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Economy

Kroll 2 report: Summary and Reactions

On 21 December 2017, the National Bank of Moldova published the summary of the investigation report made by Kroll and Steptoe&Johnson. The report, otherwise called “2nd Kroll report”, completes the 1st Kroll report on the loan exposure of the Three Moldovan banks (BEM, BS, Unibank) that were defrauded in 2012-2014.

The 2nd Report comes with a more detailed scheme of how the leading “Shor group” defrauded Banca de Economii, Banca Socială, and Unibank by directly participating in the administrative councils of these banks and by falsifying reports on bank liquidities. Moreover, Kroll revealed several laundering mechanisms that were used to channel the funds from the three banks to the destination accounts. Even if it mentions the name of Ilan Shor as one of the facilitators and beneficiaries of the banking frauds, the summary does not provide any other names in order not to impede the ongoing investigation and prosecution in some cases.

What 2nd Kroll report says

  • Control over the Moldovan banks, and not only the Three failed ones, was constantly the aim of several interest groups. Several shareholders took advantage of the poor evaluation of banks’ shares and some could acquire small portions of shares through proxies. In the case of the Three Banks, the so-called “Shor group” could take control by buying shares on the behalf of off-shore companies, thus hiding the origin of the funds;
  • The administration councils at the Three Moldovan Banks were acting in coordination, involving conflicts of interests and integrity lack in the bank governance process. At Banca de Economii, where the Moldovan Government was the main shareholder, the Government delegates were periodically not invited to the meeting of the administration council;
  • What Kroll continues to say in its 2nd report is that Ilan Shor and around 77 companies in his entourage are known to be the beneficiaries of the fraudulent loans given between 2011 and 2012:

    Source: bnm.md

  • The liquidity level at the Three Banks was maintained at acceptable levels with the help of resources coming from pensions and social security funds operated by the respective banks, with the help of loans given by the National Bank guaranteed by the Moldovan Government, but also with the help of fake deposits in Russian banks;
  • The summary shows that most of the defrauded funds were channeled through Latvian banks (otherwise called “Core Laundering Mechanism”) for mostly British off-shore companies.

    Source: bnm.md/ Kroll

    The Core Laundering Mechanism based in Latvia was either used for paying the loans back or to send the funds in different bank accounts in multiple jurisdictions such as Cyprus, China, Russia, Switzerland, USA or Hong Kong. Some banks in Moldova and Estonia were also used to launder money and disguise their origin.

    Source: bnm.md/ Kroll;

  • Since some of the loans, worth approximately 2 billion USD, were channeled back to the origin banks to create a good credit score, the net loss of the Three Banks between 2012 and 26 November 2014 is estimated at 600 million USD;
    Source: bnm.md/ Kroll
  • So far, the traces of only 50 million USD out of the total sum could be totally discovered;
  • Kroll and Steptoe&Johnson are planning to present a more detailed investigation in 2018 in Moldova;

Reactions

  • According to Expert-Grup, the 2nd Kroll report did not fully explain the role of the state guarantees issued in November 2014, but also the actions conducted by the Moldovan Government regarding the reimbursement for the clients of the Three Moldovan Banks. Moreover, multiple NGOs called on the Moldovan Government to abandon the initiative to decriminalize several economic crimes, including banking frauds, an action would impede the prosecution of those involved in the “Moldovan Grand Theft” and encourage new frauds in the area;
  • Ilan Shor, the main figure in the “Grand Theft”, announced that his lawyers filed in court against Kroll for defamation, conspiracy to injure by unlawful means and wrongful interference with his economic interests. According to Shor, the reports issued by Kroll do not reveal the real beneficiaries of the frauds;
  • Pavel Filip, Prime-Minister of Moldova: “If we had to publish all the names that are found in this report, I assure that 90% of the names are absolutely honest people, but that were simply part of this circle. These names cannot be made public”, claimed Moldova’s PM, promising that all the responsible persons would be prosecuted;
  • Maia Sandu, PAS leader, ex-Minister of Education in 2014, did not seem surprised that Kroll pointed out to Shor’s primary role in the banking frauds, but rather asked his case is slowed down by the Prosecution’s Office. Her party organized a flashmob asking for the restart of Shor’s case. In addition, Sandu stated that current Parliament speaker, Andrian Candu, was the main promoter of the state guarantees for the loans of the National Bank to the failing banks;
  • Andrian Candu, speaker of the Parliament and Economy Minister in 2014, is waiting for the Kroll experts to come in January 2018 in Moldova to coordinate the investigation of the banking frauds;
  • Iurie Leancă, PM in 2014, now appointed Deputy PM, says that he is the most interested in the results of the Kroll investigation, but rejects claims his Government rushed into offering the huge guarantees for BNM loans.

