Банкеръ Daily


Cordovska case – not a single word about crimes!

There is no conflict of interest with former BNB Director Nelly Kordovska. The final decision of the Supreme Administrative Court upholding the act at first instance is anything but a surprise.


If the case for the relatively modest personal savings in Corporate Commercial Bank (CCB) of the banking supervisor in its bankruptcy cannot be resolved,what can be said about the BGN 5 billion which has evaporated after its onset.For part of which Kordovska should be held criminally responsible.

The facts of the case filed by the former Commission on Conflict of Interest and continued by the Anti-Corruption Commission against Nelly Kordovska are undisputed. Her position as Chief Executive Officer in Banking Supervision includes the operational management of the Banking Supervision Department in the absence of the Deputy Governor; assisting the Deputy Governor in the performance of his functions, coordinating and controlling the activities of management directorates; organizing and controlling the preparation of regular reports and reports on the state of the banking system.

Three days before the CCB was closed the Deputy Governor in charge of the BNB Banking Supervision Department at that time  Tsvetan Gunev  authorized Kordovsky to exercise his powers as Deputy Governor in charge of the Banking Supervision Department, including issuing individual administrative acts and criminal penalties under the Credit Institutions Act. A day later she appoints a CCB supervisory inspection and on the day before closing the bank she withdraws  the sum of € 64,195 from her personal account. On June 20, 2014, Governor Ivan Iskrov and his deputy Nelly Kordovska prepared and submitted a note to the BNB Governing Council and they propose to put CCB under special supervision because the money in it is coming to an end.

The court admitted that fact but said the withdrawal of the money from Kordovska account was not the result of using proprietary information in private interest because thousands of citizens and businesses not aware of that information had been closing their deposits for  weeks before. An indisputable circumstance and we are left wondering who would not have done the same in such a situation. In response to media interest in the case the BNB stated otherwise-there was no way any of its employees to have known about the closure of KTB before the request of its CEOs was received. In addition, journalists were advised to report on payments made to the central bank employees from the CCB after the latter was placed under special supervision.

It is exactly the presence of numerous withdrawals from other depositors in the days before the closing of the CCB that is used in Kordovska's defense thesis. Otherwise all is against her-at this position she had complete and accurate information of the status of the CCB in view of the access to its accounting and information system, including all cash outflows of that period. As a result  Kordovska was aware that the CCB was in a liquidity crisis, it was threatened with insolvency and placement  under special supervision which would result in the suspension of all its duties. She also knew that the BNB Governing Council would consider a draft decision to place CCB under special supervision, information of which was available to a limited number of individuals.

The money is hers  and it is not so much. However, where is the prosecutor's office hiding of other reports of Kordovska's activities at the time. She was personally named by the chairman of the budget committee at the National Assembly, Menda Stoyanova  as the official who authorized, on behalf of the Guarantee Fund, whose Vice-Chairman she is now, to modify the terms of the contracts of 1,000 CCB depositors. As a result the preferential conditions for them have been dropped  in order to activate the legal guarantee for the payment of EUR 100 thousand. In practice, people who have realized the financial benefits of these privileges with the clear awareness that they risk everything in the event of a collapse are among the guaranteed depositors in violation of the law.

The scheme was clarified by a special parliamentary committee investigating the CCB. It turned out that as a member of the Guarantee Fund  Nelly Kordovska had given written instructions to the Quaestors in response to their request of how to proceed with the preferential contracts for  which the clients had made unilateral statements for their termination upon placing the bank under special supervision. Cordovska's answer is: "If the depositor has paid penalty interest upon early termination of the contract, the deposit is guaranteed." However, she explains to MPs her instructions with a "technical error" in the form of a wrong entry number and asks them to not take them into account.

However, for the fulfillment of these instructions KTB Quaestors Stanislav Lyutov and Elena Kostadinchev were brought to court on charges of deliberate mismanagement of a particularly large size which will end with no result. According to the prosecution the two acted in complicity not having taken sufficient care of the management and preservation of the entrusted property thereby damaging the Bank Deposit Guarantee Fund by just over BGN 1.7 million. This happened between August 20 and November 6, 2014  by accounting the early termination of nine individual fixed-term deposits with a preferential current annual interest rate, on the basis of which they were transferred for payment to the Guarantee Fund. It will hardly ever become clear who pressured them to make that decision.

The investigation began in 2015 and allegations against the Quaestors were raised in May and apparently have not been corrected. According to investigators the actions of Lyutov and Kostadinchev violated the Bank Deposit Guarantee Act which forbids the payment of guaranteed amounts to persons with preferential interest rates granted in deviation from the conditions announced by the bank, which the latter is obliged to apply to its depositors. This also led to a breach of the order for satisfaction of creditors provided for in the Bankruptcy Law. Along with the forensic financial checks, the benefited depositors were questioned as witnesses as well as all officials involved in the implementation of the scheme.

The pre-trial proceedings were initiated just days after Prime Minister Boyko Borisov described the damage the Quaestors made at a meeting of the Council of Ministers. He cited the specific acts and described them as "fact" including the number of preferential contracts under which the Guarantee Fund has paid out the guaranteed amounts contrary to the law. According to Borisov these are more than 1000 counterfeited contracts, on the basis of which the estimated budget damage to the Fund amounted to ... EUR 100 million.

