Unraveling Scoping Phase Money Laundering

The period identified is that runs from August 17, 2012, to November 30, 2014. During this period the three Moldovan Banks were consequently subjected to key shareholder changes, which had the effects of shifting ownership to a sequence of unrelated people and companies. Thereafter every bank involved stated engaging in a sequence of incontestable transactions, that were not economically viable, and ultimately led to a huge deterioration in their financial statements that they were no longer viable according to the international economics standards (Nizhnikau, 2016). This phase was referred to as the scoping phase, which was characterised by coordinated actions from the banks involved to maximise the available liquid cash to facilitate a huge movement of increased lending by the three Moldovan Banks to Moldovan organisations. Preliminary examinations revealed that these entities efficiently formed a group of related parties whose loan receipts from the banks were channelled through complex web transactions using mainly UK Limited Partnership with Latvian bank accounts (Dillman 2007, p. 123). In response to this multifaceted laundering process, most of the loaned money was channelled back to Moldova to pay the existing loan exposure, and create an impression that these were genuine business loans, which gave room for the associated party loan portfolio to keep increasing, whilst an estimate of $600 million degenerated to bank accounts across various jurisdictions.

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Between 2010 to 2014, Moldova experienced a money laundering case in the “Ilan Shor Group Scandal.” Börzel & Lebanidze (2017) referred to this laundering scheme as the “Laundromat,” an international scheme where ill-gotten money was transferred from Russia to the USA and then to the European states with the help of more than 50 court decisions in Moldova that took part in legitimizing illegal money. An in-depth analysis of this case was done in 2014 by a group of journalists referred to as “Rise Moldova,” a community of journalists that revealed how the money laundering worked and the role of the judges in the whole plan (Borodacheva et al. 2016, p. 311) The analysis also reported that Ilan Shor, and the companies affiliated to him, took the centre stage in coordinating these activities, which suggested that he was the key if not the only benefactor from this scandal. These transactions, which these Shor entities were among the key reasons that led to the collapse of the banks at the end of 2014.

The aggregate loan exposure of the Three Moldovan Banks increased from 491 million in 2012, to about 1 billion USD by November 2014. The same exposure increased in 2014 to close to 80% of the sum of loan assets of the Three Moldovan Banks. Most loan proceeds were used to pay down the existing loans, after being laundered through the Core Laundering Mechanism, while a larger portion of the funds was extracted from the Core Laundering Mechanism and seemed to comprise stolen assets (Pilkington 2015). The analysis of the initial destination of loan funds showed that in January 2012, to 2013, most of the funds, which is up to $478 million were channelled to other bank accounts in Latvian.

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References

  • Borodacheva, L. V., Goloborodov, A. F., Guseva, A. I., Drozdova, A. A., & Glyzina, M. P. (2016). The impact of the global financial crisis on the banking system of Russia. International Journal of Economics and Financial Issues, 6(1S), 306-311.
  • Börzel, T. A., & Lebanidze, B. (2017). “The transformative power of Europe” beyond enlargement: the EU’s performance in promoting democracy in its neighbourhood. East European Politics, 33(1), 17-35.
  • Dillman, B., 2007. Introduction: Shining light on the shadows: The political economy of illicit transactions in the Mediterranean. Mediterranean Politics, 12(2), pp.123-139.
  • Montesano, F. S., van der Togt, T., & Zweers, W. (2016). The Europeanisation of Moldova: is the EU on the right track?. Clingendael, Netherlands Institute of International Relations.
  • Nizhnikau, R. (2016). When Goliath meets Goliath: how Russia and the EU created a vicious circle of instability in Moldova. Global Affairs, 2(2), 203-216.
  • Pilkington, M. (2015). Where did the money go? Endogenous money creation for international fraudulent purposes: the case of the 2015 Moldovan banking scandal. International Journal of Pluralism and Economics Education, 6(3), 251-71.

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