The investigations by Bivol into the draining of First Investment Bank (FIB) were fully confirmed by the prosecution. Therefore, it is more than scandalous that it saw no grounds for criminal offenses, unlike in the bankruptcy of Corporate Commercial Bank (CCB) for which charges have already been pressed. Bivol filed an appeal of the prosecutor’s decision to terminate the probe and urges the Appellate Prosecutor’s Office to launch pre-trial proceedings due to evidence of a brutal robbery of a bank.
Evidence of the draining of FIB, and possibly other banks, is no longer taboo for the European Commission, as demonstrated by its latest report on economic imbalances in Europe, including Bulgaria. It states:
The AQR (asset quality review – editor’s note) and ST (stress test – editor’s note) exercises were carried out by the Bulgarian National Bank (the central bank – editor’s note). Unlike other country-specific banking reviews in the EU, the Bulgarian AQR/ST exercise was led by the banking supervision department of the Bulgarian National Bank (BNB), with the external consultant Deloitte Bulgaria having an advisory, coordinating and quality-assurance role. While the strong role of the supervisor allows for more precise targeting, this may have come at the expense of the independence of the exercise. Following established international practice, the final publication provided results on a bank-by-bank basis. However, the level of detail provided did not match that of previous exercises across the EU, which to some extent diminished the effort to achieve transparency
The design of the exercise, however, deviated to some extent from international practice for country specific reviews in terms of independence and transparency. Challenges going forward include dealing with related-party and connected lending and exposures to hard-to-value assets
“Some institutions warrant close attention, including one systemic bank,” according to the executive summary of the report.
It is further written in the Financial Sector review that:
Corrections were heavily concentrated in two domestically-owned banks – First Investment Bank (a systemic bank) and Investbank (16), which accounted for 79 % of the corrections. As a result, the CET1 capital adequacy of the two banks fell to 5 % and 6.5 % respectively, indicating that they would need to replenish their capital buffers.
(The Financial Sector report starts on page 22.)
There are serious grounds to conclude that the one systemic bank is FIB as it is the only systemic bank with capital shortfalls, according to the so-called stress tests, widely advertised by the then-ruling party Citizens for European Development of Bulgaria (GERB) as successful.
The EC report also lays down the specific reasons for this European distrust – “the main challenges for banking supervision going forward include dealing with related-party and connected exposures”.
In other words, Europe has noticed Bivol’s investigations of FIB and deems them alarmingly credible as they have established that billions of euros, belonging to depositors, have been given out as loans to a destitute Cypriot connected with the owners of the Bank. Exactly this process is known as “draining” and is qualified as a crime in several articles of the Penal Code.
In this situation, the compulsory and only adequate move is urgent and decisive action by the government and the BNB, such as nationalization of the Bank “rotten apple” and charges against all those responsible for the robbery, starting with the owners and directors, all the way to the decision makers and institutions deliberately concealing the crime.
The prosecution is obstinately bouncing the ball
Unlike the European Commission, the Public Prosecution chose to turn a blind eye to Bivol’s investigations of the scandal, revealed in several publications from the end of 2014 and the beginning of 2015. The prosecution fully confirmed them and even found additional scandalous evidence of draining /here/. Puzzlingly, however, along with this, it simultaneously terminated its probe on grounds that there was no evidence of a criminal offense. Is this corruption or schizophrenia? Below we cite a few of the conclusions of prosecutor Doycho Tarev, based on the 2014 report of the BNB on the condition 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.
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 436 million levs 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 under 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!
The above has been established by the prosecutors and by the BNB, but strangely enough, no institution sees it as a drastic problem or violation of the law.
The Prosecutor’s Office of Prosecutor General, Sotir Tsatsarov, applies a double standard to the established facts and circumstances in the FIB case, compared with the case of the collapsed CCB. In the CCB case, the prosecution launched a probe and pre-trail proceedings on grounds of established similar or smaller breaches, while in the case of FIB, these breaches are seen simply as administrative violations.
The prosecutor’s probe dragged on for two years, during which FIB managed to commit another crime, the decree shows. It managed to “get rid” of the toxic loans through a questionable move, by signing a disadvantageous loan assignment for the offshore companies’ non-returnable money – a loan assignment for 20% of the loan amount. Therefore, the 70 million euros taken by FIB became 14 million euro after the assignment to be paid by FIB as well.
This is a damage amounting to 84 million euro in depositors’ money in FIB
This is not just damage caused by mismanagement, but a large-scale theft. On paper, these offshores are owned by the destitute Cypriot Georgios Georgiou, who seems to be a dummy for of the Bank’s owners Tseko Minev and Ivaylo Mutafchiev. For the prosecution, however, there is no problem. Prosecutor Doycho Tarev has ignored information on the ownership of the offshore companies, revealed in Bivol’s investigations.
This means only one thing – the prosecution is providing a cover-up for a brutal robbery of depositors’ money in FIB and of the money of taxpayers who rescued it in the summer of 2014. Some of the payments to offshore companies and in particular the buybacks of the bad loans assignments occurred after FIB received State aid about which
Bulgaria lied to the European Commission
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 as collateral receivables of FIB from a few dozen offshore companies of the destitute Cypriot Georgios.
Has the European Commission been informed that credits, which, according to the BNB itself, are not secured, are in arrears and are allocated to related 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 in unsecured loans in FIB. Accidentally or not, she was precisely the one responsible for determining whether to authorize State aid for FIB.
Below is the full text of the decree (in Bulgarian) that represents evidence of the criminal inactivity of Sotir Tsatsarov’s institution and its “special unit” for “finishing” inconvenient people and providing cover-up for the convenient. We also publish Bivol’s protest against this unprecedented concealment of a brazen bank robbery.
This post is also available in: Bulgarian