Posted: 3 years ago

TBC Bank Case: Mamuka Khazaradze’s Withdrawal Raises More Questions

The TBC Bank case has turned out to be a high-profile matter over the past month. The story of one transaction raised more questions in terms of business freedom and democracy in the country. One part of our society asserts that  we are witnessing an act of political revenge, while another part adheres to a different position.

According to specialists, Georgia’s investment reputation and the perspective of the Anaklia project are at risk.

Even the US Embassy in Georgia has released a special statement regarding this issue. Namely, according to their information, the US Embassy is carefully supervising developments around TBC Bank and the final outcome, and the provided explanations will make an essential impact on Georgia’s reputation. The US Embassy released the aforementioned statement regarding the situation.

“We are supervising the developments around TBC Bank. The final decisions and provided explanations  will have an essential impact on Georgia’s reputation in terms of investment inflows and doing business”, the US Embassy statement reads.

“The businessmen who are persecuted by the Prosecutor’s Office abstain from saying more , and at this stage, but even the existing statements seem alarming”, the former president of the National Bank of Georgia (NBG), Roman Gotsiridze, noted that regarding the briefing that Mamuka Khazaradze, TBC Bank Supervisory Board Chairman, and his assistant Badri Japaridze held several days ago.

“In practice, Mamuka Khazaradze has said that the 5-year effort at attracting financial resources for the Anaklia Seaport project may become useless. In May-June, six huge financial institutions, in practice, agreed to set up a 600 million USD foundation for funding the Anaklia project.

If this process continues, naturally, the mobilization of financial resources will cease, and the Anaklia project will become questionable. When similar, major banks and financial institutions reject a project, a lot of years will pass until other financial institutions will show interest in the same project”, Gotsiridze noted.

Business Law specialist Akaki Chargeishvili says that this case has raised a lot of questions. Namely, according to the NBG, in 2008, two companies were mentioned in the case on charges of money laundering. This fact raised a lot of questions. Even if the bank’s founders have spent this money on the bank’s authorized capital, then NBG or the bank’s founders were to publish the decision about growth in authorized capital.

The business law specialist focuses on one important issue, namely the examination and supervision by NBG. According to Chargeishvili, from the functional point of view,  this component refers to both NBG and financial supervision services taking part  in money laundering.

Moreover, the NBG demands, and it is a requirement of the Georgian legislation, too, that commercial banks carry out an audit on an annual basis. Without this audit, the bank reports cannot be approved. Moreover, commercial banks are obliged to prepare quarterly reports on them and publish.

“Therefore, the key question is, which auditor company conducted the 2008 audit? Therefore, the conclusion submitted by the auditor companies in that period should be found to clarify where this case is, as is reflected in the auditor’s report, and why no reaction was provided regarding the case in  due time. It is interesting which auditor company has concealed this fact. Maybe we have a bigger crime. It is possible that the bank founders have not committed a crime at all, and I will not violate the assumption of innocence, but, for a valuable appraisal,  all accompanying results and factors are also very important”, Chargeishvili said.

It is also interesting what recommendations were issued by the auditor, and how the detected shortcomings were eradicated in the following years, he said.

The Caucasus Business Week (CBW) has learned that the Deloitte International auditor company and PwC company carried out an audit of TBC Bank in 2008. None of these companies have made comments on the issue for the Commersant.

We should find out what factors have led Mamuka Khazaradze to leave TBC Bank, what was the last straw, and then we should make a diagnosis – what happens in the country – expert Gia Khukhashvili  commented on Mamuka Khazaradze’s withdrawal from TBC Bank in this way.

“Khazaradze’s decision to leave the bank raises more questions and the fact is that certain circumstances have made Khazaradze leave the bank”, Khukhashvili said.

“From the standpoint of state interests his decision is clear, because we appreciate more our affairs and achievements in this life and, in this case, our personal interests seem secondary. Therefore, we can understand his decision from the human point of view, but this decision has raised more questions regarding this issue. What factors have led him to this decision?”

We should examine what has lead him to this decision, what was the last straw, we should identify this to conclude what happens in this country, because this is not the personal problem of Mamuka Khazaradze. This issue has become a systemic problem for state development, the investment environment and rule of law. We should make a valuable diagnosis for this disease, which has preconditioned the mentioned decision”, Khukhashvili said.

As for the prospect of the development of Anaklia Port,, according to Khukhashvili, this is quite a depressing outcome, because current developments may frighten investors.

“When similar, serious accusations are made in the pre-contractual phase, the issue of attracting investors with whom negotiations were underway, becomes questionable. Similar accusations generate serious risks, and we should supervise and analyze how these risks may be averted”, Khukhashvili noted.

The majority of bankers abstain from making comments on the TBC Bank case. Only Cartu Bank and Halyk Bank representatives have made exceptions. Nikoloz Geguchadze, head of the Halyk Bank Supervisory Board noted that he does not make comments on other commercial bank, when he does not know details.

“I have no information about details, therefore, my comment cannot reflect the reality. Therefore,  I abstain. However, I note that I do not think pressure is being applied. The banking sector requires a cautious and careful attitude”, Geguchadze noted.

