On October 30th, 2017 – Transparency International-Moldova and IDIS „Viitorul” presented the Report on monitoring the financial and banking sector in December 2016 – October 2017. The report includes results of monitoring the evolutions in these sectors, as the result of a massive bank fraud that took place in the Republic of Moldova, as well as monitoring the process of assets recovery. The activity was conducted within the project „A Case Based Approach to Fighting Grand Corruption” funded by the Embassy of Netherlands in Romania.
The December 2016 – October 2017 period was full of events in the financial and banking sector. Following the Filip Government’s decision in September 2016 to convert into internal state debt the guarantees issued in November 2014 and March 2015 (intended to cover the “gaps” created following the frauds from three banks: the Savings Bank, the Social Bank and Unibank), series of initiatives to amend financial-banking legislation were launched. These changes were to meet the conditions and commitments of the Moldovan authorities towards the International Monetary Fund (IMF) and other development partners.
Thus, with the assistance of development partners, new laws have been developed and adopted, including the Law on Bank Recovery and Resolution and the Law on Central Securities Depository. It is noteworthy that in less than one year since adoption, the first law has been amended twice, and the second one – once, which proves the hurry admitted at the time of their adoption. At the same time, the Executive Committee of the National Bank of Moldova (NBM) has approved and amended several regulations, one of the most important ones concerning the requirements to the commercial banks’ directors, and aims to promote to their leading positions competent and reputable persons, which would improve the corporate governance of banks.
During this period, several legislative initiatives considered by civil society and development partners to be harmful and contrary to the commitments assumed by the governors, as it increases the risks of legalizing means of fraudulent origin,. One of these initiatives, the draft Law on legalization of capital and tax incentives, adopted by the Parliament in the first reading in December 2016, avoiding public discussion and without informing development partners, is the most eloquent example. Another draft relates to the amendments to the Citizenship Law and offers, by way of derogation from the legal norms, the right to citizenship of the Republic of Moldova for third persons, foreign citizens or stateless persons, against contributions called “investments”. Both drafts had as authors the same group of MPs, headed by the Chair of the Parliament. The regulation on the implementation of the law on “citizenship for investment”, drafted by the Ministry of Justice and approved by the Government in September 2017, sparked contradictory reactions in society, as it offers possibilities to legalize the financial means of dubious origin in the Republic of Moldova. The Head of the EU Delegation Pirkka Tapiola stated in an interview that “there are other, more effective, ways to attract foreign investment in a country than this way with citizenship offered in exchange for money”
In this context, it is worth mentioning the expertise reports of the National Anticorruption Center (NAC) on both projects, the “amnesty / capital liberalization” and “citizenship versus investments”. In the first case, the NAC indicated that in the draft law “… the concept of capital liberalization becomes equivalent to the legalization of capital outside the legal circuit, approaching a concept of money laundering”, and in the second case it found that “the interests promoted are detrimental to the public interest and to the major risks to the safety and security of the citizens and the state of the Republic of Moldova”. Despite this fact, the second draft was approved and the law entered into force in June 2017.
It is also important to note in the list of legal initiatives, the adoption in September 2017 of the National Action Plan on Risk Reduction in the field of Money Laundering and Terrorism Financing for 2017-2019. Although it contains important provisions on the harmonization of the Moldovan legislation to the acquis communautaire, a large part of the activities included in the plan are aimed at strengthening the capacities of the public authorities, as this process was to start ten years ago with the entrance in force in 2007 of the Law on prevention and combating money laundering and terrorism financing. Moreover, this plan does not include such vulnerabilities in money laundering as the energy sector, which is a “black hole “in country’s economy and brings considerable damage to society.
At the same time, a new Law on combating money laundering, which is also a requirement of the European Union, is still pending, according to the Association Agreement signed with the Republic of Moldova.
The inadequacy of the legal provisions to meet specific, complex, multidimensional and litigious situations in the banking sector, particularly in the three banks supervised by the NBM, does not solve such problems as lack of transparency of the shareholders, high investments risks for potential honest investors.
