bne IntelliNews -

Moldovan businessman Ilan Shor was placed under house arrest for 30 days on May 6 over the alleged fraud at Banca de Economii (BEM), one of the three Moldovan banks taken over in the country's biggest banking crisis. 

The Buiucani court in Chisinau partly admitted prosecutors’ request to put Shor, the president of BEM’s management board between May and November 2014, under police custody, Publika.md reported, quoting officials from the Moldovan prosecution office. Prosecutors plan to appeal the decision and ask for full police custody of Shor.

However, prosecutor Adriana Betisor said the accusations against Shor are in no way related to information included in the report drafted by international audit firm Kroll on frauds at BEM, Banca Sociala and UniBank.

Around $1bn, or 10% of Moldova’s GDP was siphoned off from the three banks between 2012 and late 2014, when they were taken under special administration by the central bank.

The Moldovan authorities had faced heavy public pressure to publish the Kroll report, which was released to local media by parliament speaker Andrian Candu on May 4.

However, according to prosecutors, the long-awaited report fails to clarify the situation, since it is a summary of publicly available data and confidential data already compiled by the central bank. Head anticorruption prosecutor Eduard Harunjen said the report was interesting but not formally relevant for the investigation.

While the report indicates Shor was the visible beneficiary of the frauds, it stops short of indicating who the ultimate beneficiaries are. Shor’s political connections are also not covered in the report.

Shor has denied the accusations. Speaking to Komsomoliskaia Pravda, he said the losses had been generated before a private investor, who Shor said he represented, took over the management of Banca de Economii at the end of April 2014. Shor added that the unnamed investor had to address problems already existing at the bank.

The report also does not also explain why the central bank did not take steps to prevent the frauds, since the facts revealed by the report were known by the monetary authority as they happened. 

A key outstanding question concerns UK registered limited liability firm Fortuna United, as well as the details of the contract signed between the firm and Banca Sociala on November 26. This information is likely to be critical for determining whether the $1bn siphoned off from the Moldovan banks can be recovered - or if the loss will have to be covered by Moldovan taxpayers.

Further information, particularly on the as yet unidentified owners of Fortuna, could implicate Moldova politicians in the scandal. There has been much speculation over the possible involvement of several high-profile politicians, but as yet no links have been proved.

The Kroll report reveals that Banca Sociala extended MDL13.7bn worth of loans to several Moldovan companies within the Shor Group on November 25-26. The loans were extended mainly from money borrowed from the other two banks – BEM and Unibank. The money borrowed by the Moldovan firms was then converted to foreign currency (€545mn and $232mn) and immediately transferred to other Shor Group firms outside Moldova.

The portfolio of loans was later sold to Fortuna for MDL18.4bn following a decision made at a shareholders’ meeting held on November 26 in Ukraine. The value of the deal includes future interest expected from the recipients of the loans, which is not typical for the loan sale contracts. There are legal provisions to deem the meeting - and therefore the transfer - illegal, Kroll stresses.

However, the report does not provide information on the content of the contract with Fortuna. In its balance sheet, Banca Sociala shows the MDL18.4bn as “other assets” or “Fortuna”, as in the detailed financial reports presented in Kroll report.

On January 4, it was inferred based on central bank data that the sale of the loan portfolio to a foreign entity was made under a flexible contract. Based on central bank information, Kroll identifies the partner in the contract as being Fortuna. However, the structure of the contract and the identity of Fortuna, which have not been revealed, are highly important since they can provide valuable indications on Banca Sociala’s chances of recovering the MDL18.4bn.

Kroll says that the identity of Fortuna, a typical shell company, has not yet been established, and it cannot specify whether it is part of the Shor Group. The company, registered on August 8, has so far filed only its incorporation documents. Its general and limited partners are two other firms registered in the Seychelles.