The great Moldovan bank robbery
By Tim Whewell
18 June 2015
It's a mystery that's thrown Europe's poorest nation into deep crisis - $1bn has vanished from three of Moldova's leading banks, much of it passing through UK companies.
A confidential report has blamed 28-year-old businessman, Ilan Shor, but in an exclusive BBC interview he proclaims his innocence.
Ilan Shor isn't tall. So his personal assistant keeps telling him to adjust his posture, so that the deep cream leather armchair he's sitting in doesn't appear to swallow him up. That wouldn't make good photos. But Shor doesn't really succeed in conveying an air of gravitas - partly because with his round, lightly bearded face, he looks even younger than his 28 years. It's hard to believe, looking at him, the scale of the allegations he faces.
A report by the private international investigation agency Kroll, leaked by the speaker of Moldova's parliament, suggests he was the prime co-ordinator and beneficiary of a bafflingly complex web of transactions that pushed three leading banks to the verge of collapse. It says loans worth $1bn were transferred in just two days to a series of UK- and Hong Kong-registered companies - companies whose ultimate owners are unknown. As a result, the state was forced to step in to bail the banks out - protecting depositors but creating a hole in the public finances equivalent to an eighth of GDP.
But Shor denies responsibility for the financial catastrophe. The Kroll report - based on National Bank records - proves nothing, he says, and contains no documents "apart from cuttings from various articles".
We're meeting in his cream-and-gold-decorated "residence" - not his actual home - in the very centre of the capital, Chisinau. It's just across the road from the palatial modern building that he hired four years ago for his wedding to a Russian pop star. At the time it was home to Moldova's parliament, and most of the country's social and political elite attended the celebrations. Ilan Shor is very well-connected. He inherited a series of companies - including a chain of duty-free shops - from his father, Miron, who moved to Moldova from Israel when his son was three.
A grinning model of Ilan at his residence - he says it's a gift from a friend - sums up his brash style, and the breadth of his activities. With one hand, he's juggling mobile phones. His other brandishes a kebab stick with dollar bills skewered between the lumps of meat and onion. He's also got a football - he funds the team that has just won the Moldovan championship. And his arm is resting on a racket - he sponsors the country's Tennis Federation.
Markets for second-hand goods are a familiar sight in Moldova, Europe's poorest country
The federation's president, Marina Tauber, is a friend who went to school with him. "From the age of 13 he was already doing business," she says. "Where all of us were going after school to do homework, he was going to business conferences with his father… I think all the results he obtained are because he was very stubborn and dedicated."
The Kroll report describes how the three banks - Unibank, Banca Sociala and Banca de Economii - were taken over, beginning in 2012, by new owners, who appeared to be unconnected. Some bought their shares using funds from UK limited partnerships, whose ownership is often opaque. The banks then entered into a series of transactions which Kroll says had "no sound economic rationale". The web of loans emptied them of funds until "they were no longer viable as going concerns". The report suggests many of the companies involved had links to Ilan Shor - and that "there was a deliberate intention to extract as much benefit as possible" for them - to the detriment of the banks. But it says it's still unclear whether Shor was acting alone or with others.
Ilan Shor denies he has any link to either Unibank or Banca Sociala, other than as a customer. He served as chairman of Banca de Economii - but he blames the crisis on bad loans made by that bank before it was privatised and he took charge. "When we took over the bank, we were horrified," he says. "There was a 7bn lei ($376m) hole."
But National Bank governor Dorin Dragutanu says: "Nobody faces a problem of bad loans with even more aggressive lending activity… That's why for me it is difficult to believe in this version of Mr Shor." The loans that brought the banks to the verge of collapse, according to the Kroll report, are particularly hard to explain. It says Banca Sociala, which it alleges was controlled by companies linked to Shor, lent 13.7bn lei (£484m, $750m) to five Moldovan firms, also allegedly linked to Shor.
