Ukrainian PrivatBank files a $3 billion claim before Court in Cyprus against PwC

Eurasia Business News – April 3, 2018

PrivatBank branch – Photo credit : RIA Novosti Ukraine – Yevgeny Kotenko

PJSC PrivatBank (Ukraine) filed lawsuits against the Ukrainian and Cyprus subsidiaries of the international accounting firm PwC that it accuses of violation of their commitments during the audit of the financial reports of the bank for 2013-2015, when it was owned by the Ukrainian oligarchs Igor Kolomoisky and Gennadiy Bogolyubov.

PrivatBank filed a claim before the district court of Nicosia (Cyprus) against PricewaterhouseCoopers Limited (Cyprus) and PricewaterhouseCoopers LLC (Ukraine), seeking $3 billion of damages for losses caused by the alleged serious and extensive breaches by PwC of its duties and responsibilities in audits in financial statements of the largest lender of Ukraine over 2013, 2014 and 2015 accounting periods, revealed the press service of the bank nationalized by the Ukrainian state on December 19, 2016.

Following the legal proceedings launched against the former owners of the bank before the High Court of London in December 2017, this claim against PwC represents the next significant step taken by the state-owned PrivatBank to recover substantial compensation for the huge losses it has suffered. The burden of the capital shortfall of over $5.5 billion has mainly fallen on the Ukrainian state, which has to nationalize Privatbank to protect the national banking system.

The National Bank of Ukraine (NBU) accused the former owners of the bank, the oligarchs Igor Kolomoisky and Gennadiy Bogolyubov, of embezzlement through numerous insider fraudulent loans and transactions.

Moreover, the Board of the NBU decided on July 20, 2017 to withdraw the PwC’s right to audit Ukrainian banks as punishment for its alleged failure to identify evidence of irregularities in PrivatBank’s financial reports. PwC has said the ban is unjustified.

Mr. Petr Krumphanzl, the Chairman of the Management Board of PrivatBank, commented in the press release on April 2 that :

“Filing this claim against PwC is a logical and necessary step, in light of the great responsibility PwC had for auditing the bank’s financial statements. That firm failed absolutely to identify the ongoing operation of the huge fraud within the bank over many years which resulted in virtually the entire corporate loan book of the bank being non-performing and without any or any adequate security. The Cyprus court will have to determine the claims being brought by PrivatBank against PwC in due course.”

PwC said in a press release that it was aware of the legal proceedings against its Ukrainian and Cyprus subsidiaries. However, PwC Ukraine would not have been served so far with any official documentation in relation to the claim of Privatbank. The international auditing firm does not believe there is any basis for this action and it will if necessary defend its position vigorously. PwC also claims that its Ukrainian subsidiary performed its audit of PrivatBank’s 2013-2015 financial statements in accordance with international auditing standards.

PrivatBank has instructed global litigation firm Quinn Emanuel Urquhart & Sullivan (UK) together with Cyprus law firms Antis Triantafyllides & Sons LLC and Chrysses Demetriades & Co. LLC to represent its interests in these judicial proceedings against PwC.

The investigative and consultancy international firm Kroll, charged by the Ukrainian Government in 2017 to conduct the forensic audit of PrivatBank, confirmed that the bank was the object of large-scale and coordinated fraudulent actions, which resulted in losses of at least $5.5 billion, before its nationalization in December 2016.

Kroll also revealed that the audit report issued by PricewaterhouseCoopers Audit LLC failed to highlight the credit risk exposure faced by PrivatBank, reported Interfax Ukraine. PwC was the auditor of Privatbank since the middle of the 1990’s.

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