Liquidator Andris Kovaļčuks in an Interview with the Newspaper Diena

Riga, Latvia, February 7, 2020, 14:44 / Industry News / Translation from Latvian to English. Newspaper Diena.

It is surprising, how much attention has been brought to events in one bank, despite the fact that according to articles we see that procedural activities were carried out in around 20 different places. I believe it is in everyone’s best interest to deal with all the investigations in order to reach the truth about what has happened and what has not, to finally put an end to all the speculations - the liquidator of ABLV Bank, AS and member of the Liquidation Committee Andris Kovaļčuks confirms to Romāns Meļņiks.

As soon as there appeared news about ABLV Bank, AS in liquidation being among those 20 places where those so called procedural activities were carried out, the first thought for many people was definitely – no wonder that bank is being liquidated. Now it is known that a high-ranking ex-employee of the bank may possibly be involved in the breaches of law. How do you assess it – can one speak only about an individual’s fault here or a fault of the whole bank?

Firstly, one has to begin with the fact that we cannot directly comment the operative activities publicly, we cannot discuss what they are about and why, but we can safely discuss what they are not about. That is, we can set certain boundaries. These activities are not about something that has happened during the bank’s liquidation period, and these activities have certainly not been directed against liquidation as such or the liquidation process.

Do you mean that, just because these procedural activities have been carried out, there is no reason to doubt it or stop it?

At least there is no such information that would indicate otherwise. In essence, what happened was that it was necessary to provide information to the employees of the investigating authorities regarding client historic transactions. We regularly provide this type of information to authorities, including those who were here on Tuesday, based on written requests. In that respect, it was a surprise to us that on this occasion such a form of information requesting was chosen instead of sending the usual information requests.

I understand that procedural activities were simultaneously carried out in many places. It was probably important to ensure that there was no chance to hide something. However, knowing the history of how the bank came to be liquidated and how often there have been concerns about forced liquidation, you are probably the least interested to hide something or cover for some offender, right?

Exactly! The whole process that has been realized is based on retaining information and using it in the evaluation of creditor claims and in recovering assets in order to really pay out the money to those who have no legal obstacles to receive it. We have indeed worked extensively on data retention since the beginning of liquidation. Accordingly, also in this case we had all the requested data, we issued it ourselves in the presence of the representatives of all these many authorities – our employees were collecting information from systems, prepared responses in such a way to ensure that the data is convenient to receive for those who need it.

So is it that on this occasion it was not the case of taking out large amounts of documents, computer drives for them to be sorted somewhere else later to find what is needed and what not?

No, in this case, in the presence of the representatives of authorities our employees selected and issued information, which was specifically requested.

Yes, the conditions for issuing information were more nervous than in other cases when we do it daily, but I can say that everything still happened in a cooperative atmosphere. In addition, here it is important to say that the representatives of authorities, who were here, were very professional and proper; therefore, the process was carried out as constructively as it is most probably possible.

So I cannot say anything bad about specific people, they are also just doing their job – if they receive the task to come here, then they are here -, but I really think that it was not necessary to come for this information in such an… expressive way – we would have issued it also as per the usual request.

How did this information requesting accompanied by such a wide and specifically equipped delegation affect your work?

That Tuesday work here was completely paralyzed. Also on Wednesday it was not easy to renew the usual rhythm – it was necessary to calm employees down, respond to the public interest regarding what is going on, explain to partners what this process means. All this, of course, added extra load last week.

Have you also maybe suffered some losses because of that?

One day of idleness can definitely be considered as a loss, because it is clear that all employees will receive pay for that despite not being able to work.

I think that there were extra expenses for the state as well – it was probably not cheap to organize such an event.

Of course, we were worried by how much attention was brought to events in the bank, when in reality from the information in the press we see that it is a matter of a wide sector and procedural activities are carried out in many different places – possibly concerning different things, but still the focus as usual is on ABLV.

Moreover, it is strange that we were the only bank or the only one from many places, where operational staff arrived, for which the Prosecutor’s Office gave a special press conference. Thinking ahead, we would really be glad to see that institutions pay attention to informing the public correctly.

Of course, the intrigue and interest is understandable; however, at the same time I believe that none of us is a winner if a hype is created without receiving wholesome, comprehensive information about the overall situation.

Yes, nothing like this has been experienced in Latvia in a long time. Nevertheless, how are you doing in general with the bank’s liquidation process?

