A mystery story from Eastern Europe has recently circulated around the world: one billion U.S. dollars seem to have vanished from three Moldovan banks.

The amount represents about 12.5 percent of the Moldovan gross domestic product (GDP) (or over 50 percent of budget revenues). The money disappeared in November 2014, before the parliamentary elections, and the National Bank of Moldova had to intervene with rescue funds and directly manage the three banks. Moldovan anti-corruption prosecutors also brought in U.S. auditors to help with the investigation. What now seems to be the biggest theft in the history of Moldova—and half of the estimated illicit financial flows over a ten-year period (2002-2011)—left the three banks in the form of loans. But nobody knows who received those loans, even though $1 billion would cover public spending for both the education and justice sectors in Moldova.

Speculations about the trajectory of the money are many. Some say that such a huge amount of money could not have disappeared if not condoned by well-placed politicians, who might have routed it to Russia or offshore companies. This possibility was allegedly mentioned in the report by the parliamentary committee set up to investigate the situation and which was leaked to the media but has not been made public yet. If the missing money turns out to have involved high-level politicians and becomes a case of corruption, $1 billion is a very high price for Moldovan citizens to pay for corruption.

Other observers claim that it is impossible for such a huge transaction to have taken place in a country as small and as poor as Moldova, and they maintain that the theft hypothesis was fabricated by certain journalists. That would probably be the preferred explanation, as it would bring some encouragement that the money could be recovered at least in part. But Moldovans are skeptical about that possibility. And they might have good reason for that. Moldova doesn’t have the strongest instruments for fighting financial crimes and corruption-related offenses. The justice system itself remains corrupt and inefficient, with no real track record in handling such complex cases and no special agency for the recovery of missing assets.

Although the magnitude of the theft is unprecedented, Moldova is not the only country facing such problems. Globally, the rate of recovering the proceeds of crime is still rather low. Recent estimates of illicit financial flows are that $1.26 trillion to $1.44 trillion disappeared from poor countries in 2008. Approximately $50 billion of this is estimated to be the proceeds of corruption.

A more recent analysis by the OECD shows that between $20 billion and $40 billion are stolen every year, of which only a small fraction is actually returned to developing countries. Of course, this information regards only transborder illicit activities involving OECD member states and does not include purely domestic organized crime or corruption. A lot of information about losses still goes unreported, and the absence of data impairs investigations and recovery efforts. While estimates are indeed difficult, research shows that illicit financial flows in Central and Eastern Europe (including the Russian Federation and former Soviet countries) between 2002 and 2011 exceeded $1 trillion , which represents between 4 percent and 6 percent of the regional GDP and 21.5 percent (mainly driven by Russia) of the global amount that developing countries are losing to theft or corruption.

These figures are not surprising. Countries that have been exposed to systemic corruption and even state capture also have the lowest capacity to address them. The situation in Ukraine is notorious: the Yanukovych regime was accused of having stolen $37 billion over a four-year term, equal to one-fifth of Ukraine’s GDP in 2013. And this is probably only a small part of the spoliation that took place in the country over the past 20 years.

The pace of anti-corruption efforts is still relatively slow, and the ability of state authorities to recover such huge losses to the state budget and the economy in general is very limited. In Romania, where the fight against corruption has a stronger track record and where more attention has been given to asset recovery, only 10 percent of the total for which there are court rulings for confiscation is actually recovered. Instances like this, when business and political interests collude over long periods of time, make both estimating the cost of corruption and the recovery of ill-gotten goods difficult. Criminals and corrupt officials are very adept at exploiting regulatory, institutional and law-enforcement vulnerabilities, or the lack of political commitment to asset recovery, and they will continue to launder proceeds of corruption with very little cost to themselves.

While there is a wealth of expertise and analysis at the supranational level on the matter, asset recovery was not seen as an essential deterrence factor and part of the anti-corruption reform process from the beginning. In Romania, for instance, this issue became a serious concern later in the development of anti-corruption mechanisms and only now is the necessary legislation beginning to be improved and implemented. Countries like Moldova and Ukraine will need to approach asset recovery as an integral part of anti-corruption efforts if the credibility and effectiveness of the fight against graft are to be maintained in the long run.

Setting up specialized asset recovery bodies and actually putting them to work is not an easy endeavor. It requires political will, adequate legal and institutional frameworks, resources and smooth cooperation between various state agencies. If the fight against corruption and money laundering is going to succeed, more attention needs to be paid not just to prosecuting criminals but also to depriving them of the benefits of corruption and crime. Obviously, this will remain the hardest task, especially in countries where political corruption has been the only game in town for decades.


Europe's Edge is an online journal covering crucial topics in the transatlantic policy debate. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis. 


Corina Rebegea

17 April 2015

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