At the same time, analyzing the events of 2016-2017, we can see that the Republic of Moldova, after a period when it was an important element of the regional laundering of fraudulent money (laundromat), and a period of “the fraud of the century”, when 13% of GDP has been taken out of the domestic banking system, risk to transform the country in an offshore zone. A retrospective in time shows that after Latvia’s exit from the laundromat area under the supervision of the European Union, the money-laundering schemes were imported into the Republic of Moldova. At present, while the EU is putting pressure on Cyprus to eliminate the channel of money with obscure provenience, the Republic of Moldova is becoming a fertile field to attract such means through various methods (including capital liberalization, citizenship against “investment”, secrecy of relevant people’s data both in the banking sector and in the courts of law, the tax changes initiatives typical for offshore zones).These developments create impediments for an independent and genuine investigation of bank fraud, block implementation of laws and rules agreed with development partners, diminish the importance of the Kroll report, but also impede the functionality of institutions and the prospect to recover fraudulent funds.During this period, the banking sector is in a difficult recovery phase after the 2014-2015 crisis. The NBM has considerably tightened bank supervision and reporting standards, including against compromised loans. However, a number of systemic problems persist, among them: lack of transparency of shareholders and effective beneficiaries, poor corporate governance and inefficient management, weak internal control procedures and audits. Although the NBM stopped the creation of new dubious and compromised loans, the solution of the existing ones is difficult.
On the other hand, NBM’s intervention in the three monitored commercial banks (Moldova-Agroindbank, Moldindconbank and Victoriabank) highlighted a series of vulnerabilities, mainly related to the relatively high portfolio of bad loans, as well as increased risks of money laundering and terrorist financing.
Together with the banking sector, other non-banking financial sectors are also exposed to fraud risks, particularly the insurance sector – a less regulated and monitored by public authorities area in which standards of activity and prudential rules are less respected.
At the same time:· investigating bank frauds in the Republic of Moldova is slow, without clear treatment of various types of frauds in the banking system (money laundering, bad loans, distraction of money from the banking sector);· national authorities have concluded a series of agreements with various countries / international institutions that could facilitate the obtaining of relevant information for possible money recovery. The creation of the Criminal Assets Recovery Agency should have given impetus to the process of identifying and recovering fraudulent resources, but more than 7 months after its creation, it seems to be virtually inoperative;· the financial means extracted from the banking sector as a result of the “fraud of the century” are not recovered. Authorities create a false perception of recovery of the “billions”, invoking, in fact, the amounts collected from insolvency proceedings of the three bankrupt banks;· no investigations have been initiated and no decision has been taken against decision-makers who have facilitated the “fraud of the century” by changing the laws and taking decisions and those in charge to prevented this fraud;· the Kroll report remains neglected by the competent bank fraud investigation authorities, and the second Kroll report is on hold;· there are risks that due to lack of actions by the insolvency administrators delegated by the NBM, the prescription terms for loans granted to Shor Group companies (specified in the Kroll report) from the three banks involved will expire and the billions will not be recovered.
Restoring the credibility of financial and banking institutions depends on the successful implementation of the new legal framework in the field adopted at the insistence of international financial institutions in 2016. Transparency of shareholders and new models of corporate governance imposed on commercial banks could re-establish credibility, ensure transparency and predictability in their work.
In this context, the statement and recommendations of the EU-RM Parliamentary Association Committee of May 22, 2017 remain very current, through which the Committee:
- „- reminds of the high expectations of citizens regarding the judicial proceedings related to the banking fraud and of the need to bring all those responsible to justice;
- expresses therefore disappointment at the lack of progress in the prosecution of cases following the publication of the results of the first phase of the Kroll investigation;
- urges the relevant authorities to publish the Kroll report on the second- phase of investigation as soon as it is available;
- stresses that all trials should be held in line with international standards and should be transparent”.
 Legea Nr. 232 din 03.10.2016 privind redresarea şi rezoluţia băncilor, http://www.lex.justice.md/index.php?action=view&view=doc&lang=1&id=366942
 Legea Nr. 234 din 03.10.2016 cu privire la Depozitarul central unic al valorilor mobiliare http://lex.justice.md/index.php?action=view&view=doc&lang=1&id=366946
 http://www.parlament.md/Actualitate/Comunicatedepresa/tabid/90/ContentId/3091/Page/1/language/ro-RO/Default.aspx, http://www.europarl.europa.eu/cmsdata/119821/recommendations_4th_MD_PAC_22052017_en.pdf