Cartu Bank Director General Nato Khaindrava says that the situation with a specific bank is never reflected with other banks. Consequently, this situation will not affect the banking sector.

“This is a certain specific situation. TBC Bank states that this is false information and, therefore, I cannot make a comment, as I have no confirmed and exact information”, Khaindrava said.

As reported, Mamuka Khazaradze and Badri Japaridze attended the meeting of the parliament’s Committee for Sectoral Economy and Economic Policy several days ago. The NBG President, Koba Gvenetadze, also visited the Parliament. However, the meeting was thwarted after the NBG President’s speech, as a result of the sharp protest from opposition factions.

Mamuka Khazaradze released the following statement after the thwarted meeting:

“We are suffering from an orchestrated attack. We were made to leave the Bank, but we will not concede our dignity and justice. Today’s meeting was convened to make explanations and relieve the situation. Media, society and parliament members were to clarify what has happened. We are suffering from an orchestrated attack. We were made to take the decision to leave the bank, but we will not concede our dignity and justice”, Mamuka Khazaradze released this statement after the parliament’s committee meeting.

The prosecutor’s general office has released a special statement on the mentioned case.

“Considering the high public interest, we would like to notify our citizens that the investigation on the legalization of illegal incomes have identified the following circumstances:

As is commonly known, on August 2, 2018, the Office of Prosecutor General started investigation of the case on legalization of illegal incomes, due to the crime determined under subparagraph C of p art 3 of article 194 of Georgian Criminal Code.

The investigation was launched, based on written information, that the Financial Monitoring Office submitted on August 1, 2018, under legal regulations.

Till now, the investigation proofs have outlined the following scheme: in April-May 2018, TBC Bank issued a 17 million USD loan to Samgori M and Samgori Trade companies related to Mamuka Khazaradze.

On the same day, the aforementioned 17 million USD was completely transferred to the personal accounts of Mamuka Khazaradze and Badri Japaridze, while the companies had taken the loan from TBC Bank for replenishing working capital, not for issuing the sum to Khazaradze and Japaridze in the form of a loan. This means that the previously mentioned 17 million USD issued from their own bank was transferred to the personal accounts of Khazaradze and Japaridze on the same day.

After this transaction, the following developments took place: in October-November 2008, loan maturity was extended for a period of one year, without any substantiation, to companies businessmen involved with Mamuka Khazaradze, while loan payment had not started.

However, after about a month, on December 31, 2008, before coming to the loan payment schedule, TBC Bank:

  1. Classified the aforementioned loan as a bad loan (hopeless) without substantiation;
  2. Ahead of schedule, determined by bank regulations, the bank wrote off, i.e. shifted, the loan to an external balance account, whilst the loan amount had not been paid;
  3. The bank has not requested that the bailsmen compensate the sum;
  4. Did not write off the sum on the account through accepted regulations, and did not expropriate the mortgaged property.

It should be stressed that the loan was classified as hopeless, but TBC Bank continued crediting the relevant companies and issuing loans to them based on other credit agreements.

Moreover, in 2012, TBC Bank entirely exempted the companies from bank liabilities in the following way:

TBC Bank replaced the companies with the company incorporated in an offshore zone a month earlier, without any loan security, and this new company had no financial assets in Georgia.

Under the agreement signed with the foreign company, the company assumed the obligation for returning 17 million USD and, at the same time, the company acquired the right to request the sum from Khazaradze and Japaridze.

Moreover, in the same period, TBC Bank freed real estate from its mortgaging obligation.

It should also be noted that the offshore company was represented by a Georgian citizen, P. Gh., who was a member of TBC Bank crediting committee by this time, when TBC Bank issued 17 million USD to Samgori M and Samgori Trade. Moreover, this person worked at one of the high-ranking managerial positions at TBC Bank, when the offshore company replaced Samgori M and Samgori Trade.

An act of acceptance and delivery was signed with the mediating company, acting between the offshore company and Samgori M an Samgori Trade providing services on September 28, 2012.

At the same time, it should be also noted that loans from Samgori Trade and LLC Samgori M were written off, while these companies hadn’t paid a penny for serving the loan, and this loan has not been returned to the Bank till to this day.

Moreover, Mamuka Khazaradze and Badri Japaridze have not paid their loan obligations for LLC Samgori M and Samgori Tarde.

The investigation continues, the case-related persons are interrogated, and additional documents are searched and examined.

Considering the public interest, the office of the Prosecutor General will provide comprehensive information to the public”, the statement reads.

We remind you that the office of the Prosecutor General is investigating the case on the legalization of illegal incomes by TBC Bank. According to the investigation, in April-May 2008, LLC Samgori M and Samgori Trade took a 17 million USD loan from TBC Bank under the pretext of replenishing the working capital. The companies issued the loan to  Badri Japaridze and Mamuka Khazaradze in the form of a loan on the same day. According to the prosecutor’s office, it should be noted, that in the same period Samgori M and Samgori Trade have not paid the sum, and later these companies were placed in an offshore company, and to this day this sum has not been returned to TBC Bank.