Last week, Renato Usatii released 60 more pages of the Kroll Report. Even though neither the Government nor the Kroll company have confirmed their authenticity, the pages offer more details and disaggregated data from the audit.

In a state where control, regulation, oversight authorities, and ultimately, justice institutions have paid disproportionate attention to the bank fraud, these materials are gaining public and civic attention.The financial and legal aspects of the bank fraud are not easily accessible to regular citizens, and the structure of the audit report does not facilitate an easy understanding of the bank fraud, mixing in million-dollar transfers with thousand dollar payments. Still, citizens can trace a red line through the story if they keep close attention to two points of reference: bank activities in November 2014 and the government bailout that followed shortly after.

The 2014 emergency government bailout of almost $900 million is not uncommon in international practice. However, in Moldova’s case, the later control, impact and recovery of these public funds differs. The Moldovan bailout comes in stark contrast to the complete recovery of public funds through the American example of the Troubled Asset Relief Program (TARP). The 2008 Emergency Economic Stabilization Act budgeted $700 billion for TARP. Only two years into the program, and the lawmakers reduced the budget to $475 million. In a total of six years, all public money was recovered. Moreover, the government obtained a $15 billion profit.

So what about the recovery of public funds in Moldova in the five years since the bank fraud? On 30 June 2018, the National Bank (BNM) announced that it has obtained 1.2 billion lei (over $68 million) from liquidating the assets of the bankrupt Banca de Economii (BEM), Banca Sociala (BS) and Unibank. But experts warn that these funds didn’t come from recovering assets in the bank fraud. In addition, there is an amount of goods and properties seized or frozen as a result of criminal cases for money laundering and fraud lawsuits, which also constitute an attempt at the recovery of public funds.

International practice shows that recovery of public funds used in corruption schemes is possible. Large amounts have been recovered even after much time has passed since the cases began. The Brazilian conglomerate Odebrecht is one such example. In 2016, they were part of a lawsuit for bribery and corruption; one of the largest cases in history, according to a University of  Columbia study. The company was active throughout South American countries, but it was Peru who made recovering public money at home and from foreign jurisdictions such as the U.S. and Switzerland possible. In 2017, the Peru Government issued an emergency decree to protect big infrastructure projects: the companies accused of corruption could not participate in public tenders, had their assets placed under sequestration, and their money could not be taken out of the country. These measures made it possible to later estimate and pay damages brought to the state.

The members of the Parliamentary Investigation Committee on the bank fraud could choose any amount between $3 billion and $900 million to start. Why those amounts? Three billion dollars is the amount of credits issued between 2012-2014 to the 77 Shor Group companies, investigated by Kroll. Nine hundred million is the amount of the government bail out that came to rescue the troubled banks without success, shortly followed by their impending bankruptcy. Setting a number to the final goal of recovering public funds would be useful for the inquiry, as well as good for the public interest. As of today, the extent of the bank fraud is unclear.

The newly released Kroll materials offer disaggregated data on persons and companies who have received bank transfers originating in the fraudulent funds. This beneficiary list is selectively detailed, offering information about high profile politicians and businessmen such as Ilan Shor, Vladimir Plahotniuc and Vlad Filat. Amounts of approximately $25 million per person are traced to each of them. In the context of a $3 billion fraud and a $900 million bailout, they seem to be grouped here by the fact that the beneficiaries were in high ranking positions. Many other beneficiaries are also listed, for example, 80 individuals from China. According to the Kroll company, Zhe Jiang Jiang and Xu Feng were also beneficiaries of the bank fraud alongside Shor, Plahotniuc and Filat, receiving amounts of $3 thousand and $2 thousand, respectively. To better understand the supposed Kroll beneficiary lists, here is a break down of the materials released to the public.

The first part of the published pages analyze transfers totaling to $80 million to 3 political or business leaders and the companies or persons affiliated with them. Kroll auditors analyzed at length the connections between companies and the people who received transfers of fraudulent funds, relying on investigation articles and social media posts of well known figures from investigative publications, including ZdG. For example, Kroll cites over 30 press articles when establishing links between companies, properties and Vlad Plahotniuc.

The second part of the recently published Kroll materials continues listing beneficiaries of fraudulent transfers. However, there are less details, social media photographs and media investigations, in part because these bank accounts are in foreign jurisdictions. However, it is curious that an international company like Kroll did not disaggregate large amounts, such as the $302 million transferred to Latvia, given that it is an E.U. country and subject to strict international regulations on money laundering. In these cases, the auditors indicated that they did not have access to the necessary data to analyze the transfers.

Another $157 million that was transferred to accounts in the Moldovan banks Victoriabank and Moldincombank, were detailed to a certain degree. The auditors indicated that the funds did not reach their final beneficiaries but were recirculated in a fraudulent scheme. A large part of the funds was used to pay the loans issued to other companies ($87 million), many of which were part of the Shor Group. Commenting on the detailed tracing analysis, Kroll stated that it remains unclear how much of the funds were used to finance existing businesses and how much was used to hide an earlier fraud masked by loans. However, this part of the funds is important in the investigation of the fraud, as Shor Group companies have the role of both the source of fraudulent funds through loans, and as beneficiary accounts.

Comparing the two types of beneficiaries described above, it is important to break down the information in the audit report. Kroll offers information about those who took out money from the Moldovan banks in illegal ways, in November 2014 and beyond. The official Kroll 2 Report published on July 4 contains links between the 77 Shor Group companies and the bank shareholders. On the other hand, the audit offers information about the final beneficiaries of bank transfers, and in cases where these could not be identified, Kroll describes the intermediary money laundering mechanisms. Money laundering is a criminal activity that can be sanctioned through international mechanisms, in multiple jurisdictions. The primary illegalities behind money laundering can include corruption acts, fraud and theft as a means of obtaining the funds, and these were carried out inside the country.

The money taken out of Moldova has circulated around the world through ingenious schemes, including in-country returns. But the beneficiaries of these schemes don’t have to be offshore accounts on tropical islands; the funds could be recirculated in corruption schemes inside the country, through public procurement projects, privatizations, public private partnerships, party financing, economic monopoly, and bank loans. Private partners of the government need access to funds to realize large investment projects in infrastructure or public services. And this is the line beyond which an audit report on bank transfers to Shor Group companies cannot cross.

Multiple illegalities have been committed in November 2014, including through the conflict of interest between bank shareholders and companies receiving large loans; fictitious descriptions of bank transfers and fraudulent bank loan documentation. Given that many of the loan documents were destroyed in a suspicious fire, and the banks that were recapitalized from public funds later filed for bankruptcy, more questions on the credits arise. Were those credits non-performing, in bank-speak, or fictitious altogether? Kroll confirms that the money laundering schemes hide the distribution of funds in accounts, including their return to Moldova to pay back other credits. Such practices could be supporting the functioning of the public and private sectors in the Republic of Moldova. 

READ MORE: READING THE KROLL 2 REPORT