Court Orders Central Bank to Declassify Private Lender’s Supervision Reports Mind the horns!

Having sentenced the presidential institution to declassify the first shorthand records on the banking crisis in 2014 and the collapse of Corporate Commercial Bank (CCB), Bivol scored a new court victory, this time against the central bank (the Bulgarian National Bank, BNB). A three-member panel of judges at the Supreme Administrative Court (SAC) ruled that the central bank had no reason to deny access to two supervisory reports from 2012 and 2015 that review the assets of First Investment Bank (FIB). The reports, the unofficial copies of which were partially published by Bivol, reveal the critical amounts of bad and connected loans in the troubled Bank. There are also alarming data about the political concealment of problems in the banking system, which are known to the BNB in detail.

Bivol’s editor-in-chief Atanas Tchobanov filed a lawsuit against the BNB after it refused official access to the two reports in August 2016. Bivol’s attorney in the case was the prominent human rights activist, Alexander Kashumov, of the “Access to Information Program”. In Decision No. 7921 of June 21, 2017 a three-member SAC panel, chaired by Marina Mihaylova, accepted the arguments that the Access to Public Information Act (APIA) was fully applicable to the requested information and that “the evidence gathered in the case does not establish the existence of a secret protected by the law in relation to the full content of the two requested documents “.

It has also been stated that the BNB’s refusal is not consistent with the fact that “more than three years have elapsed since the creation of the requested information and the limitation of the access to it does not correspond to the statutory objective, namely the limitation of the right of access to public information only as an exception”. The Court ordered the BNB to issue a new decision in the light of the interpretation of the rule. However, the BNB may appeal to a five-member SAC panel within 14 days.

The three-member decision was signed with a particular opinion by the reporter-judge Donka Chakarova. She believes that “public disclosure of the results of the supervisory inspections would in all cases lead to a distortion of competition between different banks, and would eventually put at risk the stability of the banking system, i.e. it is in any case not in the public interest”.

The supervision, stupid

In reality, however, the public disclosure of the Banking Supervision issues is a fact confirmed by the Prosecutor’s Office by a decree of November 7, 2016, as well as by the text of the shorthand record of the consultations with the President on the situation with CCB on June 29, 2014. The then-Governor of the BNB, Ivan Iskrov, told straightforward the gathered politicians that the information submitted to the Supervision by CCB was not correct.

“What I can I tell you otherwise is that the reporting forms (which CCB provides to the Banking Supervision – editor’s note) might end up not being true, God knows. No one knows.”

However, the work of the Banking Supervision consists precisely in checking and knowing, not only by using reporting forms but also by conducting probes where inspectors enter a bank and check credit records.

According to the shorthand record, after Iskrov, then-Prime Minister Oresharski directly said that if then-former (and now-current Prime Minister – editor’s note) Boyko Borisov continued to press him for cabinet resignations he would speak up about “Banking Supervision”.

“What has it done in recent years and why it has left banks in such situation…”

This message was perfectly understood by all attendees and then-political party leader and now MEP, Nikolay Barrekov, summarizes it harshly:

“Did you pay attention to what Oresharski said a while ago? If he comes forward and tells the truth about Banking Supervision and says, for example, that CCB has been drained in the past few years and someone has not done their job, everything will be over.”

“Everything being over” obviously did not appeal to anybody, and especially to Borisov, who defined Oresharski’s intention to speak up about Banking Supervision as “monstrous”.

The fact that the institution called to enforce bank rules didn’t do its job turns out to be the most strictly kept secret in the State. Even for the sake of this official revelation, the shorthand records are a turning point in modern Bulgarian history. This is because the problems of the Bulgarian banking system after the bankruptcy of CCB and the rescue of FIB were not solved under European rules but by emergency liquidity coming from taxpayers’ pockets. The manipulated stress tests in 2016, whose results are questioned both by the European Commission and by the IMF, did not help either. Both institutions point to bad credit and connected party lending as a major and systemic problem.

These exact two problems were also pointed out by the BNB inspectors, who, contrary to the management, have done their job conscientiously and professionally when they have examined the real status of FIB. It is clear that everyone was well aware of the tricks to embellish the private lender’s reports (see here and here). There was a substantial capital hole, the reasons for which are set out in great detail, including the concentration of credits in offshores with unclear ownership.