If we are speaking about recovery of funds, a lot of work has been done and it has been effective. At the moment, we are nearing the 85% mark from the amount that is necessary to satisfy all claims.

In recovery of assets and accumulation of funds to pay out to creditors, we are even slightly ahead of our own plans. What is going slower - payouts to creditors, but that is connected to events at the end of 2018 and beginning of 2019, when the start of our work with creditor compliance reviews was delayed nearly by a year.

Nevertheless, this process has also been initiated – first payouts have been carried out, but the largest amount of work there is still to come. We are intensively working on the process to make it quicker and more effective, however, one has to take into account that it is a new process; a large number of people are involved in it; the auditing company EY has created a team with experts from five countries. All of this has to take root, cooperation has to be polished, and processes need to be stabilized.

Time after time large amounts of money are being mentioned as suspicious according to the controlling authorities and therefore are subject to additional investigations. How do these investigation processes, some of which can be very lengthy, affect your work?

Our role in this process is only to carry out reviews in accordance with normative acts and the liquidation process. Therefore, if any cases are recognised where according to the normative acts a report has to be sent to the Financial Intelligence Unit (FIU), we do that.

The future fate of those funds is largely in the hands of the owner of the funds – it is up to them to provide answers to the unclear questions. If everything is fine, for example, with the origin of the funds, those freezing orders are then changed. There have indeed been precedents where the investigations have confirmed that the initial suspicions have not been founded and the payout of the respective funds to the owner is then allowed.

What about the terms for freezing the funds?

That depends on which stage the owner can prove legality of the funds.

If they can prove it already within the first 45 days, which is the first step at the FIU, then the freezing term is exactly that. If it is not sufficient and the FIU forwards the case to the police for initiation of proceedings, and the police really does it, then, if I am not mistaken, the funds can be frozen for up to two years even. Either way, it all depends on the owner of the funds, on their capability to prove the legal origin of the funds. If they can prove it, there is no need to worry.

If it turns out that the origin of the funds has not been legal or even worse – if an employee of the bank has taken part in the process of laundering, as it now has been said, how much of the blame should be taken by the bank, which may have not noticed it on time and reported?

Then let us look at how the system works. The bank has to pay attention to suspicious signs – that has to be done both when accepting clients and when monitoring the client transactions after acceptance.

At the same time, as the bank sees only a small part of the client’s life, then objectively it is very possible that at least at the beginning of cooperation the client can appear to the bank as a client with a good or, as a minimum, acceptable risk. Only when the picture is put together already after the fact or by gradually seeing and analysing transactions, the risk profile may become visible. Therefore, the fact itself that the funds have been frozen does not mean that the bank holding these funds has participated in the breach of law.

As it most often happens, it is very possible that the funds are frozen exactly thanks to the actions of the bank – when at some point the bank stops transactions and reports. As the bank is the first point of contact with the client, it has a big role in the client’s assessment.

Yet somehow, it is not visible that the banks are actively reporting.

I think it is a big problem for the whole banking sector that publicly the media mostly interprets everything in a very simplified way – if there are frozen funds in a bank, therefore they conclude that the bank has somehow taken part in breaching the law.

It is very difficult for a bank to say something to contradict it because nearly everything that a bank might want to say in its defence is forbidden to be disclosed publicly.

In your case?

In any case. We cannot discuss in detail the events of Tuesday due to restrictions, but in general, the banks cannot discuss clients and their transactions due to bank secrecy, which is set in the Credit Institution Law. Whereas, regarding the bank’s actions concerning suspicious transactions, reporting on them, cooperation with institutions cannot be discussed publicly as it is confidential information according to the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing etc. At the same time, on the other side we have people who ask questions about information they have somehow obtained or which has been given to them by someone intentionally or unintentionally. Therefore, we are constantly dealing with this challenge – how the bank can communicate to give a clear message that everything that could be done here has been done, at the same time not breaching the laws or disclosing something that would hinder the investigations.

The same refers to the frozen fund cases – no matter how much we would like to, we also cannot respond to questions about who has been the initiator of a process – the bank itself or one of the investigating authorities. Overall, I am sure that all banks are active in reporting, especially in recent years.

Were all employees at work the next days after the events on Tuesday? Meaning – was anyone missing due to investigative activities?

As I said at the beginning – what happened on Tuesday was not directed against liquidation. None of the employees of the bank in liquidation has been detained; all of them are at work. No one was detained, nor subjected to any other procedural activities.

