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In December 2016, the National Bank of Ukraine (NBU) nationalized Ukraine’s largest private bank for what we now know was an incorrect understanding of the facts. It remains unclear who benefitted from this expropriation.

But it wasn’t just a misunderstanding. The nationalization of PrivatBank very likely was the result of a still-unexplained refusal by the NBU to accept the financial reality of the situation.

This extraordinary government takeover has made the banking and economic situation in Ukraine much worse rather than better, and is an almost classic case of government overreach.

The NBU’s inappropriate and unnecessary nationalization has hurt the Ukrainian economy, stolen millions from PrivatBank’s owners and is forcing Ukraine’s taxpayers to bear a substantial additional burden.

The NBU took its action in large part because of what it said was an unacceptable level of related-party loans: 90 percent or more was the number it frequently used.

But Ernst & Young, the global “Big Four” accounting firm the NBU hired to undertake an audit of PrivatBank at the end of 2016, said the actual level of related-party loans at PrivatBank was merely 4.7 percent.

And that very low level (an astounding almost 95 percent less than what the NBU used to justify its nationalization) is itself lower than the level of related-party loans reported a year earlier in a separate audit conducted by yet another Big Four firm: PWC.

Perhaps to protect itself from what will undoubtedly be withering criticism, the NBU is now considering suspending PWC from auditing Ukrainian banks, has accused one of the most renowned and highly esteemed auditors in the world of being “unprofessional,” and is at least hinting that its audits contributed to the situation.

The NBU has claimed that PrivatBank siphoned a majority of its equity to related party loans to enrich the bank’s shareholders. Operating activities show that the cash flow for 2016 was 21 billion Ukrainian hryvnia to client funds, but not to the issuance of loans to related parties.

Similarly, the NBU made an arbitrary, erroneous and harmful decision to regard PrivatBank’s collateral as unacceptable even though a significant amount of the loans that were classified as “impaired” should have been acceptable under IFRS standards.

But it’s not just the NBU’s decision to nationalize PrivatBank that’s questionable; serious issues have now been raised about the way the NBU carried out the nationalization once it decided to move forward.

The NBU’s capitalization of PrivatBank after the nationalization was a transfer of government bonds, rather than cash, that effectively was worthless.

Up to then, the NBU always required the valuation of collateral from independent appraisers so that its value would be recorded appropriately on the balance sheet. But, as E&Y stated in its 2016 audit report, ten days after the nationalization, there was a sudden increase of investments in government bonds that were never valued. Who will buy those bonds now?

But the biggest issue is why the NBU ever thought that government control through nationalization of Ukraine’s largest privately owned bank was appropriate in the first place. PrivatBank had a strong vote of confidence from its customers with 40 percent of the country’s private deposits and serving 44% of corporate clients. It had a strong positive track record of supporting Ukraine’s economy and creating jobs. And, as a report by E&Y (the auditors chosen by the NBU) subsequently confirmed, according to IFRS standards its financials were far stronger than the NBU was charging.

All of this makes the NBU’s nationalization of PrivatBank more of an unnecessary expropriation – a taking by the government – than a good banking practice. That is the textbook definition of a scandal.