Where Did the Money Go? Endogenous Money Creation for International Fraudulent Purposes The Case of the 2015 Moldovan Banking Scandal

Abstract

On Monday 4 May 2015, the speaker of Parliament of the Republic of Moldova published the Kroll report on his Internet blog after thousands of people rallied on Sunday 3 May in the capital, Chisinau, to protest against endemic corruption in the country, and demand recovery of the missing billions in the Ilan Shor group scandal. The Kroll report aims at investigating the apparent theft of nearly one-fifth of the country's annual GDP. In a spectacular lender-of-last resort move, the Moldovan central bank was forced to issue some 16 billion lei ($870 million) in emergency loans to keep the economy afloat. The Kroll report focuses on three commercial banks that account for a third of the country's banking sector. These banks were subject to significant shareholder change, which had the effect of transferring ownership to a series of apparently unconnected individuals and entities in Russia, Ukraine, the UK and Moldova with various actors linked to notorious tax havens such as Seychelles or the Marshall islands.Despite the opacity of the web of complex transactions that led to the scandal, rarely have we been in possession of so much quality information about actual banking operations involving billions of dollars (or the equivalent in foreign currency). What are the learning lessons of this gigantic banking scandal in the Republic of Moldova for Post-Keynesian monetary theory?Part 1 presents a brief synopsis of the 2015 Moldovan banking scandal. In part 2, we investigate the under-explored issues of corporate governance structures of both lenders and borrowers as well as the impact of transnational financial engineering practices in the context of endogenous money theory. Part 3 sketches out the implications of the 2015 Moldovan banking scandal for post-Keynesian monetary theory by, on the one hand, rehabilitating Palley's concept of endogenous finance, and on the other hand, by demonstrating how the scandal is best conceptualized by elaborating a new framework focusing on the interface between transnational financial elites and the shadow banking system in transition economies.