bAnk – mr. bAliukUNIAN, 20 November 2007http://bin.com.ua/templates/news_article_big.shtml?id=71987

mr. bAliuk interVieW: “iF it is noticed thAt Gentlemen Are to ArriVe to the club in tuxedos, one is not AlloWed to enter in bAst shoes And With hArmonicA.” Ekonomicheskie izvestiya, 8 November 2007http://news.finance.ua/ru/orgtrg/~/2/8/942/110564

nAtionAl bAnk And 20 bAnks plAn to estAblish “All-ukrAiniAn securities depository” Interfax-Ukraine, 14 February 2008http://news.finance.ua/ru/~/1/30/ua/2008/02/15/118645

Will be third one. nAtionAl bAnk creAtes one more depositoryKommersant-Ukraine, 18 February 2008http://www.commersant.ua/doc.html?DocID=854255

GinzburG steAls thunder oF iVchenko Ekonomicheskie izvestiya, 18 February 2007http://www.eizvestia.com/fin/full/31983

hArry houdini could only dreAm For this … domestic lobbyists shoW mirAcles oF disinGenuousnessFrom-ua, 31 March 2008http://www.from-ua.com/eco/dcb4a38b6716f.html

ssmsc elected its president For centrAl depository creAtionKommersant-Ukraine, 31 March 2008http://bankir.ru/news/newsline/smi/31.03.2008/1098786

“mouse kinG” oF FinAnciAl mArket ORD, 29 April 2009http://ord-ua.com/2009/04/29/myishinyij-korol-finansovogo-ryinka/?lpage=1

“mouse kinG” oF FinAnciAl mArket - 2ORD, 30 April 2009http://ord-ua.com/2009/04/30/myishinyij-korol-finansovogo-ryinka-2/

“mouse kinG” oF FinAnciAl mArket - 3ORD, 5 May 2009http://ord-ua.com/2009/05/06/myshinyj-korol-finansovogo-rynka-3/?lpage=1

hoW to mAke money on bAnks recApitAlizAtion Vlasti.net, 30 April 2009http://vlasti.net/news/44592

phony rAtinGsDiscontent from the work of rating agencies in the world grows every day. In Ukraine, situation is even worse as ratings are assigned only by one company – monopolist RA “Credit Rating”. Except claims for methodology and suspicions for biases, there are also legal questions to Mr. Ginzburg’s company. As it became known, law-enforcement authorities have files on three subcontractors of RA “Credit Rating” for provision of false information-analytical services.ProUA.com, 20 May 2009http://ua.proua.com/analitic/2009/05/20/122436.html

rAtinG AssiGned by ForceInstead of supporting the attempts of new players to enter financial market, the State encourages monopoly.“Expert_Ukraine” #11, 28 May 2005http://www.expert-rating.com/content/userfiles/Pressa_o_reitingah/nasilniki.pdf

mission impossible? stock mArket pAssionsZerkalo Nedeli, № 11 (690), 22 March 2008http://www.zn.ua/2000/2675/62463/

“credit rAtinG” remAins Alone Rating agency tender is put aside without a date. Agencies participated in the tender are disappointed with this cancellation and consider such decision beneficial only for market monopolist “Credit Rating”Kommersant-Ukraine, №9 (128), 26 January 2006http://www.kommersant.ua/doc.html?DocID=643858&IssueId=35566

stAte Authorized representAtiVe oF Anti-monopoly committee ms. elenA cherneleVskAyA: All rAtinG AGency in ukrAine Are illeGAl“Delo”, №76, 13 February 2006http://www.delo.ua/ru/news/3796.html?PHPSE...8deaf5972f1bc32

not only rAtinGsThe only rating agency in Ukraine “Credit Rating” has proud status of “national” and is authorized to assign ratings to domestic bond issuers. Ukrainian capital market participants are against such monopoly and are also against SSMSC decision on obligatory ratings itself. Zerkalo Nedeli, №13 (541), 9 April 2005http://www.zn.ua/2000/2675/49733/

VoluntAry-compulsory rAtinGs Zerkalo Nedeli, №4 (583), 4 February 2006http://www.zn.ua/2000/2675/52503/

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Financial Truth. Case 2.

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