Where has Moldova’s money gone and why doesn’t the West care?

Little room is left for cheer in Moldova, when the country is missing $1 billion from its public budget. The sum amounts to 12% of the national GDP. This season’s festive greeting is ‘Return The Stolen Billion’, flagged up by thousands of protesters on the streets of the capital. With an average salary of $250 per month, Moldovans have been left to foot the bill.

Moldova has operated as a Laundromat state since 2010. The poorest country in Europe remains a key pawn and facilitator in the largest money laundering operation on the continent. $20 billion passed from Russia to the West, through offshore companies based in the UK. The complex web of beneficiaries previously involved corrupt politicians, judges, mafia and even the Russian President’s cousin, Igor Putin.

The recent billion-dollar theft is the cherry on top of layers of shadow transactions. Investigations point to Vladimir Plahotniuc, Moldova’s wealthiest oligarch and key orchestrator behind the scheme, who remains in charge of policing and justice institutions in the country. The Kroll report also lists Ilan Shor, a young businessman, as chief suspect in the embezzlement. Following public allegations of a $250 million bribe of former Prime Minister Vlad Filat, Shor won mayoral elections in his local town of Orhei with 62%. Should the accusations of bribery prove correct, why Shor remains in office and Vlad Filat sits in jail remains unclear.

The scheme is too complex for Moldovan intelligence to crack down on. The Kroll report points to three banks, which had to be bailed by the government: Unibank, Banca Sociala and Banca de Economii. Oddly, the banks were taken over by new owners in 2012, including the aforementioned businessman, Ilan Shor. Through a series of toxic loans and shareholder deals, involving companies owned by Shor, millions of dollars were removed from the financial institutions. One of the loan recipients, a company called Caritas Group, is registered in a rundown office in a scruffy neighbourhood of the capital, with no trace of an owner. The pattern recurs, for both Moldovan and British companies involved in the case.

Beyond examining shadow loans and transactions, a spectacular discovery awaits Kroll: the entire Moldovan state is rooted in a regime of ‘mafia rule’. It pervades Moldova’s public institutions, police and especially, its justice system. It also explains why oligarchs such as Shor and Plahotniuc remain in office, sheltered from charges of fraud.

To illustrate this, a 2015 report carried out by the Anti-Corruption Centre in Moldova points to 53 judges, who authorised transactions to shadow companies. By making use of false signatures or signing off ordinances on the basis of insufficient information, Moldovan judges knowingly make money-laundering schemes possible. This is reflected in the number of suspected judges, who remain in public office to date. Some even upgraded to executive roles and are presently employed by the Supreme Court of Justice in Moldova.

The billion left Moldovan shores a long time ago. Kroll’s report leaked information about UK limited partnerships directly involved in the scheme. Amongst others, Fortuna United is a main recipient of the loan. Registered in a grimy Edinburgh flat, alongside hundreds of other active firms, it is hardly the place to hide a stolen billion. The scheme has a further layer of complexity. The companies stated in the report have bank accounts in Latvia, while their owners reside in offshore tax havens such as the UK, New Zealand, Belize and the Russian Federation. In a final addition to this murky scenario, no further information is available, beyond the firms’ registered address.

Why the size of such massive transactions failed to alert UK regulatory authorities remains a mystery. The process is complicated by the fact that many of the shell companies bank abroad. Nonetheless, overlooking huge transactions to limited partnerships is indicative of a monitoring problem. The Moldovan case should alert British authorities, which should subject limited partnerships to a detailed scrutiny about their activities. In the absence of a UK residence, owners of a limited partnership are exempt from UK taxation. This type of offshore secrecy has tempted post-Soviet billionaires since 2007, when £35m passed through foreign bank accounts of British companies. Little has been done to change the system since.

The West cares enough to warrant press coverage and freeze funding for Moldova. The IMF and the World Bank, as well as the EU, have stopped financial assistance for the poorest country in Europe. The EU has pledged to resume assistance, once anticipated elections and a change in government take effect. These mechanisms are unlikely to solve Moldova’s Laundromat symptom. On the verge of implosion, the country is in need of Western funds to avoid institutional paralysis. The process is already underway. According to intelligence sources, the General Prosecutor was familiar with the embezzlement and did not act upon it. Monitoring roles typically exercised by Ministries have been transferred to civil society, which operates with international funds. Media reports also prove unreliable, when oligarchs such as Vladimir Plahotniuc control four TV channels and three radio broadcasts.

In response, Moldovans point an accusatory finger at the pro-European government and demand prompt arrests. While the rage is understandable, little thought is given to the accusations themselves. For instance, during the widely acclaimed arrest of the pro-EU Prime Minister, the intervention of pro-Russian businessman Renato Usatii was overlooked. The latter was making promises to buy a Mercedes, for any policeman who would handcuff the former official, inside the building. Another irony is that Moldova’s pro-Russian, chief oligarch Vladimir Plahotniuc is flagged up as a potential candidate for future premiership, only a few months after the old premier’s imprisonment.

From Moscow’s perspective, Moldova’s lost billion is reason for joy. With the fall of the pro-European government, the former Soviet republic forms a weaker geopolitical target than before. The country is strategically positioned as the next logical step for Kremlin’s expansionism. This is facilitated by Pro-Russian parties in Moldova, which are to be congratulated for shattering trust in the pro-European government. EU integration has, in fact, become synonymous with a corrupted elite. In the midst of political and economic turmoil, the threat is exacerbated by the presence of Transnistria, a Russian supporting state with limited recognition, situated in the eastern part of Moldova. The country is imploding, and a return to the USSR is increasingly viewed as preferable to the present economic climate. Following Crimea’s annexation last year, Moldova’s autonomy is hanging by a thread.

The billion-dollar story is relevant to the Federal Bureau of Investigation and other international watchdogs. It reflects a complex, global money-laundering scheme, affecting interests beyond Moldova’s. The EU’s Financial Intelligence Unit, Egmont Group, has a vested interest in preventing embezzlement and financial crimes at European level, for instance. Still, the EU does little to act upon this and expects Moldova to resolve the issue on its own. The West should comprehend that domestic change cannot be demanded from an imploding state. The failure of Moldova’s public institutions and justice system has determined the country’s status as a Laundromat. The West should choose to pull the plug in the next wash.

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Flavia is the founder and director of New East Platform, a UK registered charity, promoting high quality journalism and policy analysis about Eastern Europe.Flavia was awarded an HMC scholarship in 2011 to pursue her studies in the UK. Originally from the Republic of Moldova, she is currently a BA student of History, Politics and Philosophy at the New College of the Humanities in London. Flavia’s work on anti-corruption was recognised at One Young World in Bangkok, where she was a delegate speaker on the Leadership and Governance Panel. Flavia is also a British Council Scholar and a US Department of State Alumna.