Audit links local tycoon to $1bn Moldovan bank fraud

By bne IntelliNews May 5, 2015

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A report from international audit firm Kroll reveals a deliberate attempt to gain control of three Moldovan banks, and accuses businessman Ilan Shor of being behind a series of massive transfers worth almost €1bn that led to the banks’ near collapse in late 2014.

As of end 2014, the three banks - Banca Sociala, Banca de Economii and Unibank - had a combined loan exposure of almost MDL18mn (€897mn), over 10% of Moldova’s GDP, without any collateral, and the money is feared lost.

Moldovan parliament speaker Andrian Candu released the Kroll report to local media on May 4 after heavy public pressure for the report to be made public. The report, published on online daily Unimedia’s website, tracks the flow of money from the three banks, finding that between August 2012 and November 2014 the three banks were “subject to significant shareholder change, which had the effect of transferring ownership to a series of apparently unconnected individuals and entities”.

The Moldovan central bank placed the three banks, which together account for around 30% of the banking sector’s total assets, under special supervision in late 2014, citing unusually large transactions. According to Kroll, the transactions “on the whole had no sound economic rationale, and ultimately resulted in a such a significant deterioration in each of [the banks’] balance sheets that they were no longer viable as going concerns”.

The report adds that while it was not possible during the initial phase of the investigation to reconstruct the transactions and trace forensically the ultimate beneficiaries, “it is however clear that there appears to have been a deliberate plan to gain control of each of the banks”.

In addition, following the ownership changes, the three banks appear to have worked together to maximise their available liquidity and facilitate a “massive increase” in lending to Moldovan entities.

“While these entities appear unrelated, preliminary analysis shows they effectively form a group of related parties whose loan receipts from the banks were passed, through a complex web of transactions using predominantly UK limited partnerships with Latvian bank accounts, to pay down existing loan exposure at one or more of the banks,” the report says.

Research by Kroll and the Moldovan central bank finds that the transactions allegedly benefitted entities directly or indirectly connected to Shor, the head of Banca de Economii’s managing board, who is linked with Russian banks and investors. Its review of transactions at each of the three banks suggests “a deliberate intention to extract as much benefit as possible for entities connected to Mr Shor and to the detriment of the bank.”

The report also points to the “suspicious loss” of documents from the three banks just days before Banca de Economii was placed under central bank supervision. A van used to transport Banca de Economii files, operated by a company linked to Shor, was “allegedly stolen and later found burned out”.

Shor is currently under investigation in Moldova but no formal charges have been made against him. He was questioned by Moldovan prosecutors on March 19, but released without charge.

A spokesperson for the businessman confirmed to Realitatea TV on May 5 that Shor is currently in Moldova and will issue a comment after analysing the report.

Israel-born Shor was the heir to Miron Shor who died in 2005 after building up a business empire in Moldova starting with insurance and duty-free shops, and later diversifying into other sectors including pharmaceuticals and retail.

The report leaves open the question of whether Shor was allegedly working alone or with associates. According to speculation in the Moldovan press, local politicians from several political parties are also suspected of facilitating the frauds.

The Moldovan authorities have faced growing political pressure to reveal the contents of the report. A mass protest took place in Moldova’s capital Chisinau on May 3, with demonstrators demanding action on the bank frauds and the recovery of the money.

Before his decision to release the report, Candu said in April that the report would be passed to prosecutors for further investigation, and should not be made public. So far, parliamentary committee debates on the case have taken place behind closed doors.

The parliament will discuss the report drafted by Kroll in an open meeting on May 5, Candu announced, according to Unimedia. Representatives of civil society and the mass media will be invited to attend the discussions, he said.

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