The reaction of the Moldovan people to this 2nd Kroll report is that of confusion: nothing much new was revealed and the main figure of the “Grand Theft” is only under judiciary control in a delayed case.

Currently studying International Relations at the University of Pécs, Hungary. Study focus: Transnistrian conflict settlement, Moldovan statehood, Moldovan democracy. Inquiries at [email protected]

Economy

Moldova Government increases guaranteed minimum wage to 2610 Lei ($157)

25 April 2018- The Government of Moldova adopted a decision to increase the guaranteed minimum wage in the real economy by 230 lei (approx. 14 USD) up to 2610 lei (approx. 157 USD). The change is expected to enter into force from 1 May 2018.

Thus, the workers in the real sectors of the economy will not receive less than 15,44 Moldovan lei (0,93 USD) for an hour of labor, compared to the current 14,09 lei- 2380 lei monthly.

In 2017, the prices increased by 6,6%, while the productivity growth rate was 3%- a 9,6% salary increase is put up.

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Economy

Moldova buys 69 Russian GAZ ambulances

24 April 2018- The Moldovan Center for Urgent Medical Assistance announced about the delivery of 10 ambulances bought last year from the Russian GAZ. Other 50 GAZ ambulances are expected to be delivered until the end of May.

The 69 ambulances will be distributed in 32 urgent medical centers, where the ambulances are 90% overused. The Center claims that the GAZ Sobol ambulances, costing 740 thousand lei each, comply with the international standards and the technical equipment allows a high level of medical assistance.

The seller of the ambulances was a Moldovan firm residing in Coșnița, Dubăsari district. According to Mold-Street, the ambulances were produced at the GAZ factory, which belongs to Basel group (Basic Element), controlled by the Russian oligarch Oleg Deripaska. The latter is subject to the US sanctions due to his alleged involvement in the President Trump campaign manager Paul Manafort’s collusion with Russian officials during the 2016 elections. There are also “allegations that Deripaska bribed a government official, ordered the murder of a businessman and had links to a Russian organized crime group” (NPR).

Some claim that this would mean that the Moldovan Government is a collaborator of Deripaska.

Facing criticisms about GAZ’s quality, State Secretary Boris Gîlcă declared that he was too skeptical about the quality, but then was later convinced that “things changed”:

“Things changed, there are quality cars, well equipped, at an extremely good price, the best price, which probably was the criteria for the listing”, says Gîlcă, quoted by Unimedia. Gîlcă says that only 60 ambulances were bought from the public listing, but then 9 were delivered as part of “very tough negotiations”.

For 2018, the Government of Moldova allocated 273 million lei for buying other 168 ambulances: 35 intensive therapy units and 133 regular ambulances.

In 2017, urgent medical assistance was offered to approximately 868 thousand people.

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Economy

Study: Corruption in Moldova’s public procurement yearly costs up to 3 billion Lei

Source: Iurie Morcotilo, Expert-Grup

11 April 2018- An analytical commentary by Iurie Morcotilo states that the corruption in public procurement costs Moldova up to 3 billion Lei (183,24 million USD).

The study is based on the official data on the estimated full cost of public procurement from 2008 till 2015. The main factors cited as causes stimulating corruption in public procurement are lack of transparency, the complexity of the procurement process, but also the misinterpretation of the public budget as something abstract, not as money from the taxpayers. The corruption in public procurements are believed to happen at different stages: planning, procurement launching, evaluation and contract awarding, contract implementation stage.

Though Morcotilo recognizes that quantifying corruption is hard in this field, the study views some indicators from Moldova’s ranking in the Global Competitiveness Report: embezzlement of public funds, favoritism in governmental decisions, informal bribes and payments, and inefficiency of public spending.

The costs of corruption in public procurement was also calculated based on the estimated international average of 20-25% of the total amount of public procurement. In Moldova’s case, the 25% quota was reasonably applied, even if the statistical data on public procurement are lacking (only big contracts are counted for stats). The study found that between 1,3% and 2,5% of Moldova’s GDP are lost to corruption in public procurement:

“Based on the available data and applying the 25% average percentage of the corruption cost in public procurement, it can be estimated that in 2015 this cost varied from MDL 1.6 billion to MDL 3 billion, which represents between 1.3% and 2.5% of GDP”, reads the study.

Of course, those are only monetary costs. Other consequences are:

  • long-term financial losses for the public budget;
  • negative impact on health and safety of population;
  • negative effects on competition.

The author opinionates that the corruption in public procurement can be reduced only by joint efforts of the authorities fighting corruption and those responsible for procurement management, but also by enhanced monitoring by citizens.

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