One is named in the Kroll report as Caritas Group SRL - not connected to the international development charity or any other group of the same name. According to National Bank data it borrowed 2.6bn lei ($143m). But the address in Chisinau where it's registered turns out to be a complex of tiny, scruffy repair workshops and offices around a puddle-filled courtyard. The company that rents out the premises tells me Caritas Group did briefly hire a room there. But it's no wider than my outstretched arms - hardly a place to process such enormous sums. I'm given the address of the man who hired the premises - who's described in the Kroll report as "owner". He's a young man called Andrei Nirauta. But when I get to his flat, in a run-down Soviet-era apartment block, a young woman tells me he's left, and she doesn't know how to contact him.
But the money, according to Kroll, isn't in Moldova anyway. The five Moldovan firms, including Caritas Group SRL, that allegedly received the loans are said to have transferred the money immediately to five UK- and Hong-Kong-registered firms. But they all bank in Latvia, and most seem to be owned in turn by companies in offshore tax havens. And in a final layer of obfuscation, they now owe all the money not to Banca Sociala, but to another UK-registered entity, Fortuna United LP, that's said to have bought the entire combined loan.
Look up Fortuna United LP, and you'll find it's registered - along with 421 other active firms - at a flat in a run-down part of Edinburgh. It's a limited partnership formed of two companies in the Seychelles about which no further information is available.
UK limited partnerships, unlike limited companies, are not required to file publicly-available annual returns or accounts. The only public information they must supply is their registered address and the names of partners - but these need not be individuals, and need not be based in the UK. The number of limited partnerships registered in the UK has risen sharply, from 17,239 in 2009-2010, to 27,853 in the last financial year, 2013-14.
Vasile Sarco of Moldova's Office for Prevention of Money-laundering says the purpose of using UK-registered companies is to hide the beneficiaries of the funds. He's investigating not only the disappearance of the $1bn from the three banks, but also an earlier $20bn operation which laundered dirty money from Russia through Moldova into the EU.
In both cases, he says, there's been a similar use of UK "shell" companies with Latvian accounts. They're not the same companies, though some use identical UK addresses. He believes there's a single "Mr Big" living in Russia who masterminded the first scheme and advised on the second. "We've analysed the character of the transactions," he says, "and all the pieces involved here give us reason to say that this guy helped Ilan Shor to make this scenario." He won't tell me the man's name - only that he's a joint Moldovan-Russian citizen who controls some banks in Moldova.
But Moldova's prosecutor-general, Corneliu Gurin, doubts that there could have been one mastermind. He's extending his investigation back to 2007, long before the transactions from 2012 to 2014 detailed in the Kroll report. He says: "The main question for us is why Banca de Economii was defrauded when it was owned by the state, and why that continued after it came under private control." That investigation, he says, will involve questioning almost the whole political elite of Moldova, maybe 100 people - including five former prime ministers. "It's a bomb," he says. "It was pretty difficult to initiate such an investigation."
For now, Ilan Shor - the man at the centre of the allegations - has only been charged with one offence - abuse of office while in charge of Banca de Economii. And for the last few weeks, he's been released from house arrest to allow him to compete in mayoral elections in his family's home town of Orhei, north of Chisinau. He won, this week, with 62% of the vote, perhaps partly because of the "presents" I saw being given out at the end of one of his campaign meetings - plastic bags containing toothpaste, shampoo and washing powder. Afterwards, he told me the gifts weren't from him. He says they were from "investors - some of them my friends" whom he had asked to help the people of the town.
Prosecutor-general Corneliu Gurin says he doesn't know how long the investigation will take. But a new protest movement, Dignity and Truth, says it wants answers from politicians before the end of the summer. It wants to know how the financial catastrophe could have happened and says the officials who failed to prevent it must be punished. "There's disappointment. Disappointment in the whole political class," says the speaker of parliament, Andrian Candu, who leaked the Kroll report. "Disappointment that things stay as they are because we fail to build functional institutions... So the political elite should have this wake-up call."
The crisis, he says, could even affect Moldova's efforts to get closer to the European Union. "We are very close to disappointing our international partners. If we don't switch from messages to real actions, then we are under the risk of losing our credibility completely."
But for many people on the streets of Chisinau, that credibility is already lost. They don't blame Ilan Shor - just everyone in power. "They are stealing," one woman says. "We think that our government steal everything they can from us."