"From what I know from the servicing bodies and I expect to see development in the coming weeks, properties have been released - but of course, all this has to be documented, it is a fact. In the last days of the operation of the Quaestors huge assets were released. So I hope that here the prosecution will complete what they are doing with the SANS and the Ministry of Interior. It will become clear to the public in two to three weeks. Property was released, contracts were counterfeited - over a thousand -because, if you have preferential interest, you cannot then collect the hundred thousand euros that are allotted to you because you have benefited from the interest. And  we speak of over a thousand people, and in practice, by remaking their contracts, they received one hundred thousand euros. And I counted the money - about one hundred million is the loss caused to the Fund,” the prime minister said at the time.

Throughout the investigation  the prosecution remained silent and did not engage itself on any of these points. However, Lyutov and Kostadinchev responded promptly with a request for verification of Borisov's statements.

They, in turn, stated that for the entire period of their management as KTB custodians  they had worked "exclusively and only within the limits of legal requirements and in compliance with the instructions of our supervisory institutions". Insolvency payments to citizens up to the protected amount is a complicated process carried out in continuous and close interaction with the Guarantee Fund and with the Central Bank. The instructions they provided made it impossible for them to do arbitrary actions and there was complete documentation and transparency for this volume of work.

The reaction of Lyutov and Kostadinchev was a clear sign that they did not want to become a scapegoat while the institutions responsible for their activities wash their hands. The Quaestors recalled that the issue of collateral was dealt with in detail in their final report  provided to the BNB and the Interim Parliamentary Inquiry Committee regarding the CCB. "On the day the trustees took office  this report was handed over to the Finance Minister, to the Deputy Attorney General, to the Secretary General of the Ministry of the Interior, to the Chairman of the BDIF, as well as to the trustees themselves”, the custodians then wrote.

In addition, Lyutov and Kostadinchev assured that in the same report they explained and motivated all their actions on the supervision and they remain at the disposal of the investigating authorities for any assistance. Moreover, the Quaestors have denounced the irregular actions in connection with the payment of the guaranteed deposits as well as accounting for cessions and interceptions after license revocation. The latter they explained with the lack of legal authority to dispose of the bank's assets.

Kordovskaya's active role was also noticed in the selection of an investigative firm set to give explanations for the mechanism and track the cash flows for the KTB drain. After the proposal of the MRF members Lyutvi Mestan, Delyan Peevski and Yordan Tzonev the National Assembly adopted a resolution recommending that the BNB find a specialized company with proven capacity and international experience in this matter. The relevant amendments to the Bankruptcy Law were voted in March 2015 with all parliamentary powers trying to persuade each and every one that they believe what they are doing.

Six of the initial 11 candidates were selected, after which the Guarantee Fund selected Alix Partners. On the  election Day - May 19, 2015, Kordovska did not appear in the National Assembly for the meeting of the KTB parliamentary committee, presenting a hospital record for a leave due to a broken leg. It was with that broken leg she attended the meeting of the board of directors of the fund  at which the decision in favor of Alix Partners was taken.

Two weeks later  the fund commissioned KTB's trustees to sign a contract with the company, which was expected to track its assets and recommend actions to preserve them and return them to the bankruptcy estate. Immediately afterwards, however, with a number of decisions the Guarantee Fund's Board of Directors  gives the trustees permission to sign annexes to the contract concluded with Alix Partners. Not any annexes, but those that change virtually all the basic parameters i.e. the price, the volume, the manner and scope of the financial investigation.

Immediately after signing the contract with Alix Partners and the subsequent annexes to it BNB Governor Ivan Iskrov, whose resignation had been demanded for months, resigned.  Following the completion of the contract at the end of September 2015  Nellie Kordovska did the same and left her post at the Central Bank.

Meanwhile, a mega scandal erupted over the selection of the "British company" during which the government made unconvincing attempts to dispel doubts about its authenticity. But they failed because there wasn’t such.

Following media reports that the contractor AlixPartners Services UK LLP was only created in early 2015 and its relationship with the US original company was not clear, the fund assured that it was 100% a subsidiary of the company. It was announced that "AlixPartners is comprised of a number of separate entities eligible for the jurisdictions in which they operate." And that "AlixPartners Services UK LLP is one of these subsidiaries and is owned by AlixPartners, a leading global consulting firm." Today this company no longer exists in the legal world.

There was also a parliamentary question regarding which company the contract for the investigation of the KTB drain was concluded with. The press release of the Guarantee Fund indicated: AlixPartners Services UK LLP. But a week earlier in a letter from the trustees to the Treasury the name was one word shorter - Alix Partners UK LLP. A report from the UK Commercial Register was also provided indicating that AlixPartners Services UK LLP was registered on 12 January 2015 - two months before the amendments to the Bankruptcy Law that introduced this option came into force.

It turned out that the company capital is held by a group of individuals together with AlixPartners LTD  but the latter ceased its participation only 10 days after its registration. The question remained as who these individuals were and whether the name of the original company was used merely for mislead and for receipt of the relevant commission. In addition - the sums paid under the contract also remained obscure-they were rumoured to have been BGN 22 million to “under EUR 1 million - about EUR 800 thousand" according to the calculations of Finance Minister Vladislav Goranov. But he said: ”To the best of my knowledge”.

An epic battle for the declassification of the report followed that ended with the discovery the report was no use. Only a few of all the 500 pages summarized its nature – the rest of them merely described the credits given. There were panic calls for the immediate hiring of another international company to raise the drained money against a percentage of the amount collected. Eventually this did not happen as well and Goranov frostily commented that the expectations were "greatly exaggerated".

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