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MONEY LAUNDERING — A FORM OF ORGANIZED CRIME IN THE REPUBLIC OF MOLDOVA
Cebotari Svetlana, Military Academy „Alexand.ru cel Bun", Chisinau, Republic of Moldova;
State University of Moldova, Chisinau, Republic of Moldova
E-mail: [email protected]
Budurina-Goreacii Carolina, State University of Moldova, Chisinau, Republic of Moldova
Abstract. The Republic of Moldova, although is a state with a relatively weak economy and still in the process of development, is of interest to the European community. Having a frozen conflict on its territory, respectively an uncontrolled area in the left region of the Dniester, Transnistria, Moldova is often / used / as a transit area for organized criminal groups, which, using the country's border vulnerabilities, transport various illicit products , destined for other developed European countries, in order to obtain high incomes. Thus, an illegal method, present in the Republic of Moldova and used by criminal networks to obtain benefits is money laundering.
The purpose of this article is to analyze money laundering as a method of economic crime and as a form of manifestation of organized crime.
Key words: Republic of Moldova, European community, transit area, criminal groups, organized crime.
Although a small state, with a relatively weak economy and still in the process of development, the Republic of Moldova is of interest to the European community from the perspective of ensuring European security and, including, the common border with Romania. Having a frozen conflict on its territory, respectively an uncontrolled area in the left region of the Dniester River, Transnistria, Moldova is often / used / as a transit zone for organized criminal groups, which, using the vulnerabilities of the country's borders, transport various illicit products, destined for other developed European countries, in order to obtain high incomes. Thus, money laundering becomes an illicit method which is present in the Republic of Moldova and used by criminal networks in order to obtain benefits. Money laundering is a method of economic crime, a form of manifestation of organized crime. According to several investigations, it represents the Republic of Moldova as an actor in committing the mentioned illegalities.
In this sense, in order to consolidate itself as a rule of law and to provide Moldovan citizens with a high level of security in an area of freedom, security and justice, the Republic of Moldova must adopt measures of preventing and combating
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crime. The key element here is the need for an effective state crime investigation mechanism.
Although the existing national crime investigation mechanism, with all its infrastructure and procedural regulations, has been expertly reviewed and endorsed by various well-known European structures as being in line with international standards, it should be noted that in all partners' expert and advisory interventions (Council of Europe, Venice Commission / European Commission for Democracy through Law, OSCE), emphasis was placed on human rights, i.e. national legal regulations to ensure respect for fundamental human rights and freedoms, the state having all the discretion, but also the responsibility for the efficiency of the local mechanism for combating crime [6, p. 17].
Money laundering represents actions, established in the Criminal Code of the Republic of Moldova (art. 243), that are aimed at attributing a legal aspect to the source and origin of illicit income or to conceal the origin or membership of such income, ie legalization of legal income [4, p. 175].
In 2015 the researcher J. Rub from the State University of Moldova has conducted a research on the phenomenon of money laundering in the Republic of Moldova and Israel. In his research, the author notes that this phenomenon is extremely practiced compared to what is known, as many of the crimes are not identified and respectively investigated and recorded. Money laundering is a term used to describe the process by which criminals try to hide the origin of certain resources, so that they create the impression that they come from legal sources, in fact from illicit actions. As a method of money laundering in a legal business, criminal groups use the mixture of legal money with that coming from illicit activities, thus homogenizing the total budget [12].
The legislation of the Republic of Moldova has a series of normative acts adopted with the intention of preventing and combating the phenomenon of money laundering. The Center for Combating Economic Crimes and Corruption is the body empowered to monitor the implementation and execution of money laundering laws. This is a body to protect the law enforcement specializing in combating economic, financial and fiscal crimes, as well as corruption [13]. Along with the National Bank of Moldova, the National Financial Market Commission, the Ministry of Finance, the Notary Chamber, the Union of Lawyers of the Republic of Moldova, the State Chamber for Marking Supervision and the National Agency for Regulation in Electronic Communications and Information Technology, the Center for Combating Economic Crimes and Corruption is responsible for regulation and control how to enforce laws on preventing and combating money laundering and terrorist financing. Thus, money laundering is a global crime, without borders and limits, money laundering seeking to obtain economic benefits illegally. Although measures are being taken in this regard, the Republic of Moldova is influenced by the phenomenon of money laundering. This danger vitiates the political and economic system of the country, so that the state becomes dependent and subordinated to organized crime groups, which is inadmissible in a rule of law [12, p. 178].
