Lessons from Moldova’s “Theft of the Century”

One year ago today, on April 20th, 2017, a Moldovan businessman named Veaceslav Platon was sentenced to 18 years in prison. His crime? Helping to steal a billion dollars. Between 2012 and 2014, businessmen and politicians siphoned off money from Moldova’s three largest banks in a crime now known as the “Theft of the Century.” While corruption is endemic in many parts of Eastern Europe, the theft in Moldova was spectacular in its size and in the severity of its consequences.

This theft was an economic, social, and political catastrophe for Moldova. The amount of money that disappeared was similar to the amount implicated in the 1MDB scandal in Malaysia–but Malaysia’s GPD is 2.3 times the size of Moldova’s. The Moldovan government’s secret bailout of the banks cost $870 million, one-eighth of Moldova’s GDP. As a result of the theft, three of Moldova’s main banks went bankrupt and were liquidated; more banks are still under the supervision of the National Bank of Moldova, and there is persistent instability in the financial sector. And then there’s the human cost. For example, the misuse of money in the State Health Insurance Company’s accounts led to a medicine shortage in 2014-2015. During street demonstrations that ensued after the theft became public, two dozen people were injured. The political fallout from the theft has also been substantial: Confidence in the government was shattered, as every government branch and every major political party seemed implicated. Furthermore, because the party seen as most heavily involved in the theft was a pro-EU party, Moldovan support for joining the EU plummeted. Pro-Russian sympathizers capitalized on the public reaction, and the pro-Kremlin Igor Dodon was elected president in 2016. Dodon has talked about joining the Russia-controlled Eurasian Economic Union, halted participation in NATO exercises, and opposes the opening of a NATO office in Chisinau, Moldova’s capitol.

The investigation into the theft has dragged. More than 40 people have been implicated, and more prosecutions are supposedly in the pipeline, but only a few people have been convicted so far. With Moldova’s 2018 elections looming, now is a good time to look back at the fallout and lessons from the Theft of the Century.

  • First, this wasn’t just a Moldovan crime. It was an international crime. Much of the money from the theft is either in or was laundered through Latvian bank accounts, transferred there by entities incorporated in the UK and Hong Kong, with Russian banks facilitating these transactions. While there is little that can be done about Russian banks, which are resistant to international pressure, Latvia, Hong Kong, and the United Kingdom should all have to account for their role in the crisis. The United States put strong pressure on Latvia to remedy its banking system, and the Latvian banking regulator responded by issuing sanctions on several banks, including the largest-ever fine in Latvian banking history (£2 million). But so far there have been no consequences for the UK or Hong Kong institutions. Prosecuting implicated international actors in places where they are subject to jurisdiction—many could be tried in the UK—would help ensure a return of Moldovan money and show that financial crimes perpetrated against poor countries will not be ignored. But if international pressure is only applied to countries like Latvia, such crimes will hardly be impeded. Financial hubs like the UK and Hong Kong should take the initiative to reform their laws to ensure transparency in global transactions, and there should be consequences from the US and EU if they do not.
  • Second, there is no doubt that some of the responsibility for the theft falls on the Moldovan government. For one thing, the theft highlights deficiencies in Moldovan regulators, including the Moldovan Anticorruption Center (CNA), which should have been on guard for suspicious transactions, especially in large amounts over short periods of time. In fact, the CNA initiated a criminal investigation in 2012 over reports that stolen money documented by Sergei Magnitsky, the Russian anticorruption activist, was laundered through Moldovan banks. The CNA either failed to fully investigate or intentionally did not follow through on this red flag; nothing ever came of the Magnitsky revelations in Moldova. (The CNA was targeted for reform in the government’s post-theft promises, but very little has materialized.)
  • Third, and perhaps more important than the oversight failings of the CNA and other regulators, the Moldovan government paved the way for this massive theft through the loosening of financial regulations in 2005-2008 by Parliament and by the National Bank of Moldova. This deregulation was at best negligent, and at worst an intentional effort to facilitate the kind of fraud that took place. Moldova is currently in the process of making difficult reforms demanded by the IMF to prevent corruption in the banking system, including improvements in transparency of ownership and management of institutions, building up regulatory capabilities, and doing individual “diagnostics” of Moldovan banks. The IMF is also pressuring Moldova to create stronger financial laws, ensure compliance with those laws, disperse stocks among shareholders rather than concentrating them with the banks, and restore banks to operating in accordance international standards for risk management and accounting. The IMF’s laundry list of goals for Moldova could be taken as a to-do list for countries worried about their own vulnerability to financial fraud. Once Moldova’s reforms are in place, advocates should watch them zealously – a return to repealing regulations for political expediency, as in 2005, will quickly lead to disaster. Any change to Moldova’s financial system should get the strictest scrutiny from anticorruption observers, and shareholders should use their leverage to demand more from audits. Other countries, too, should take the lesson from Moldova that any financial deregulation should be carefully analyzed for any corruption opportunities it creates.
  • Fourth, with respect to holding the criminals who perpetrated the theft responsible, it will be important to follow how prosecutions continue under Dodon. His party was also implicated, and the prosecution of the theft must be politically balanced to be legitimate. Since Moldova’s judiciary is not very independent, there is a possibility prosecutions will be conducted politically, and progress seems to have slowed since summer of 2017. Anticorruption observers should be wary of results, and monitor Moldova’s situation closely even when there isn’t a spectacular failure at hand.

 

One thought on “Lessons from Moldova’s “Theft of the Century”

  1. Pingback: Lessons from Moldova’s “Theft of the Century” | Matthews' Blog

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