Under the law

The supervisory reports also found that the Bank’s management ignored the Credit Institutions Act and the BNB regulations. However, a sanction was not imposed, obviously for political and corrupt reasons, for which the responsibility is entirely borne by the previous and present leadership of the BNB. Several successive governments are also responsible, as they knew and know and remain silent.

Meanwhile, all of Bivol’s findings about the draining of FIB by its owners through offshore and criminal schemes (here and here) continue to hang as a damsel sword over the fearful political class that, as seen from the consultations with the President, is totally incapable of controlling a critical situation, firmly implementing the law, and ending the drain. On the contrary, this drain is legitimized by pouring money from the budget without the Bank’s shareholders being held accountable.

The Prosecutor’s Office, which fully confirmed the BNB reports and found even more scandalous evidence of the bank’s drainage, also bears huge responsibility (see here).

Absurdly, however, the prosecution closed the investigation, saying that there was no evidence of a crime. Below we quote several of the conclusions of Prosecutor Doycho Tarev, based on the BNB report on the state of FIB:

In the course of the inspections, there have been findings regarding the high cost of the first and second tier capital and some obscurity concerning the methods of financing and origin of the capital in the purchase of bonds issued by the Bank. In this context, recommendations have been given to the Bank about the need for fresh investments by the shareholders in the capital and in connection with the finding that these shareholders cannot secure them.

And more:

The accountability of the Bank is highly distorted and does not give a real idea of its condition. Despite the findings and the instructions to remove inaccuracies in reporting data, subsequent remote inspections have established that these have not been removed.

There is another name for such accountability, and it is forgery. The reasons are simple – the robbery of the resources of the Bank by its owners must be concealed. The mechanism of this robbery is described in detail in the decree on the BGN 436 million loan for the purchase of the now-closed “Kremikovtzi” steel mill.

The main loans were granted at the time of the original owners of the three companies. Within three months after the granting of these loans, the companies were resold to offshore companies. On September 25, 2013, the companies Nadine Metals Trade Ltd., Valpet Consult Ltd. and Eltrade Company Ltd. received new loans from FIB that they provided as loans to parent companies. These credits were granted to the new managers of the companies, who are former employees of FIB.

The parent companies are actually several Cypriot offshore companies and there are reasonable doubts that they belong to the majority shareholders and owners of FIB, Tseko Minev and Ivaylo Mutafchiev. What is actually going on? Former employees receive from FIB huge sums, amounting to hundreds of millions, and give them to companies of the owners of FIB. In time, when these “bad loans” become obvious, not only the money is not repaid, but through the use of a loan assignment trick, FIB provides additional money to offshore companies to buy its bad loans.

Thus, bankers are moving tens of millions from the deposits of ordinary people into their own offshore pockets. The prosecution has established it, the BNB has established it it, but strangely no institution sees this as a drastic problem or violation of the law!

Bulgaria lied to the European Commission as well

Authorities in Brussels also learned from our findings that Bulgaria had lied about the collateral for its State aid to FIB. Instead of valid collateral – gold, currency and similar high-liquidity assets, the State has accepted collateral receivables of FIB from a few dozen offshore companies of the destitute Cypriot Georgios Georgiou.

Has the European Commission been informed that credits, which, according to the BNB itself, are not secured, are in arrears and are allocated to connected parties, have been accepted as collateral for State aid? The correspondence on the matter is kept secret, but it is hardly a coincidence that a Bulgarian employee of the Commission – Sophie-Bertin Hadzhivelcheva – quickly found a new job in Switzerland after Bivol published its first investigations into unsecured loans in FIB. Accidentally or not, she was precisely the one responsible for determining whether to authorize State aid for FIB.

Bivol’s court victory and the rule to declassify the two reports will most likely be fiercely challenged by the BNB, because this will expose all of the fraud, including the information provided to the European Commission. However, with the Court’s decisions on CCB shorthand records, the public intolerance to the dirty secrets of the BNB keeps growing.

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