Politicians and State Dignitaries Involved in Billion-Dollar Bank Fraud, Commission Reports

This week, Moldova’s Parliamentary Commission of Inquiry debated their report on the investigation into the billion-dollar bank fraud of 2014 in Parliament. The deputies recommended that the President of the Parliament dismiss two deputy governors of the National Bank in connection with the fraud, and that the Anti-Corruption Prosecutor’s Office examine the criminal actions of the leadership of the Leancă Government  and the National Bank at that time.

On October 17, the Parliamentary Commission of Inquiry made public its report explaining the circumstances of the devaluation of the banking system in Moldova and the investigation into the billion-dollar bank fraud known as the “theft of the century.” 

Although the theft of the billion started in 2012, the scheme was not revealed until 2014 when three Moldovan banks, Banca Socială, Banca de Economii (BEM) and Unibank went bankrupt after issuing enormous sums to companies from the Shor Group through non-performing loans. These companies, linked to Moldovan businessman and politician Ilan Shor, became the beneficiaries of around $2.9 billion in fraudulent loans. 

The bank fraud became infamous as the “stolen billion” that robbed Moldova of just over 12 percent of its GDP, leading to a deterioration in the financial and economic sectors. The Moldovan Leu saw a 42 percent depreciation in the five months that followed the bank fraud, and the country experienced higher inflation. What’s more, when the banks involved went under, the Moldovan Government offered two bailouts totalling $900 million, which were transformed into internal debt to cover up the fraud and left taxpayers to foot the bill – with interest. 

According to the Commission’s report, the process of devaluing the banking system was an operation carried out in three stages, which was “well prepared over time and coordinated with politicians and state dignitaries.”

ZdG breaks down the Commission of Inquiry’s report, starting from the 2011 “raider attacks” that allowed for the illegal takeover of a key Moldovan bank and ending with the government bail-outs that the country’s citizens are still paying for.

Phase 1. Raider attacks 

As early as 2011, Moldova’s future top oligarch Vlad Plahotniuc and influential businessman and former parliamentary deputy Veaceslav Platon already had plans for the takeover of one of Moldova’s main assets: the then state owned Banca de Economii (BEM). And according to the Parliamentary Commission of Inquiry, public institutions such as the National Bank of Moldova (BNM), the National Commission on the Financial Market, and the courts colluded to aid these private efforts.

The Inquiry Commission’s report starts with the 2011 “raider attacks” (illegal takeovers often facilitated by corrupt court decisions), which resulted in Rietel Limited – an offshore company that the National Anti-Corruption Center claims is linked to Plahotniuc – illegally taking over 18.5 percent of BEM shares through alleged loans. Combined with the shares belonging to another Plahotniuc-controlled company, ”Sisteme Informationale,” he came to control 25 percent of BEM shares. 

Shortly after gaining “illicit ownership” of BEM shares, Plahotniuc sold a package of major financial assets he held in Moldova to Veaceslav Platon. This included shares at Victoriabank and, through a secret transaction, 28 percent of the shares at BEM.

Other entities subsequently took over these BEM shares, including two companies listed in the “Russian Laundromat” scheme. Constituting the biggest money laundering case in Eastern Europe’s history, the “Russian Laundromat” saw between $20 and $80 billion taken from Russia and laundered through countries like Moldova and Latvia.  

Meanwhile, through various manipulations, Platon came to control over 39 percent of BEM shares. 

While the shares kept moving to other owners, some institutions in the state still put up a resistance to the original “raider attacks” and subsequent hand over transactions. This came primarily from the Ministry of Finance, which also represented the interests of the majority BEM shareholder – the Moldovan state. During this period, the Government still had plans to privatize BEM and thus sell its shares and was consulting on these plans with the International Monetary Fund (IMF) and the World Bank.  

Phase 2. Shor’s takeover of BEM, Banca Socială and Unibank

The year 2012 came with a reverse transaction of BEM shares, sold back from Platon linked entities to Plahotniuc, through businessman Ilan Shor. From 2012 to 2013, Shor had been piece-meal taking control of shares at three of Moldova’s banks: Banca de Economii, Unibank and Banca Socială. 

Between November 7, 2012 – June 18, 2013, 39 percent of BEM’s shares, belonging to seven shareholders affiliated with Veaceslav Platon, were transferred to several companies under Shor’s control.

Then in August 2012, all of Unibank shares were sold to new shareholders affiliated with Shor. According to the Kroll report, the Shor Group companies pre-arranged this transaction, using numerous intermediary accounts to merge and stratify funds in order to conceal their true origins. And the troublesome origin of the funds is credits to companies linked to new shareholders. 

The Prosecutor General’s Office is currently investigating the acquisition of Unibank shares, which includes looking into the possible involvement of members of the current Parliament. 

A group of individuals – residents of Ukraine – later took over the controlling stake of Moldova’s Banca Socială in May 2013.

The Kroll report details the circulation of money from loans through offshore companies, masking its origins and then being used to purchase shares, or repay other outstanding loans. 

However, the Commission came to question Shor’s ability to buy and consolidate his position on the financial market on his own, and made claims regarding Plahotniuc’s involvement and indirect control of Shor Group companies.