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For a better perception of the phenomenon, it is appropriate to define the concept of money laundering. Thus, according to the definition provided by the Union of Lawyers of the Republic of Moldova, money laundering is "the process by which criminals try to hide the origin and real possession of income from their criminal activities; through this process of money laundering, it is given a legal appearance of the profits obtained illegally by the offenders who, without being compromised, subsequently benefit from the amounts obtained illegally. Also, one thing to mention is that money laundering takes place in three stages:
- placement - the physical movement of the income obtained through legal activities so that they are separated from the criminal mass in order to eliminate the danger of prosecution by law enforcement bodies;
- stratification - income from illegal activities are separated from their source through the formation of complex layers of financial transactions designed to deceive law enforcement agencies and also to ensure the anonymity of persons involved;
- integration - the money laundered returns to the disposal of criminals, who are actually introduced into the legal economy, with the illusion of their lawful origin [15].
On November 15, 2001, the Republic of Moldova adopted the Law on Preventing and Combating Money Laundering, which, however, does not bring major improvements, but reiterates the current situation. In 2002, the Parliament of the Republic of Moldova ratified the Convention on Money Laundering. However, Moldova's ability to implement the provisions of the Convention has proved to be limited, which is why the Government has announced its intention to amend and supplement the Law on Preventing and Combating Money Laundering [14].
In this context, taking into account the comments and additional information made at the meeting of the Washington group, the law was to be amended. Recommendations included: ratification of the main instruments on the fight against corruption, in particular the Council of Europe Conventions in the field of criminal and civil law on corruption; adjusting national legislation in accordance with the provisions of the conventions adopted; adopting the effective framework for international cooperation, in particular as regards mutual legal assistance in criminal matters, including cooperation on financial investigation and money laundering; implementing functional measures to streamline international cooperation, with a focus on mutual legal assistance by ensuring an organized assistance procedure, including promoting direct contacts and communication between judges and prosecutors, specialization and training of staff by supporting judicial networks at European and international level [14].
In 2002, the Republic of Moldova established the Center for Combating Corruption and Economic Crimes. Although some progress has been made with the establishment of a legal framework on combating and preventing money laundering, based on international standards, in November 2010, the Constitutional Court annulled several important provisions of the law on combating money laundering.
In 2011, however, the Parliament of the Republic of Moldova adopted relevant amendments to this law, setting the threshold of $ 10,000 for cash transactions and
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regulating the ability to freeze accounts involved in transactions considered suspicious. In this regard, Moldova has received training in financial investigation techniques from the IRS Department of Financial Investigations. According to the elaborated investigations, out of 165,199 reported suspicious cases, only 4 criminal cases were initiated as representing money laundering accusations, in 2006 - 0 cases have been registered [12].
As a developing country with institutions that are insufficiently prepared to deal with obvious dangers, Moldova faces different problems caused by corruption. According to the Index of Corruption Perception based on the study elaborated in 2019 by Transparency International, the Republic of Moldova ranks the 120th place out of a total of 180 countries evaluated [17].
A report on money laundering in the Republic of Moldova that has been prepared by the US State Department in 2012 shows that the money laundering resources come largely from tax evasion, smuggling and corruption, which takes place through the banking system. According to this report, the application of regulations designed to reduce this phenomenon is sporadic and even sometimes dysfunctional [12].
Between 2010 and 2014, the Republic of Moldova was involved in the Laundromat case. It is an international scheme in which funds obtained through illicit means were transferred from the Russian Federation to the USA and European countries, with the help/competition of over 50 judicial decisions handed down in the Republic of Moldova. In this regard, RISE Moldova, which is a community of investigative journalists, has conducted a thorough analysis of this case in 2014, revealing the money laundering scheme.
