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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

A Chinese company wants to expand in the Republic of Moldova

The Chinese company MCC International Incorporation Ltd. plans to launch investment projects in the Republic of Moldova. Priority projects for the Chinese company would be to modernize and develop road infrastructure, digital education, renewable energy, waste management, and drinking water resources.

Entrepreneur Zhang Ye, who is also vice president of the company, said that the project for building national roads and a photovoltaic park could be started by the end of this year or early 2019.

MCC International Incorporation Ltd. is the world’s top 10 contracting company, listed on Hong Kong and Shanghai stock exchanges, with over 75 branches and subsidiaries abroad and over 120,000 employees.

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Economy

For the first time, Moldovan apples will be exported to India

Apples from the Republic of Moldova will be exported to one of the largest markets in the world – India. Moreover, Moldovan apples will soon be exported to Israel. The first batch – a sample of 100 kg will be delivered for the necessary checks. At the same time, from October 1st, prosperous plums from the Republic of Moldova will be exported to Canada, a Government press release announced.

Fresh vegetables and vegetables from the Republic of Moldova are delivered annually in about 80 countries – for example, Moldovan grapes are exported to 20 states of the world, and plums – in 16 states.

Most Moldovan products are currently on the European Union market, with large increases in the markets in Germany, Italy, Portugal, the Baltic countries, the Czech Republic, Bosnia and Herzegovina, and Romania.

Thus, it is being examined whether there could be a possibility of exporting indigenous products to Vietnam, Egypt, Qatar, Bangladesh, and Indonesia.

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Economy

Getting citizenship for investments: is it good or bad?

Granting citizenship to the people having invested into the Moldovan economy is a form of passively capitalizing on Moldova’s status as an internationally recognized country. At the same time, luring investors through international forums and exhibitions, what does have a right to exist, has turned up being not so efficient and may not be viewed as an exclusive tool to interact with and attract foreign investments.

The Moldovan economy goes on feeding on remittances, as the exports – although up 38% (in January-February 2018) – are not capable though to unleash the overgrowth badly needed for the essential improvement of the living standard. Under these circumstances is or is not the program of granting citizenship for investments the panacea, the element able to miraculously boost the economic growth? Certainly, the answer is ‘no.’ The program can yield contingent effects, as raising the amount of direct foreign investment, as a substantial increase of the financial flows to Moldova and implicitly shaping the investment climate so much talked about for so long.

The Economy Ministry assesses an investment flow of about 1.3 bn euros, a difficult thing to assess as the program is launched for the first time and there is no any market response as to the Moldovan passport yet. Still there is a steady demand for such services on the international market: businesspeople having to migrate because of various reasons ask for a second citizenship. For example, according to a study carried out by CS Global Partners in the UK in 2017, about 89% of the British would like having a second citizenship, and about 34% made the effort to find out how such a one may be acquired.

Most countries do have programs of gaining investor visas or citizenship, what’s more these people are sought for in a tough luring competition. If suich countries as the USA, the UK or Switzerland but display the eligibility conditions, in Moldova’s case, this strategy won’t work because of competitive attractiveness of the Moldovan passport compared to the British or American ones, for instance. Hiring a company specialized in providing such services as Henley&Partners is highly increases the chances of attaining the program goals, given Henley&Partners’ experience in providing a wide range of services for potential applicants, but also its massive database of clients and potential applicants.

The risks implied and the critique targeting such programs of gaining citizenship through investments – hinting it’s an illegal scheme of money laundering – are detached from the real context such programs unfold in. First, these services are provided by companies often related to renowned consulting firms, which would incur reputational risks and would be liable to criminal investigation in many countries. Second, gaining one’s citizenship is a public act, your name becomes public what is not proper for “the strategies” used to launder money, which need interposed persons, shell companies and fake identities for short times. Third, as the campaign is going on at the national scale, were it a money laundering scheme, it would have immediately draw the attention of Moldova’s development partners: the USA, the EU, the IMF and other international financial entities.

And last but not least, all the applicants will be checked up by law-enforcing bodies and the Interpol, as the law provides for.

Roman Chircă, director of Market Economy Institute

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