What follows is a scenario in which the state loses its majority share package in BEM, as the new owners decide to recapitalize the Bank while driving its value down through fake media scares and fraudulent management. 

Although the Government was still fighting for a transparent privatization at a later time and considering the need to continue upping its investment in this asset, it eventually decided against this at the recommendation of both the IMF and the World Bank. In August 2013, the Government decided to step aside and watch the minority shareholders up their stakes, and thus, the Government lost its majority stake in the Bank. 

As a result, control over BEM switched to minority ownership with illegal roots. 

Phase 3. Fraudulent credits and Government Bail-out

While most state authorities and institutions were on stand-by throughout 2013-2014, in the fall of 2014 they acted decisively. The government authorities moved to make legal amendments and issue decrees, coinciding with large movements of capital and changes of loan exposure and foreign exchange exposure in the banking system, during the month of November. 

The Leancă Government amended laws that allowed for a faster government bail-out in September, which included excluding Parliament from the bail-out procedure. 

On November 13, 2014, the Government approved a secret decree on the bail-out, in the form of an “emergency government credit” of nearly $457 million (9.5 billion lei). In doing so, the Government broke the law, because it did not announce the appearance or threat of an impending financial crisis. 

Although the National Council for Financial Stability stated the danger of such a crisis appearing and recommended the emergency bail-out during a secret meeting on November 7, this institution has only a consultative role and is not responsible for identifying the imminent or actual presence of a financial crisis.

What’s more, while introducing the bail-out, the Government did not discuss the introduction of special administration at the banks, which allowed for a period of even more bank fraud until the introduction of the special administration on the critical days of November 27 and 28. 

The bail-out was also approved without making the return of financial means (physical persons holding deposits, legal entities, or inter-bank placements) a clear priority. 

According to the report, the bank fraud reached its culmination point in November 2014 when “all three banks under examination aimed to concentrate all financial resources for their subsequent withdrawal from the banks.” 

The Commision also investigated several possible totals to establish the amount of money stolen during the bank fraud. 

According to estimates from the American investigative company Kroll, from November 1-26, 2014, companies in the Shor Group were granted new loans amounting to $1 billion, mainly from BEM and Banca Socială. However, the Prosecutor General’s Office estimates this amount as closer to $720 million (12.5 billion lei).

Meanwhile, according to BNM, from November 7 to November 27, 2014, the three “bankrupt” banks continued to grant loans amounting to nearly $1.46 billion (25.5 billion lei) to legal entities.

Combining information from the Kroll Reports and the Prosecutor General’s Office, the Commision of Inquiry concluded that the BEM–Banca Sociala loan transfer was fictitious. By November 25, BEM already had no liquid assets, and Banca Sociala had falsified information. 

However, the Commission also stated that just as the Government was deciding to grant nearly $547 million in emergency credits to bail-out the troubled banks, the failure to implement a special government administration allowed the banks to siphon colossal sums from Moldova’s banking system. 

As such, the Commission concluded that both the Leancă Government and the leadership of Moldova’s National Bank were acting in bad faith, resulting in severe negligence or even abuse of office. 

The Commission’s main suspects are the then Prime Minister Iurie Leancă and the former Minister of Economy Valeriu Lazar. 

The Anti-Corruption Prosecution has already opened a case on severe negligence and abuse of office. This is in addition to a criminal case opened on August 9, on the alleged existence of a criminal group that collectively orchestrated the bank fraud. 

This case is the first of its kind in the five years since the fraud took place, due to the failure of the previous Democratic Party Government (led by Vlad Plahotniuc himself) to investigate the scheme. 

While the majority of the bailout went to BEM, the Commission found that the bank used 64 percent of the first bailout to cover inter-bank loans, while the rest went to legal entities. Only 1 percent was used to cover personal deposits.

The Commission also noted that while the Kroll report identified the criminal groups of Plahotniuc, Shor and former Prime Minister Vlad Filat as main beneficiaries of the banking scheme, the Prosecutor General’s Office (which was under Plahotiuc’s control until his Government lost power in June 2019) references a different group related to Platon, in addition to Shor and Filat. 

Commission recommendations

The Commission of Inquiry recommends that the President of the Parliament dismiss the two deputy governors of the National Back of Moldova (BNM). Meanwhile the deputies are appealing to the Government and BNM to declassify, publish and examine all the materials related to the devaluation of the banking system and to initiate agreements with all the countries and offshore areas involved on the exchange of tax information.

In turn, the Prosecutor General’s Office has been asked to examine the reasons why from 2015 to 2019 the Anti-Corruption Prosecutor’s Office delayed procedures that would have enabled an investigation into the devaluation of the banking system and the bank fraud, including its failure to intensify collaboration with the special services of other countries.

BNM Deputy Governor Ion Sturza claimed that both him and his fellow Deputy Governor Aureliu Cincilei were appointed to their positions on July 12, 2013, when the situation at the three banks, Banca de Economii, Banca Socială and Unibank, was already very serious. Sturza also claims that from that period forward – including November 2014 – neither of them were in charge of banking supervision.

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