Moldova steps up a gear in $1bn bank fraud investigation

By bne IntelliNews May 26, 2015

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Prosecutors in Moldova will start investigations into top public officials in parliament, the ministry of finance and the central bank as part of a new criminal case opened in relation to a $1bn fraud involving the country's banking system, announced Moldovan prosecutor general, Corneliu Gurin, on May 25. Gurin, quoted by the online news service, said the investigations will cover a period of time beyond just the most recent developments.

Last year, in what some in Moldova are dubbing the crime of the century, around $1bn was taken out of the country’s banking system, given out in loans to companies linked to one of Moldova’s richest businessman, Ilan Shor, and then transferred into offshore accounts, according to an investigative report commissioned by the central bank and carried out by US audit firm Kroll. Shor has maintained his innocence and after being placed under house arrest earlier this month, announced that he was running for mayor of Orhei, a city 40km north of the capital. He has since been granted restricted movement for the election campaign, though he is forbidden from leaving the country.

The new investigations will focus on the role played by the state control bodies and by the state’s representatives in the banks’ management, and target those individuals who had not carried out their duties or failed to carry them out to a suitable degree, which led to massive losses for the state, Gurin explained. The prosecutors will also try to establish whether the state’s representatives had actively aided in the defrauding of the banks.

Around $1bn, equivalent to over 10% of Moldova’s GDP, was siphoned off from three banks – Banca Sociala, Banca de Economii (BEM) and Unibank – between 2012 and late 2014. The Moldovan central bank placed the three institutions, which together account for around 30% of the banking sector’s total assets, under special supervision in late 2014.

The Kroll report, published earlier in May, concluded that Shor was likely the main beneficiary of the fraud, but the report failed to address many Moldovans' concerns that those in positions of power were also involved. These new investigations may address some of those concerns. According to a bne IntelliNews investigation, Scottish shell companies used in the $1bn scam have links to a series of previous massive Moldovan bank frauds, suggesting that well-placed Moldovan insiders, who have been robbing the country for a decade, may in fact have directed the latest and largest scam.

Meanwhile it has been announced that non-performing loans (NPL) at the three troubled banks at the end of April had increased by 30% from the month before to MDL2.44bn (€122mn), according to calculations based on data released by the country’s central bank on May 22.

The average NPL ratio for the three banks hit 58.9% at the end of April, up from 43.6% a month earlier and 19.4% a year earlier. The NPL ratio for the rest of the banking system was 9.1% at the end of April, down from 10.6% a year earlier. Despite the high NPL ratios, the main risk for the banks is generated by their huge exposure to a single debtor with uncertain identity – Fortuna United LP, as identified by the Kroll report. The loans given out by the banks to companies belonging to the Shor Group were later sold on to Fortuna.

Shor claims that at the time the investors he represented took over the three banks in 2013 they were already plagued by a high volume of bad loans.

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