Moldova’s central bank announced on May 19 it has fined five former members of themanaging board of Banca Sociala, one of the three banks under liquidation after its involvement in a $1bn fraud.
The three banks involved in the frauds received MDL13.6bn (€610mn) of aid - equivalent to 11% of Moldova’s GDP - from the central bank with state guarantees in 2014 and 2015. The central bank and the government have signed a memorandum of understanding on the conversion of the emergency aid extended to the three troubled banks into government bonds, but no further steps have been taken yet.
The five former managers subject to the decision are Natalia Rahuba, Sergiu Albot, Valentin Cunev, Leontie Suholitco and Vladimir Novosadiuc. The monetary authority set the maximum fine prescribed by law, which is 10 average salaries in the financial sector.
The fines do not exclude the application of other sanctions according to the law, particularly criminal sanctions should evidence of crimes be uncovered, the central bank said.
The violations are related primarily to the classification and inadequate assessment of loans granted, engaging in manipulation, non-compliance with the limits and requirements on risk concentration (exposure), engaging in risky operations and doubtful operations, non-compliance with the requirements on preparation of financial statements and the reports for prudential purposes and the submission to the National Bank of reports with erroneous prudential data.
At the same time, the central bank stressed that the maximum amount of the fine prescribed by law is not exactly proportional to the seriousness of the infringements committed and the damage caused to Banca Sociala. As a result, the central bank plans to press for changes to the legislation to tighten the sanctions applicable to bank administrators.
The frauds are the most important of the three constraints to further growth in Moldova. Direct costs are generated by the transfer of the losses from the frauds to the public debt. Indirect effects are seen in the disruption of external financing.
The government has already estimated the cost of the losses generated by the bank frauds, to be paid from the public budget, at MDL1bn per year (0.9% of GDP at this moment) over the next 25 years.
A large amount of money placed by Banca de Economii a Moldovei (BEM) savings bank at Banca Sociala is thought to have been further lent to firms connected to the Shor Group, which was believed to be behind the large-scale banking frauds committed in Moldova in 2014. Banca Sociala’s claims against the Shor Group were sold on to a limited liability company registered in the UK.
The report on the frauds by consultancy Kroll says Banca Sociala extended MDL13.7bn worth of loans to several Moldovan companies within the Shor Group on November 25-26, 2014. The loans were extended mainly from money borrowed from the other two banks involved in the fraud - BEM and Unibank. The money borrowed by the Moldovan firms was then converted to foreign currency and immediately transferred to other Shor Group firms outside Moldova.
The portfolio of loans owned by Banca Sociala as later sold to the UK registered limited liability firm Fortuna United for MDL18.4bn following a decision made at a shareholders’ meeting held on November 26, 2014 in Ukraine. The value of the deal includes future interest expected from the recipients of the loans, which is not typical for the loan sale contracts. There are legal provisions to deem the meeting - and therefore the transfer - illegal, Kroll stressed.
In its balance sheet, before its liquidation, Banca Sociala showed the MDL18.4bn as “other assets” or “Fortuna”, as in the detailed financial reports presented by Kroll.
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