Inaction or criminal intent? How the NCSM neglects the interests of Ukrainians in favor of a sanctioned Russian individual.
The situation is complicated by the fact that thousands of Ukrainians purchased military bonds of the domestic government loan (OVDP) and eurobonds through "Freedom Finance," which the government restructured just before.
A year ago, "EП" wrote about Turlov's business, the sanctions against his Ukrainian company, and the billions of hryvnias that thousands of "Freedom Finance" clients lost access to. During this time, the regulator – the National Commission on Securities and Stock Market (NCSM) – not only failed to return the invested funds to investors, but also overlooked how the business of a sanctioned individual continued to earn millions of hryvnias from Ukrainians during the major war.
Article 2 of the law on "State Regulation of Capital Markets" imposes on the NCSM the obligation to protect the rights and interests of investors. This story illustrates how the commission neglects its duties in favor of the interests of a sanctioned Russian.
Sanctions That Only Affect Ukrainians
On October 19, 2022, the National Security and Defense Council (NSDC) imposed sanctions against several individuals connected to Russian aggression. Apart from oligarchs close to the Kremlin, Turlov and "Freedom Finance Ukraine" fell into disfavor with the Ukrainian authorities.
The sanctions blocked the company's activities, which had accounts opened by 12.7 thousand Ukrainians. The total value of these citizens' assets at that time was about 3.5 billion UAH, of which 250 million UAH were investments in domestic government bonds (OVDP).
Since then, clients of "Freedom Finance Ukraine" have found themselves in a suspended state. Due to the NSDC sanctions and the suspension of licenses, they cannot withdraw funds from their accounts, receive interest from the state on purchased OVDP, cash out upon their redemption, close accounts, or transfer securities to accounts at other depository institutions.
Nominally, clients see assets in their accounts through the broker's mobile app, but they have no access to the funds. These investors have been living in such a state for two years.
The State Blocked Billions of Hryvnias of "Freedom Finance" Clients. Will Ukrainians Get Their Money Back?
Meanwhile, the business of sanctioned Turlov continues to operate successfully in Ukraine. The thing is, "Freedom Finance Ukraine" is just one of the companies in the international group Freedom Holding Corp. Besides Ukraine, the holding operates in Kazakhstan, Cyprus, the USA, and other jurisdictions.
Ukrainian clients of "Freedom Finance" could open accounts in securities both in Ukraine and in Cyprus with Freedom Finance Europe. The latter has not been subjected to NSDC restrictions or sanctions lists in any other country. Those who opened accounts with this Cypriot "subsidiary" can freely manage their assets.
"Freedom" not only services accounts of Ukrainians in Cyprus but also, despite the NSDC sanctions, continues to operate in Ukraine and actively attracts new clients. To verify this, an "EП" journalist visited the "Freedom Finance Ukraine" branch located on Hontchara Street in Kyiv. Instead of the closed doors of a company that should not be operating, he was greeted by employees of the LLC "Training Center 'Stock University'" (NTSU).
This company provides educational services and promises to teach the basics of securities trading in two weeks for 5-11 thousand UAH. According to YouControl, it is managed by the financial director of "Freedom Finance Ukraine," Ruslan Ismailov. The owner of the company is Anastasia Ostretska, the head of the marketing department of "Freedom Finance Ukraine." Until December 2022, the university was named "Training Center Freedom Finance."
1 NTSU employees informed the journalist that the training program includes opening clients' securities accounts with the Cypriot Freedom Finance Europe. Moreover, through the university, one can open an account with the company even without completing the training course. Its managers collaborate with "Freedom" and, if necessary, pass on contacts of new potential clients.
2 Thus, even after the imposition of sanctions, "Freedom Finance" Turlov continues to operate in Ukraine, attracting clients and profiting from transactions as before the NSDC's decision. The only inconvenience is the blocked accounts of clients held with "Freedom Finance Ukraine," including the military bonds purchased by them from the Ministry of Finance and other government securities.
In a conversation with "EП," NCSM members Yurii Boiko and Yaroslav Shliakhov stated that the commission cannot influence Freedom Finance Europe and prohibit it, as this institution is registered in Cyprus. According to the officials, they are unaware of the activities of NTSU and its connection with the sanctioned company "Freedom Finance Ukraine."
NTSU is not Turlov's only trace in Ukraine's financial system. A year ago, "EП" reported that he might informally own "Sky Bank" as well. After all, the only Kyiv branch of "Freedom Finance Ukraine" is located in this institution's building, which is now NTSU.
Turlov has submitted documents to the National Bank several times to obtain permission to purchase this institution, but the banking regulator did not approve such an operation. Additionally, the Russian provided "Sky Bank" with 2 million USD and 37 million UAH in subordination debt through his controlled Freedom Finance Europe.
According to the NBU, the ultimate beneficial owner of "Sky Bank" is Kazakh citizen Arif Babayev. A year ago, the regulator stated that they do not consider Turlov a real owner of the bank. Since then, its formal owners have not changed in the National Bank's reporting.
3 Sources in the stock and banking markets claim that "Sky Bank" is not only controlled by Turlov but also integrated into his brokerage business in Ukraine. In particular, it is in this bank that the cash balances of "Freedom Finance Ukraine" clients' accounts are kept: part of the funds from the redemption of OVDP, as well as interest income and redemption of foreign and corporate bonds.
This may mean that while the NSDC sanctions are in effect and clients cannot withdraw assets and funds from their accounts, the bank can use this liquidity to earn from investments in NBU deposit certificates. Moreover, this is not a new scheme for Ukraine during the war.
Sources familiar with the asset structure of "Freedom Finance Ukraine" claim that there are 200-250 million UAH of clients of the sanctioned broker in "Sky Bank." For a bank whose total assets were 3.26 billion UAH as of August 1, this is a significant financial resource. According to the NBU, in 2023 "Sky Bank" earned 217.9 million UAH in interest income (net profit after taxation – 43.8 million UAH).
Lobbying at the Highest Level
In March 2022, the SBU opened a criminal case under the article on financing actions aimed at violent change or overthrow of the constitutional order. The case involved "Freedom Finance Ukraine" and "Sky Bank." The SBU suspected the broker of financing terrorism, concentrating OVDP in the hands of Russian investors, and introducing Russian capital into Ukraine. The most interesting detail of the case is the possible connection of "Freedom Finance" with some Ukrainian officials.