Ukraine’s Anti-Graft Cops Raid The Central Bank… So Where’s The Gold?

Ukraine’s wartime corruption saga, which so far has swept through the state nuclear monopoly, the president’s former chief of staff and the prosecutor general’s office, has now reached the one institution that was supposed to be above it all: the central bank.

On Wednesday morning, detectives from the National Anti-Corruption Bureau (NABU), working with the Specialized Anti-Corruption Prosecutor’s Office (SAPO), searched the National Bank of Ukraine (NBU) headquarters in Kyiv and the home of what the bureau coyly called “one of its employees.” According to a law enforcement source cited by the Kyiv Independent, the premises searched belonged to Governor Andriy Pyshnyi himself, and MP Danylo Hetmantsev said as much publicly: the “employee” was the governor.

The NBU confirmed the searches and said it was operating as usual. By evening, Pyshnyi was on Facebook insisting that, per the court order, the criminal case concerns neither the central bank’s activities nor his duties as governor, and that the searches turned up no evidence of wrongdoing by him or any NBU staffer. The central bank also denied rumors that he had resigned. Which, as anyone who has followed Ukrainian politics knows, is usually what happens right before someone resigns, or is resigned. 

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So what are the detectives actually looking for? NABU hasn’t said, but lawmaker Yaroslav Zhelezniak, who first publicized the raid, says it is tied to two cases: the Karpatnaftokhim petrochemical complex in western Ukraine, and the running of state-owned Sense Bank by outside individuals. Zhelezniak also called on Pyshnyi to step down.

Sense Bank is the thread worth pulling. The lender, formerly Alfa-Bank Ukraine and part of Mikhail Fridman’s empire, was nationalized after Russia invaded. It has since become a recurring character in the Energoatom kickback probe, the largest corruption case of Zelensky’s tenure. Prosecutors say a Hr 150 million ($3.4 million) bail payment for former Energy and Justice Minister Herman Halushchenko was routed through Sense Bank with allegedly laundered money, and in August they charged Zelensky’s former deputy chief of staff Iryna Mudra, Sense Bank CEO Oleksiy Stupak and others over the scheme. The NBU, as supervisor, has been criticized for not stopping it.

The direct link to Pyshnyi: Sense Bank’s former supervisory board chairman told a parliamentary inquiry that Vasyl Veselyi, a figure in the leaked NABU “Mindich tapes,” was appointed to the bank on Pyshnyi’s recommendation. Pyshnyi denies making any such recommendation. In those same tapes, Veselyi and businessman Oleksandr Tsukerman reportedly discussed influencing board appointments at the bank and talking to Zelensky’s then-chief of staff Andriy Yermak about it.

That last name matters, because Pyshnyi got the job in October 2022 as a Yermak ally, after his predecessor Kyrylo Shevchenko abruptly resigned and then said NABU had accused him in a Hr 206 million embezzlement case at a state lender. Pravda reported in August that Zelensky was already unhappy with Pyshnyi and that his dismissal had been discussed. So two of the last two NBU governors have now had anti-graft detectives at the door. Not a great hit rate for the institution that also happens to guard the nation’s gold reserves.

And as a bizarre coda, on the very same day Hungarian authorities detained György Matolcsy, Viktor Orbán’s longtime central bank governor, whose son is the subject of a separate probe into corruption at the Hungarian central bank. Central bankers across the region probably had a quiet dinner tonight.

Speaking Of Reserves… Where Is The Gold?

Which brings us to the question nobody in Kyiv was asked today. To be clear upfront: nothing reported so far ties the NBU probe to Ukraine’s reserves, and Pyshnyi says the case has nothing to do with the bank’s operations. What follows is speculation, labeled as such. But if the central bank’s supervisory function was compromised by people with access to the president’s office, it seems fair to ask what else was sitting within reach.

On paper, the answer is reassuring. Ukraine’s international reserves hit a record $57.7 billion as of Feb. 1 (unclear how much of that is US “donations”) and monetary gold made up 8.5% of them, up from 5.7% a year earlier, thanks largely to gold’s price surge rather than any buying spree. The World Gold Council puts Ukraine’s holdings at 27.37 tonnes, unchanged through the second quarter, worth roughly $4.9 billion as of January per CEIC data.

Long-time readers will recall that Ukraine’s gold has a habit of wandering off at moments of political upheaval. On March 10, 2014, days after Yanukovych fled, we flagged an entirely unsubstantiated report from pro-Russian outlet Iskra that the reserves had been loaded onto an unmarked plane at Boryspil and flown to the US, and asked whether the price of Ukraine’s “liberation” was the handover of its gold to the Fed.

Was The Price Of Ukraine’s “Liberation” The Handover Of Its Gold To The Fed? http://t.co/9loLVQl0dZ

— zerohedge (@zerohedge) March 11, 2014

The NBU denied it. Then in November 2014, then-Ukraine Central Bank chief Valeria Gontareva casually admitted on TV that gold was down to about $1 billion of reserves, which, on our math at the time, implied far less than that, and we wrote that Ukraine admits its gold is gone (Gontareva currently now faces Up to 12 Years in Prison and Confiscation of Property in Case Involving Collaboration with Russia).