The Republic of Moldova has proven to be an important player in terms of illicit money laundering processes with the participation of organized criminal networks, which aimed to „use" the Republic of Moldova as an intermediary in complex criminal schemes. In order to prevent this phenomenon, with the help of external development partners, it was possible to develop and, subsequently, to adopt the National Action Plan on risk reduction in the field of money laundering and terrorist financing for the years 2017-2019 [7]. This was a process that would start in 2007, when the Law on Preventing and Combating Money Laundering and Terrorist Financing came into force [8].
A new law in this regard was drafted in 2017, which was a mandatory condition imposed by the European Union under the Association Agreement signed with the Republic of Moldova, which entered into force in 2018 [9]. Much of the activities included in this plan aim to strengthen the capacity of public authorities. But according to experts, it turned out not to be fully functional, as the plan does not contain all areas to certain vulnerabilities in relation to money laundering. An example can be the energy sector which is considered as a „black hole" bringing significant economic damage to society.
Experts from Transparency International Moldova analyzed the events of 20162017, and found that the Republic of Moldova played an important role in money laundering at the regional level. It was the period in which the so-called „theft of the
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century" was carried out, characterized by the extraction from the domestic banking system of about 13% of GDP.
The Republic of Moldova has been, and remains, at risk and in danger of becoming an offshore country. An element that marked the import of money laundering schemes in the Republic of Moldova was marked by the exit of Latvia from the area of regional money laundering of dubious origin, which took place due to the request of the European Union.
It is also currently considered that the Republic of Moldova is becoming an attractive area from this point of view due to such means as offering citizenship in exchange for investments, capital liberalization, etc. It happens while the European Union is focused on eliminating Cyprus from the circuit of means of obscure origin. These developments create impediments to the independent and genuine investigation of fraud in the banking system, block the implementation of laws and regulations agreed with development partners, diminish the importance of the Kroll report, but also hinder the functionality of institutions and the prospect of recovering fraudulent funds [18].
According to experts in the field, Kroll's reports on bank fraud in the Republic of Moldova highlight the connection of money laundering procedures with the Latvian banking system, ie several Latvian banks, which are the main elements in the conduct of bank fraud in recent years [1].
The Republic of Moldova of late years has attracted the attention of the international community due to bank frauds and complex money laundering schemes that took place in the country, among the best known cases being the case of Magnitsky, the Russian Landromat and the "billion theft", which involved transactions carried out through bank accounts, these being monitored by supervisory institutions such as the National Bank of Moldova and the Service for Preventing and Combating Money Laundering. Due to the mechanisms held we emphasize that these institutions are able to prevent such transactions and to sanction the responsible persons in the administration of the banks involved.
Thus, in order to block those actions and to prevent the illegalities that took place, the following measures had to be taken: to carry out analyzes and researches to identify the final beneficiaries, especially non-residents; suspension of suspicious transactions [18].
Referring to one of the events that marked the subsequent evolution of the country's economy, in 2014 about $ 1 billion was stolen from the banking system, where state institutions were also involved. This marked the international partners of the Republic of Moldova (IMF), World Bank, EU Delegation, etc.) to emphasize the need to improve business transparency, state oversight and mechanisms to prevent and combat money laundering. It was an objective that was later complemented by the requirements of the Association Agreement with the EU [16].
According to the study conducted by specialists from Transparency International Moldova in collaboration with the "Watch.Dog.MD" Community, during the years 2010-2014, using court decisions that proved to be illegal regarding false debts,
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several billion dollars from Russian banks through Moldovan banks and courts have been laundered, and although it was initially rumored that only $ 20 billion was found to be of suspicious origin, it is now clear from the available evidence that the amount of money laundered it is about $70 billion, funds transferred to a group of offshore companies with accounts in Western banks [16]. The money is considered to come from fraudulent bank loans, fictitious acquisitions related to government contracts, embezzlement of funds from the treasury of the Russian Federation, tax evasion and smuggling, which later reached 5,140 companies in 96 countries. Based on these illegal court orders, Russian companies transferred the money to Moldovan banks on behalf of a bailiff appointed by the court. Thus, that scheme had such objectives as: laundering fraudulently obtained assets; transferring the funds to Western banks and their legal circulation; avoiding legal problems related to the repatriation of money to the Russian Federation by issuing court orders by Moldovan courts [16].
