Romania corruption scandals ensnare Ericsson, SocGen

By bne IntelliNews November 7, 2012

Bogdan Preda in Bucharest -

Two corruption scandals involving bribery and the embezzlement of tens of millions of euros have erupted in Romania in less than a week. One involves the former country manager of Swedish telecommunications giant Ericsson, and the other includes the vice president of France's Societe Generale local subsidiary BRD, one of at least 33 other suspects.

The case involving Ericsson, which has already triggered a hearing by a Swedish court of the company's former country manager Thomas Lundin, traces some $7m that allegedly ended up in the pockets of yet-unknown Romanian politicians back in 2003 over the awarding of the "112" national emergency assistance service to the Swedish company. At that time, the country was governed by the Social Democrats and the prime minister was Adrian Nastase, who is now serving a two-year prison sentence on charges of illegal party funding.

The other case is about loans totaling some €22m reportedly disbursed by some of the country's biggest banks against forged documents since 2010. Besides the VP of SocGen's Romanian BRD, Claudiu Cercel, the case involves another at least 30 people, such as Economy Ministry officials, a former Securitate communist secret police counter-intelligence general, plus an alleged ring leader and his accomplices. Anti-organised crime prosecutors have been interviewing more than 100 people since the end of last week and decided to take 33 of them into custody, including BRD-SocGen's Cercel, whom they later released but are continuing to investigate, along with others such as Aurel Saramet, head of the country's fund that guarantees loans for small and medium-sized enterprises.

The two cases are very different in terms of the periods they occurred in, yet similar in the sense that they appear to involve corrupt government officials on all levels, and that both resurfaced just days apart from each other and about a month ahead of parliamentary elections in Romania.

Loans scam

Never in the post-communist transition history of Romania has the country seen so many people brought in for criminal questioning linked to bank frauds. Prosecutors started their investigations based on evidence from phone tapping and recordings of meetings between bankers and others involved in supplying falsified documents to get as many as 40 loans from 16 banks across the country, and statements from clerks familiar with the cases, Romanian newswires Mediafax and HotNews reported. Romania's central bank says the losses by banks have been entirely covered.

Retired counter-intelligence general, Dragos Diaconescu, the alleged ring leader Daniel Ruse and some of their alleged accomplices have been put under preventive arrest. To one who knows how slowly things in Romania usually work when it comes to taking action against dozens of executives or state officials at once, this is a first. Further, detaining for questioning the VP of the country's second-biggest bank by assets, one of the country's most respected bankers, while at the same also accusing him of being among the main people of having backed the scam and still investigating him at large is also strange.

Romania already suffered a notorious series of bankruptcies of some of its biggest post-communist banks back in the early and mid-1990s; banks such as Bancorex, Banca Agricola, Dacia Felix Bank and Columna Bank are but just a few examples whose defrauding cost taxpayers a total of about $3bn back then. Even during those times no one saw 33 people being detained at once.

In a normal country such arrests occur regardless of the usual political cycle. However, in Romania such frauds usually start to be unearthed before major political battles, as will be the case at the beginning of December, when the country will hold parliamentary elections, in which the governing alliance between the Social Democrats and the National Liberals is predicted to win most seats against the Alliance for the Right Romania, which is supported by President Traian Basescu.

Calling up a bribe

The case involving $7m in bribes that Ericsson allegedly paid Romanian politicians for the awarding of the €40m national emergency service system contract hit the headlines on November 6, following an investigation by the Rise Project, a investigative journalistic website, which was also published by HotNews.

The Rise Project obtained documents from a Swedish arbitration court that conducted a hearing into Thomas Lundin, whom Ericsson has accused of embezzling funds during his time as country manager in Romania in the early 2000s. Lundin denies having pocketed the money and claims the company's board in Romania knew about the bribes paid to politicians to facilitate the growing of its business.

Simultaneously, Cristian Sima - a broker and owner of private investment company WBS Holding, who became a fugitive in October after making bad investments and losing the money of some of Romania's most influential politicians, bankers, fashion designers and even journalists - resurfaced in Iceland and confirmed Lundin's story in a televised interview with Kastljos in Reykjavik. Sima specialized in investments on the international forex and derivatives markets via his British Virgin Islands-registered company.

Sima confirmed that Lundin was a managing partner in his company and revealed bribes were paid to Romanian politicians via the accounts of Romanian journalist Bogdan Chirieac at WBS Holding. Back in Romania, Chirieac denied any involvement and said he would sue Sima for making false statements. "I can prove that Ericsson sent money to Bogdan Chirieac and that Bogdan Chirieac sent the money to some other people," Sima said.

Sima also said in the interview that he fled to Iceland because he fears retaliation by businessmen and politicians who are after him because he lost their money or because he's holding information about their business dealings. He said bribery wasn't limited to Ericsson, but also to scores of other foreign businesses in Romania, such as pharmaceutical companies. He refused to name them when asked during the televised interview.

Why all of this now?

Observed from abroad, these two corruption cases that have erupted can be seen as positive signs of a society and a system that is starting to heal, possibly under pressure from the EU. Another explanation is that Romania's new government is trying to show that it's finally cracking down on corruption. Unfortunately, the likelihood is that neither of these assumptions are correct and it's going to be very difficult to determine what exactly triggered such actions.

Based on experience, almost each and every election in Romania in recent years has seen the dirtiest of weapons put into work. And since the upcoming legislative elections will likely mean a radical change of political regime for the next four years to follow, the battle is fiercer than ever before.

There could be another element on top of all this. Given the global economic troubles and Romania's lack of attracting and keeping foreign investment, the money that was sloshing around until a few years ago is becoming scarcer. That means less money for the same number of bribe-takers. Further, now that the political landscape is about to change, some politicians are resorting to igniting battles like these to try and preserve momentum and advantages.

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