To many people the bank’s liquidation itself seems suspicious. Are the state institutions supervising your work properly?

In my professional experience, I have never before come across such close supervision from state institutions. Of course, it is understandable that this situation is very out of the ordinary due to all the previously expressed doubts.

I believe it is in everyone’s best interest to deal with all the investigations in order to reach the truth about what has happened and what has not, to finally put an end to all the speculations about who has or has not done what. It is also important to understand whether those are problems of one bank or the whole sector.

You mentioned that in situations when some transactions seem suspicious to the bank it reports to investigating authorities. Since you started managing the bank’s liquidation, have you noticed some previously allowed transactions, which now seem suspicious, and have reported them?

Yes, we have sent such reports. In fact, I am convinced that it is happening like that in all banks, when older transactions are looked at during a routine client review, they see that maybe not all is in order there and it is necessary to look in more detail. Moreover, approaches, normative acts, lists of sanctions etc. – they all change.

Because you found the bank’s client or employee actions to be suspicious?

Those were reports on client transactions.

Have the bank’s employees carried out their tasks diligently, have they been law abiding?

Firstly, I can only judge the work of the team that is currently working on the bank’s liquidation.

I can only commend the employees who can work professionally in this somewhat nervous environment. What concerns the bank’s assets, for example, the loan portfolio – I believe that exactly because the work with loan portfolio management has been at a high level, we have now reached the previously mentioned good results. Therefore, in this respect the work has previously been, as a minimum, corresponding to industry standards or better.

Concerning the other part – client transactions, we all know that investigations for that are in process, and they have to be completed to be able to draw a line somewhere. I really do not wish to speculate around the outcomes of the investigations.

Since the very start, we have refrained from commenting the bank’s operation in the sphere of client transaction supervision, saying that we have creditor reviews for that, which are outsourced from professional auditors.

It has been said that the bank’s shareholders are trying to get FinCEN to withdraw or amend the notice on ABLV Bank. Are you involved in that as well?

First of all, the whole process of liquidation is aimed at it, because what has happened in essence is that FinCEN has expressed suspicions, but up until now have not issued their final rule. I.e. they have left it at the stage when they are only planning to make a decision about banning US banks to cooperate with ABLV Bank.

What about the deadline for making the decision?

60 days from the February 2018 notice was the timeframe within which objections or suggestions had to be submitted. The bank prepared documents with argumentation to try to overturn the expressed assumptions, and that process has stayed in that stage. At least we are not aware of any further decisions.

However, a whole avalanche of events followed the FinCEN notice straight away, as a result of which a decision was made to self-liquidate the bank.

Yes, that was a parallel process, which was largely lead by the European Central Bank and the Single Resolution Board (SRB) – both regarding unavailability of deposits and necessity of liquidation.

The logic of the whole process, why those reviews are so diligent and detailed – it is aimed at being able to clearly answer in the end, what has happened here and whether the initial notice was founded or unfounded.

Actually, yes, the whole process of reviews and liquidation in general is aimed at renewing the bank’s reputation.

It looks like a… posthumous order. The reputation will be renewed for a bank that does not exist anymore.

It is still very important to the shareholders, the previous employees and management of the bank.

Because, even though at one point the legal entity will not exist, the people still stay. Moreover, this was really a large organization – nearly 700 employees worked in the bank and about 900 people in the whole group. I think it is important for all of them to know how it all was in reality. It is equally important for state institutions, which supervised the bank already before these events – it will also be an indicator of their work quality.

The media previously reported that your methodology of creditor reviews might be used also for assessing clients of other banks. Is that so?

That would be very interesting and it would show the state of the industry as a whole, but I do not believe that it will happen and that something like that is being planned. At least I most certainly do not have such information at my disposal. In addition, one has to take into account that the methodology used here is unique and intended exactly for the ABLV situation. Of course, respective institutions definitely learned a lot from the example of ABLV Bank in liquidation, for example, even if we remember that more than 700 amendments were introduced during the coordination process of the methodology.

At the beginning of our conversation, you mentioned that approximately 85% of funds have already been recovered. What about the rest? Is it possible to recover it?

Definitely! At the moment, there is no concern regarding that.

Is it actually possible to recover 100%?

It is about the amount of liabilities. It was also a prerequisite of self-liquidation – having enough assets to cover all the creditor claims. Putting that aside, we still have a little over 290 million euros of shareholder capital, which respectively is excess of assets over liabilities. Our financial situation is stable.