Is Ukraine becoming a kleptocracy? Commercial assets are being seized by the state

Yet these accusations pale next to the seizure of commercial assets by the state. At least 17 Ukrainian companies and 1,611 citizens have been sanctioned by Zelensky’s administration, after the Kyiv government invoked special military laws allowing it to take control of private firms. The fear among Ukrainian businesspeople is that this is being carried out as a ploy to nationalise their assets without compensation.

“Nobody is safe,” says Julia Kiryanova, CEO of Smart Holdings, an investment conglomerate, which has been targeted and subjected to police raids and seizure of assets. Kiryanova claims sanctions are being used to force fire sales of profitable banks and firms, which will then be exploited by politically connected Ukrainian businessmen to enrich themselves. Certainly, the alleged redistribution of corporate assets — under the guise of sanctions, and absent the rule of law — is eerily reminiscent of the notorious privatisation of state assets in Russia in the Nineties.

Nor are Ukrainians the only ones to suffer here. As UnHerd can reveal, last month Zelensky received a letter from a Dutch finance company, accusing him of violating international law and claiming it had lost its vast investment in Ukraine’s biggest bank. The letter, a request for arbitration by a Dutch financial company called EMIS Finance BV, suggests the Zelensky government breached a bilateral investment agreement. The treaty supposedly protects Dutch investors in Ukraine — but in 2023, the Kyiv government nationalised Sense Bank without offering any compensation.

In particular, EMIS Finance claims it lost £420 million in non-performing loans to ABH Ukraine Ltd, the majority shareholder of Sense Bank. Thanks to these indirect investments, EMIS Finance argues it has the status of a protected investor.

A spokesperson for the Ukrainian Ministry of Justice confirmed the government had received EMIS Finance’s letter about commencing proceedings. “In accordance with the standard practice of the Ministry of Justice,” a spokesperson said, “we do not comment on pending or potential legal matters which may affect the interests of Ukraine.”

The state takeover of Sense Bank can be traced back to October 2022, when the Ukrainian parliament passed legislation allowing the government to nationalise insolvent banks. But that left a hitch: Sense Bank was solvent. Even the National Bank of Ukraine (NBU) admitted as much, stating that despite losses and outflows, the institution was healthy. As Katerina Rozhkov, the chairperson of the NBU noted in January 2023, there were “no factors” that threatened the bank’s solvency.

Not to be dissuaded, the Kyiv government promptly changed the law, last May passing new legislation allowing banks to be declared insolvent if some of its shareholders were sanctioned. In the case of Sense Bank, three of its indirect shareholders had indeed faced sanctions from both the UK and Ukraine, with the latter imposed by a body called the National Security and Defence Council. That, in turn, meant the bank could be declared insolvent, despite the state of its accounts and the positive noises from regulators.

A month later, on 5 June 2023, President Zelensky duly signed a bill authorising the sale of 100% of Sense Bank’s stock to the Ukrainian Ministry of Finance — with no compensation for shareholders. It was now officially owned by the state, and a few days later the Economic Security Bureau seized hundreds of assets belonging to Sense Bank, encompassing everything from shopping centres to apartment blocks. A new CEO and board of directors were swiftly installed too, with the transformed Sense Bank due to be reprivitised next year. The IMF, for its part, is currently choosing an internationally recognised financial advisor to prepare the bank for sale.

Not that the alleged victims here are quietly accepting their fate. Beyond EMIS Finance’s letter to Zelensky, ABH Holdings, the Luxembourg-registered former owner of Sense Bank, has filed a $1 billion lawsuit against Ukraine in the international arbitration court. Based on the bilateral investment treaty between Ukraine and Luxembourg, ABH Holdings seeks compensation for what a spokesperson calls the “illegal expropriation of Sense Bank by the authorities through enforced nationalisation done in an arbitrary, disproportionate, and discriminatory manner. By combining methods of corporate raiding and war profiteering, the Ukrainian authorities have unlawfully taken the bank from its rightful owners”.

Once the case is heard in court, Zelensky’s role will likely become clearer. The president, after all, is also head of the very National Security and Defence Council that enacted sanctions against key Sense Bank shareholders. Zelensky also nominated the National Bank of Ukraine’s governor, who strongly supported the nationalisation of Sense Bank and rejected a proposal to sell the institution to independent non-sanctioned investors.

This lawsuit is progressing, but the Ukrainian government is anxious for the court hearings to be held in secret, and for the evidence to remain confidential. ABH Holdings rejected this suggestion, insisting that Ukraine abides by the international arbitration rules stating that “confidentiality is neither agreed nor envisaged”.

In the meantime, the EMIS lawsuit against Ukraine is proceeding — nor do experts expect the legal cases against illegal nationalisation to end there. “This conflict has one primary consequence,” argues Baiju Vasani, a UK barrister who specialises in Ukrainian investor state cases. “It increases the number of arbitration cases against Ukraine brought under international investment treaties for breaching international law. I expect these cases to pile up in the next few years, as foreign nationals and companies seek billions of pounds in damages for their stolen property.”

Together with the latest news from across the Atlantic — with Donald Trump potentially poised to cut off aid to Kyiv and even impose a peace treaty on the country — the next few months could be rocky indeed for President Zelensky. For the moment, though, Sense Bank belongs to his government.

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Mark Hollingsworth is a freelance journalist and author. He is the author of Londongrad – From Russia with Cash, the Inside Story of the Oligarchs and his most recent book is Agents of Influence – How the KGB Subverted Western Democracies.

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