Here is a transcript of the clip above:

• 0:00 The NBU firmed the hryvnia by only 2 kopecks, to 15.75 per dollar. On the interbank market the dollar sold at 16.05 and the euro at about 20.
• 0:14 The devaluation sent gold up 5% in a day. A gram of top-purity gold now costs 665 hryvnias, an all-time high, and the price has nearly doubled since January.
• 0:38 Gold is disappearing from the NBU’s vaults and is only a tiny share of the reserves. Gontareva said so herself on Channel 5 (5 Kanal).
• 0:49 Gontareva says “Actually, practically, if you want to know, physically there isn’t any. There’s a small amount of gold bars, but it’s literally, probably, up to 1%.”.
• 1:00 She didn’t explain how it happened. Official NBU data show almost $1B of gold at the end of October, about 8% of reserves, or eight times what she says.
• 1:20 Even by the official figures, holdings fell by more than a third in October alone. Gold prices are falling, so the NBU is selling into the drop and losing money.
• 1:38 The gold was built up under former governor Serhiy Arbuzov, who decided in early 2011 to raise gold’s share of reserves.
• 1:57 Arbuzov, in an archive clip, says: “Roughly 21 tonnes of gold. That’s several billion dollars… these are reserves that aren’t subject to the changes paper money goes through, so the value will only grow.”
• 2:08 The bet made several hundred million dollars by late 2012, and the gold sat in a secure vault that journalists toured two years earlier.
• 2:35 How the gold is now vanishing from the vaults is unclear.

A week later the central bank admitted the outflow and called it an “optimization of reserve structure,” which is probably the most central-banker phrase ever coined for “it’s gone.”

NY Fed to Ukraine: “If you like your gold, we can keep it.” http://t.co/RVgAVcqIqO

— zerohedge (@zerohedge) November 18, 2014

IMF data later showed holdings dropping to 23.6 tonnes in November 2014, a nine-year low, from over 42 tonnes at the start of the year. The official explanation was sales to prop up reserves, and by December lawmakers were turning on their own central bankers over it. Weeks later came the cherry on top: the NBU had been conned into buying painted lead bricks as gold, about $300,000 worth, allegedly with help from someone on the inside.

Ukraine Central Bank Conned Into Swapping Its Gold For Lead Bricks http://t.co/mYdQ6OUsDZ

— zerohedge (@zerohedge) December 22, 2014

So where is the gold now? Probably in one of three places, and here’s where the speculation starts:

1. Where they say it is. The boring and most likely answer: the bulk sits in NBU vaults or, more plausibly given a war with missiles landing on Kyiv, in custody abroad. Wartime central banks routinely park bullion at the Bank of England, the New York Fed or the BIS, and the NBU has never published a bar list or a vault-by-vault breakdown. That opacity was a feature during the war. It looks a bit different on the day detectives are walking out of the governor’s office with (heavy) boxes.

2. On the road. Ukraine’s physical gold and cash do move, and we know this because one shipment got hijacked. In March, Hungary’s counterterrorism unit stopped two Oschadbank armored vans near Budapest carrying $40 million, €35 million and nine kilograms of gold from Vienna to Kyiv, with Orbán accusing Kyiv of bankrolling the Hungarian opposition. Hungary’s own tax authority later traced it to a documented Raiffeisen deal and closed the money-laundering case, and it is now Orbán, not Ukraine, facing a potential criminal case over the seizure. Still, it was a rare look at the logistics of state-owned precious metal moving across Europe in vans, and a reminder that gold, unlike a SWIFT transfer, actually has to be driven somewhere.

3. Pledged, swapped or lent. This is the one worth watching. Central banks under funding stress have a long history of quietly using gold as collateral, via swaps or leasing, while still reporting it as reserves. Nothing suggests the NBU has done this (or that it hasn’t). But if the institution’s governance was porous enough for outsiders to steer board seats at a state bank, independent confirmation that 27 tonnes are allocated, unencumbered and physically where they’re supposed to be would seem like cheap insurance. Maybe the IMF, which has a seat at every Ukrainian table these days, could ask.

A Run On Trust, Not On Gold

For now, the more immediate risk is institutional rather than metallic. The NBU’s independence is one of the few things Western lenders have consistently praised in Kyiv, and the IMF program and the EU’s Ukraine Facility both lean on it. A governor ousted under a corruption cloud, with the president’s office reportedly already wanting him gone, would hand critics of continued aid exactly the narrative they’ve been building since the Energoatom tapes leaked.

And if it turns out the case really does have nothing to do with the central bank, well, NABU just raided the head of the monetary authority of a country at war for a case unrelated to his job. Either way, someone in Kyiv is about to have a very uncomfortable meeting with the IMF mission.