The Institute of Double Standards: How the NBU sees a speck of dust in someone else's eye, but doesn't notice the speck in its own

Business reputation works all over the civilized world, especially in the banking sector. For example, if an official in European countries or in the United States is "blackballed" or has a criminal case against him, he is dismissed from his position. In Ukraine, unfortunately, the institute of business reputation works very selectively, at the request of the National Bank of Ukraine. UNN tried to figure out what is really happening in the banking sector and why officials under investigation can continue to work in their positions, while bankers who have lost their business reputation need to adjust to the mood of the regulator or other favorable conditions to restore it.

Business reputation in the banking sector is a kind of capital, and a banker loses everything if he loses it. However, as recent developments in this area have shown, this principle unfortunately works one-sidedly in Ukraine. 

One of the most striking examples is the business reputation of Kateryna Rozhkova, First Deputy Governor of the National Bank of Ukraine. Recently, the Commercial Court of Cassation of the Supreme Court put an end to the litigation between the Deposit Guarantee Fund (DGF) and the former management of Platinum Bank, which was declared insolvent in 2017. Rozhkova was among the ten defendants in the case. She served as a member of the bank's board before joining the NBU.

According to the court's decision, the defendants must compensate UAH 1.5 billion in damages caused to Platinum Bank by issuing non-performing loans (NPLs). The funds are already being debited from Rozhkova's accounts.

Despite the court's decision, which effectively ruled that Rozhkova, among others, had committed violations that caused enormous damage, she continues to work at the National Bank of Ukraine and decide the fate of other financial institutions.

That is, in this case, as in other scandalsinvolving Rozhkova, the institution of business reputation turned out to be inoperative.

Another example of the impotence of this tool in relation to NBU employees is Oleksandr Zyma, director of the regulator's legal department. He is involved in criminal proceedings opened by the State Bureau of Investigation under the article "abuse of power or authority.

As reported by UNN , this case concerns a letter of recommendations provided by Zyma to the Deposit Guarantee Fund. He advised to withdraw 4 claims of JSC "Bank Concord" against the National Bank of Ukraine. 

Currently, the bank is in the process of liquidation and is being managed by the DGF, but Concorde's representatives went to court even before it was deprived of its license. The DGF has implemented the recommendations, of course, since Zyma is also the chairman of the Fund's administrative board, which appoints and dismisses its management.

As in the case of Rozhkova, Zyma continues to work in his position and has not even been suspended from his duties. In his case, the situation is strange because the article under which the proceedings are being investigated is about abuse of power.

At the same time, when it comes to people other than officials, the institution of business reputation starts to work at full capacity. For example, when the regulator revokes a bank's license, its owners and top management automatically lose their business reputation. The National Bank officially recognizes it as "unsatisfactory". Such a banker cannot operate in the banking sector for 10 years. The same applies to other financial institutions that need to be licensed by the NBU. 

According to Yevhen Berezovsky, a former co-owner of Ayboks Bank, which is in the process of liquidation, this policy of double standards of the NBU exists because the regulator considers itself uncontrollable and can act as it pleases, not as required by regulation.

That's why, I think, we have a situation where there are banks that have been liquidated or had problems, and they have been whitewashing their reputation for years. And there are also some rules that do not allow them to do this in principle. But the NBU does not have such rules, and this is a truly unique situation when the regulator itself writes the rules that regulate it

He added that, in general, this selective approach also applies to violations committed by state-owned banks. 

This generally applies to state-owned banks, which, no matter what they violate, no matter how bad their loan portfolio is, for which a commercial bank would have already fired people, demanded instant capital, demanded that shareholders take action, or taken some action against shareholders, in the context of state-owned banks such actions never happen, because it is like a sacred cow - you can do anything and the management of the state-owned bank will never do anything

According to political observer Gennadiy Dubov, in the context of officials, business reputation has absolutely no impact.

Today, I cannot say, from my own point of view, that it (business reputation - ed.) has a significant impact on anything. It certainly does not have a decisive impact. And that's where we get all these consequences - if the institution of business reputation is secondary and formal very often - sometimes it happens that some people, even those who have been brought to justice, continue their activities, others are punished accordingly, etc

In order to punish bankers by recognizing their business reputation as unsatisfactory, the National Bank has developed a number of criteriathat have been expanded in the wake of the large-scale intrusion. At the same time, there is no clear understanding of what a banker needs to do to restore its business reputation. And as practice shows, the NBU can give the green light in a year, 3 years, 5 years, or 10 years. 

There are some situations in which measures were logically taken and people lost their reputation for a long period of time. But there are examples of people who lost their reputation and then had it restored in a year, two or three years. And if, for example, a bank is withdrawn from the market, the entire board loses its reputation. Even though many board members were not involved in any transactions. It's not transparent, it's not structured, and there's a huge element of subjectivity in all of this. The NBU is basically an extremely subjective organization, like it or not, friends, I'm from this bank, you're from that bank, and all this is alive and well

Unfortunately, even the courts cannot help this situation, because the liquidation process is irreversible, even if it is carried out with gross violations, even if there is a court decision to cancel it, no one will return the bank that has been removed from the market. And the restoration of the good name of a banker who has lost his financial institution depends on the wishes of the NBU.

Serhiy Lysenko, a lawyer and managing partner of GRACERS Law Firm, said in a comment to UNN that the institution of protection is so underdeveloped in Ukraine that those who have lost it do not even bother to restore it through the courts, because it is a long, hard and tedious job.

Court proceedings can last for years and lead to nothing. So often no one even takes it up. There have been examples of someone restoring their business reputation through the courts, and they have won cases. We have a law on the institution of business reputation, but the problem is not even in the law, but in its enforcement. The law is written, but no one wants to apply it. And there is no responsibility for non-application - it is a person's right to defend himself or herself

Dubov believes that in order for the institution of business reputation in Ukraine to have an impact, it must emerge, not so much legislatively, where they have been trying to develop it in recent years, but as part of real decision-making, both regarding the appointment of a person to public service and the existence of a person in a market environment. Reputation, he said, should become something important and be taken into account when making decisions. 

As for banks, at one time more than a hundred banks were liquidated, and many of them had violations, including those later established by the courts, which would have prevented liquidation. And I also know of cases where there were actual court decisions to restore, for example, banking licenses that were taken away during the so-called "bank run". They were simply not enforced, physically. There is a decision, but the bank continues to be liquidated

The fact that the National Bank has a policy of double standards regarding business reputation was also noted by political strategist Taras Zahorodniy in a commentary to UNN. He recalled that the institution of business reputation in the banking sector was introduced when the NBU head was the scandalous Valeria Gontareva, whose reputation was "tarnished" even as head of the regulator. At the time, it was believed that this would help deprive those involved in bank robbery or fraud from engaging in banking and finance.

In this context, it is worth mentioning another former NBU governor with an impeccable business reputation, Kyrylo Shevchenko. A criminal investigation was already underway against him when he was running for and was appointed by the parliament as head of the NBU. He and others are suspected of embezzling over UAH 200 million from the state-owned Ukrgasbank. This means that even the existence of a criminal case does not affect the business reputation of officials.

When such people continue to work at the NBU, especially if there are court decisions, it is a sign that they do not care about the very rules they set

In his opinion, if it is proven that an official is involved in such cases, he or she should be dismissed, and these are the criteria for the NBU's work that it has set, but does not fulfill. Moreover, if there are criminal cases, they should be brought to an end.

In the case of business reputation in the banking sector, I would like to cite a well-known Ukrainian proverb that clearly demonstrates the NBU's approach: a speck of dust in someone else's eye is a speck in your own eye, but a stump in your own eye.