Decoding the Kroll report

Publishing date: Thursday, 28 May 2015
Views: 22896

Key messages from the report

  • According to the Kroll report, the amount of allegedly fraudulent loans (plus interest) reached 18 billion MDL ($1 billion), while the financial engineering conducted at these three banks were aimed to fraudulently extract cash. It should be noted however that the crisis BEM, BS and UN (Banca de Economii, Banca Sociala and UniBank) failed to become a system-wide banking crisis.
  • The crisis at BEM, BS and UB was possible following these five fundamental reasons: (1) delayed and insufficient reaction from the Central Bank and other relevant institutions; (2) obscure changes in the shareholders’ structure of BEM, BS and UB; (3) massive breaches in corporate governance principles at these three banks; (4) artificial increase of the lending capacity of BEM, BS and UB and (5) of poor administration at BEM even before the crisis.
  • The crisis at these 3 banks would not have been possible if the institutions responsible for financial stability would have acted promptly and effectively, given than Central Bank, Supreme Security Council and Ministry of Finance were aware of the transactions that took place at these three banking institutions.
  • The obscure changes in the shareholders’s structure at BEM, BS and UB were possible since the legislation does not restrict bank share purchases financed by loans contracted from off-shore companies.
  • The fraudulent management at these three banks was possible due to inefficient means of punishment for the top management, even if some provisions on fraudulent bank management and other banking system’ related violations. Still, the penalties remain mild in comparison with the magnitude of frauds that may occur.

Following the analysis, the authors Adrian Lupuşor, Vladislav Gribincea and Alexei Buzu propose the following recommendations:

  • Eliminating any possibility for offshore companies to interact with the local banks, by banning these companies from holding shares at banks or to purchase them, by restricting bank share purchases financed by loans contracted from off-shore companies, by guaranteeing bank stocks to the off-shore companies etc.
  • Designing legal mechanisms which would identify more effectively scripted/concerted actions of shareholders
  • Ensuring professional independence and personal protection of Central Bank (NBM) officials responsible for regulation and governance;
  • Strengthening the independence of the National Bank in order to prevent political interference in its activity. This could be done by removing the ability of the courts to suspend NBM’s decisions –  a practice that is against any international standards and which creates preconditions for outside interference to block regulatory activity;
  • Conducting external audit at NBM, which would provide an independent and unbiased analysis on the effectiveness of institution’s regulatory activities;
  • Improving communication between the main institutions responsible for financial stability of the country: NBM, National Commission for Financial Markets, Ministry of Finance, National Committee for Financial Stability and the Supreme Security Council. All these institutions must ensure operative exchange of information on a regular basis, organize multilateral meetings and share an integrated vision on the country's financial security.


See full report in English

Tags: Natalia Chitii


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