Controversial oligarch retains political power in new Moldovan govt

By bne IntelliNews May 31, 2013

Graham Stack in Kyiv -

Moldova's richest man Vlad Plahotniuc, who has been linked in court documents to dodgy activities at the country's banks, has retained his power base in a new government coalition formed May 30, just as the European Bank for Reconstruction and Development (EBRD) made fresh accusations of shareholder illegal corporate raids on the country's largest bank.

Moldova's Liberal Democratic Party, the Democratic Party and a splinter group from the Liberal Party have signed up to "a pro-European coalition" that will form a new government, after the previous coalition collapsed on March 8. Iurie Leanca, a Liberal Democrat politician, will be prime minister. Former PM Vlad Filat, leader of the Liberal Democrats, the largest party in the coalition, had been banned from serving again as premier by Moldova's Constitutional Court. The coalition will now have a wafer-thin majority of 53 mandates in the 101-member unicameral parliament.

The new coalition government will be seen as a victory for controversial oligarch Vladimir Plahotniuc, who funds and runs the Democratic Party. Only weeks ago, he and his party were at loggerheads with Filat and the Liberal Democrats, with mutual accusations of corruption escalating into raids by competing law enforcement organs. This ultimately led to the collapse of the government in March, leaving parties scrabbling around for new partners to try to form a government.

However, Filat apparently failed to find any alternative to a coalition with Plahnotniuc's Democratic Party, after flirting with idea of a minority government. Now Plahotniuc's Democrat Party seems set to retain control of the economic block in the government - the ministries for transport, telecommunications and construction, and the post of deputy prime minister for economy - the crucial offices of prosecutor general and anti-corruption prosecutor, as well as holding influence over the courts and central bank. Plahotniuc's opponents say he has used his political power ruthlessly for his own ends, in addition to the power he derives from his ownership of two TV channels and immense financial resources.

According to Nicu Popescu, foreign policy advisor to the prime minister, the big plus to the new coalition is that political stability has returned. "After five months of infighting, the government can return to the work of reforms moving towards an association agreement with the European Union," he tells bne. "Hopefully there will also be a de-politicisation of law enforcement and that institutions intended to combat corruption will start to act independently of politicians."

Bank holdup

However events parallel to the announcement of the new government cast doubt on any change for the better.

On May 28, the country's largest bank Moldova Agroindbank (MAIB) and the EBRD, which uses the bank to funnel project funding, levelled fresh accusations of dirty dealings in the country's banking sector. MAIB declared in a press release that, starting February 2013, the bank, its organs and shareholders have become the target of new fraudulent actions, "backed by individuals who hold positions of responsibility in the state (administrative and judiciary)... The scale and odious nature of these fraudulent actions are sufficient to undermine the financial stability of the bank and of the country."

Moldova's banking sector has been rocked by a series of such illegal corporate raids since 2011. Such an attack usually entails transfer of the ownership of shares without knowledge of the original owners to shell companies abroad, by means of legal skulduggery such as crooked court decisions and share depository manipulations.

MAIB accounts for around 20% of Moldova's banking assets, lending and deposits. It is the main recipient of EBRD funding in Moldova, with a minority stake held by a pool of Slovenian investors since 2006 (bank management hold 33%, portfolio investors 23%, private individuals 11% and treasury stock 7%).

The National Bank of Moldova shed more light on what had happened: in three successive waves in late March, mid-April and mid-May, a total of 24.85% of MAIB's shares had mysteriously changed hands, including May 14-18 the 18.2% stake held by a pool of foreign investors linked to Slovenia's Factorbank, the largest foreign investment in Moldova's banking system to date. Seven foreign companies registered in the UK, Cyprus and Latvia acquired the shares, and since each packet was under the 5% threshold and no common owner of the acquiring foreign companies declared, there was no application made for central bank approval of the transaction.

The exact mechanics of the transfer of shares are not clear, but MAIB is blaming a share depository that was implicated in a previous raider attack, that time on Victoriabank, having illegally transferred ownership of the shares. "If sufficient evidence points to a significant stake in the bank having been acquired (by one party), we will suspend the rights of the shareholders," the National Bank promised.

But the National Bank has done little in previous instances to prevent such attacks. Already in late April, the EBRD wrote to Moldovan authorities warning of the ongoing machinations, according to an EBRD letter leaked to media, authenticity of which was confirmed to bne. In the letter, the EBRD noted the "suspicious nature" of the transactions, saying they looked like a repeat of an attempted expropriation of MAIB shareholders in 2011. "Moldova-Agroindbank is our largest partner bank in Moldova, and we are monitoring the situation very closely," the EBRD tells bne.

That 2011 raid on the MAIB's shareholders was at the time beaten back by the combined efforts of the European diplomatic community, and finally reversed by a Moldovan Supreme Court decision. But this time round, the EBRD's warning to Moldova in April was apparently not enough to prevent the attacks continuing in May.

The attack on MAIB in 2011 was in fact the only such corporate raid in Moldova's financial sector to have been reversed to date. The expropriation of stakes at other banks and insurance companies proved successful. A court case brought in London by apparently expropriated shareholders in Victoriabank, businessmen Victor and Viorel Topa, revealed that their stake in the bank had been transferred to a UK company, the owner of which was none other than Vladimir Plahotniuc, according to a court discovery order.

Plahotniuc's press secretary earlier denied to bne any connection to the "raid" and said the documents produced by the discovery order in London had been forged.

According to the Topa brothers, there were subsequently large capital outflows from Victoriabank in the form of tens of millions of dollars worth of loans made to offshores. In late 2012, the International Monetary Fund (IMF) expressed alarm at the situation in another bank targeted by corporate raiders, state savings bank Banca de Economii. According to the IMF and independent auditors, tens of millions of dollars in unrecoverable loans made to offshores had brought the bank to the brink of collapse. The political crisis has paralysed attempts to recapitalise the bank.


Plahotniuc's role as kingmaker in the governing coalition left then-PM Vlad Filat powerless to stop the raiding of the country's banks. Only in early 2013 did Filat brave the collapse of the coalition to stop the oligarch's alleged shenanigans, when he used a scandal around a New Year's shooting party where a man died to remove Plahotniuc placemen like the prosecutor general, Valeriu Zubco, and the subsequent arrest of the former CEO of Banca de Economii. A temporary alliance between Filat's Liberal Democrat Party and the opposition Communist Party abolished Plahotniuc's post of first deputy speaker.

But Plahotniuc fought back hard: the Anti-Corruption Office raised corruption allegations against Filat and his party colleagues, and the coalition collapsed weeks before it was due to sign a breakthrough Association Agreement with the EU, with the government resigning on March 8 after a vote of no-confidence in the parliament on March 5.

In April, in a bid to stave off pre-term elections, Filat attempted to renew the alliance with Plahotniuc's Democratic Party, again conceding control to Plahotniuc of the crucial Prosecutor General and Anti-Corruption posts. But making a mockery of such concessions, the Constitutional Court ruled April 22 that Filat himself could not return as prime minister, due to the allegations of corruption against his government raised by the Anti-Corruption Office, a decision strongly favourable to Plahotniuc.

Now Plahotniuc seems to have come out of the power struggle stronger than ever - and the litmus test of his new power may be whether the corporate raids on MAIB succeeds this time, where it was reversed in 2011. "The raider attacks are an attempt to seize and concentrate property. The next step will to legitimate it. It is a real risk not only for the market economy, but also for democracy," Tatyana Laryshin of Moldovan think-tank Viitorul tells bne.

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