One of the Founders of TBC Bank and, until recently, its Chairman of the Supervisory Board, Mamuka Khazaradze, reported on March 4 to the Parliamentary Budget and Finance Committee. During the presentation and question-and-answer session that lasted for almost four hours, Khazaradze offered some striking details of an unfolding scandal around TBC Bank, one of country’s two leading financial services providers.
An investigation announced by the Prosecutor’s office in January, on suspicions of money laundering at TBC Bank has quickly become one of country’s major political topics.
Throwing aside the caution of his earlier statements, Khazaradze spoke of the “orchestrated attack”, “blackmail” and “threats” by politicians and public officials, directly accusing the Interior Minister Giorgi Gakharia.
‘Attack on the Bank’
According to Khazaradze, an “orchestrated attack” on the bank started from June 2018, when four state agencies opened simultaneous inspections: the financial monitoring agency, the Prosecutors’ office, Tax inspection and the National Bank of Georgia (NBG).
He says the bank has offered full cooperation and provided those agencies with all documents at their disposal, even though the law only requires banking institutions to preserve the data during six years.
“When we saw, that we were under an attack unprecedented during the 27 years [of TBC Bank’s existence], we gave them all archival documentation,” Khazaradze says in his remarks.
TBC founder says the investigations have zeroed in on a single transaction dating back to 2007, which constitutes the focus of the Prosecution’s case.
According to his statement, back in 2007 TBC Bank was growing dynamically, and to respond to the NBG’s regulations, a rapid growth of capitalization was required. Khazaradze and his partner, Deputy Chair of the Supervising Board Badri Japaridze, who owned 80% of the shares of the bank at the time have reached out to seek a foreign investor. Their first choice, an Israeli Bank Leumi was blocked by one of the minority shareholders (Khazaradze did not specify, although the German Investment and Development Company (DEG) and the International Financial Corportation (IFC) held 10% of the stakes each at the time). Leumi sued for arbitration, which has encumbered TBC’s operations and pushed the founders to quickly find the new shareholder.
CORRECTION (5 Mar. 2019): Based on the recording of Mr. Khazaradze’s statement, our original report falsely identified Deutsche Bundesbank as the holder of 10% of stake at TBC Bank. The shares were in fact held by the German Investment and Development Company (DEG) . We apologize.
Their choice fell to the Allied Irish Bank (AIB), which agreed to contribute USD 80 million in refinancing, provided the TBC managed to raise those funds first. Having secured 60 million from J.P. Morgan and the Ashmore Group, they reached to their two friends, businessmen for the remaining 20.
The ensuing August 2008 Russo-Georgian war delayed things considerably, and while AIB decided to go through with the deal, the unfolding financial crisis in Europe undercut its capacity to invest. As a result, TBC Bank found itself indebted. To cover the debts, Khazaradze and Japaridze have resorted to debt-for-equity swap reducing their 80% shareholding by 60%.
As a result, Khazaradze says, the managers managed to turn TBC Bank around and to attract new investors in 2009, including J.P. Morgan, the European Bank for Reconstruction and Development (EBRD) and others.
Khazaradze says all 2007-2008 transactions were audited independently, and also by these new shareholders, and “no red flags were raised.” He claims to have provided the Prosecution with detailed information concerning this transaction in October 2017, complete with private account flows.
Waves of attacks
According to Khazaradze, starting July 2018, when the government agencies started inspecting the Banks accounts, it has been subject to waves of diverse attacks, where he suspects the state has of either been complicit, or looking the other way.
Khazaradze says TBC Bank has been subject to a massive cyber-attack last July, but the Bank’s IT group has managed not only to neutralize it, but to trace it back to a specific street and computer’s IP address on “one of the main avenues of Tbilisi.”
He says the Bank immediately informed the Interior Ministry, but despite some five letters of inquiry there has been no apparent follow up. Only a week ago, according to Khazaradze, TBC Bank was informed by an investigator, that the computer in question has been seized and is being studied.
Khazaradze suspects that this street address “houses the so called ‘bots’ and that is where the ‘troll factories’ are being controlled from” which are partially responsible for the wave of recent personal attacks against himself and the bank through social media networks.