A money laundering scheme was detected in 2015, involving citizens of the Republic of Moldova, Romania and the United Kingdom. According to this scheme, several sums of money were transferred and subsequently withdrawn from the bank accounts of seven Moldovan citizens. It was later found that the origin of the money came from cybercrime [2].
In October 2017, at an event organized by the OSCE, the World Bank and the European Union there were presented the results of the National Risk Assessment of Moldova on Money Laundering and Terrorist Financing. An Action Plan on risk reduction was also presented, based on the complexity of the problem analyzed. The specialists present at the event discussed the possibilities of solving the gaps in the legislation, proposing to improve it, including national regulations and measures to combat money laundering [10].
In order to combat tax evasion, all EU countries carry out an automatic exchange of information between themselves and third countries in accordance with the EU Directive on administrative cooperation and the common reporting standard of the Organization for Economic Co-operation and Development (OECD). However nor in 2018 the Republic of Moldova agreed to implement the exchange of information with other countries.
This poses a significant threat to the country's economic integrity, as it makes impossible to combat tax evasion if the country's residents have undeclared bank accounts abroad, which also poses a danger to EU countries. This is because the Republic of Moldova, according to a special program in 2017, offers foreign citizens the opportunity to receive citizenship in exchange for investments, which greatly increases the danger of these citizens abusing this citizenship by convincing banks that they are not citizens of EU but of the Republic of Moldova, which would allow them to avoid reporting to bank accounts held abroad to the responsible EU authorities [16].
In 2018, the National Bank of Moldova approved the regulation on the basic requirements for preventing and combating money laundering and terrorist financing in the activity of banks. The program includes a series of policies, procedures, internal controls and the promotion of professional ethical standards aimed at preventing the
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activity of organized criminal groups oriented towards money laundering and terrorist financing. Attention is also paid to the complexity of banking, the risks identified with money laundering, the types of customers, the products and services provided, including the level of risk associated with customers and the transactions they carry out [11].
In this context, it is worth noting the 2019 report of the Parliamentary Assembly of the Council of Europe according to which the functionality of democratic institutions in the Republic of Moldova „banking fraud scandal", ie illegal transfers of money from the banking system in 2014, proved to be ineffective. However, the assembly agreed with the measures taken by the Moldovan Parliament to set up a parliamentary commission of inquiry to relaunch the investigation, while welcoming the publication of the Kroll 2 report and full cooperation with the Moldovan judiciary to recover the stolen money [20].
According to the Parliamentary Assembly, by 2018, during a visit to the Republic of Moldova, the second report, prepared by the American company Kroll, requested by the authorities to be released in order to establish bank fraud, was not available, having access only to a resume. According to the information obtained, the net loss of the three banks amounted to USD 600 million [20, p. 10].
According to the report published by the Council of Europe in June 2019 on measures to prevent and combat money laundering and terrorist financing, it is noted that the authorities have made significant progress through various investigative techniques, with financial investigations remaining one of the services' top priorities of criminal prosecution. However, the results of criminal investigations and prosecutions are not proportionate according to the identified risks, which indicate that the system remains insufficiently functional [2, p.9]. Thus, according to the published report, the Council of Europe calls on the Republic of Moldova to make full use of the legislative framework to combat money laundering and increase the effectiveness of the activity of the competent institution [3].
Given the complexity of the problem presented, including the variety of cases and schemes in which the Republic of Moldova has been involved, it can be seen the presence of a high level of organized economic crime in the country, especially in the form of money laundering. Although several measures have been taken in this regard, not without the involvement of external development partners, Moldova remains vulnerable to threats and risks posed by organized criminal groups intending to engage in illicit activities, with Moldova as a major player in some cases, and in others having the role of intermediate country.
The laws developed and the conventions adopted in this regard have had a positive impact on the evolution of the system to combat the phenomenon of money laundering, but still it has proved to be insufficient, requiring an improvement of approaches first of all at the legislative level. Reports prepared by external partners highlight the fact that a large part of crimes are not investigated as such, which is due to the low number of cases that end up being investigated criminally. It does not diminish the risks, but constantly increases them, so that the danger of continuing
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fraudulent schemes increases and criminals continue to successfully achieve their goals. In this context, relevant is the Association Agreement, which regulates a legislative harmonization of methods to combat and prevent the phenomenon, including the functionality of the responsible institutions.
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