- “Blackmail” from NBG
“The National Bank has been practically blackmailing both myself and Badri [Japaridze],” Khazaradze told the MPs. According to him, the NBG wrote to the members of Supervisory Board urging them to relieve Khazaradze and Japaridze of their duties as Chair and Deputy Chair of the Board, but also to remove them completely from the Board. Failing to do so, NBG was threatening to ban them from holding these functions, or for raising of the level of the “buffer capital” of the TBC Bank. This, according to Khazaradze, amounted to a direct threat and blackmail.
To reassure the shareholders, Khazaradze said, he requested the NBG President to provide an official letter explaining that their dispute with TBC Bank had nothing to do with “money laundering” charges. Subsequently, he has received a message (through WhatsUp messenger) saying: “Neither any case of money laundering, nor any other criminal charge is being reviewed within our frame of competence. The case has to do with the conflict of interest.” NBG asked to disclose this message only to partners, but to no one else, Khazaradze says.
He added, that NBG keeps forwarding questions that has nothing to do with financial operations of TBC Bank, but concerns, for example, shareholding patterns in Anaklia Deep Sea Port project, which is ran by TBC Holding.
“I have no confidence in the competency of either NBG president or his deputy. As a citizen, I consider they must be prosecuted,” Mamuka Khazaradze told MPs.
- Threat from the Minister of Interior?
Khazaradze leveled the most dramatic accusation against the Interior Minister Gakharia. He said, ahead of the second round of Presidential elections in 2018, he has received a letter “from a high-level official” posing certain conditions and containing threats, that should he fail to meet these conditions, his domestic and international reputation would be ruined.
Responding to MP’s question, Khazaradze has specified, that this letter was sent by the Minister of Interior and pledged to disclose it to “an independent investigative body, capable to react and investigate” the case.
He further stated, that during his interrogation at the Prosecutor’s office last December, he has mentioned these threats “but neither three prosecutors [dealing with the case] nor the judge have bothered to ask any follow up questions.”
Following this statement, the Prosecutor’s office released the minutes of the interrogation, which shows that Khazaradze indeed pointed to the threats, without specifying their source.
Linkage with Anaklia Deep Sea Port project?
During the statement, Khazaradze has repeatedly linked TBC Bank investigation with Anaklia project. TBC Holding is the leading partner of this strategic state project, awarded in 2016 to a consortium, which – under the lead of TBC Holding – unites U.S.’s Conti International.
According to Khazaradze statement, the lack of clarity around TBC Bank is impeding finalizing of the agreements on funding the Anaklia project.
He says, due to these concerns he has requested from the Prosecution to not to release the contents of his first interview in December 2018. However, despite the assurances to the contrary, the Prosecution went ahead with the public statement mentioning “money laundering” on 9 January 2019, even though no formal charges were brought.
To this, according to Khazaradze, add requests from NBG regarding the Anaklia port shareholding scheme, which goes beyond the purview of the NBG.
“If the objective is not to have us in this [Anaklia] project [any more], perhaps you could tell us directly and we’d understand it, but the way this is being done now, is not correct,” Khazaradze stated.
First response from the officials
Interior Minister Gakharia was quick to respond to the charges saying Khazaradze’s statement amounted to “a privileged businessman” making “an attempt to gain immunity [from prosecution]” by “spreading rumors from the rostrum of the Parliament.”
“I am not in a habit of writing letters, I tell what is to be said to the face of everyone, including the people I do business with,” Gakharia explained, adding that “special privileges in business shall end once and for all in this country.” Minister said he is ready to come to the Parliament and respond to MPs questions.
The NBG also responded, saying that the sanctions under the purview of the National Bank are foreseen by law, and they include withholding the bank administrators’ right of signature, as well as their removal from the positions. “Therefore, it is incorrect to interpret as “blackmail” what constitutes NBGs legally defined competence,” the NBG explained.
The opposition “European Georgia” has moved to day to create a Parliamentary Investigative Commission to “study and react to the allegations of the breach of legislation by state institutions and officials” in TBC Bank case.