Officials in Moldova believe they know what happened to $1 billion in banking assets that went missing during a three-day period last November. The money was paid out in loans to shadowy limited partnerships that seemed to disappear almost as soon as they took the payments. There was no collateral, computer records were erased, and many of the paper documents were loaded into a van that was set on fire. Eventually much of the money was traced to bank accounts in Latvia. The owners listed for these accounts are foreign businesses that don’t have any other record of existing. The sudden loss of $1 billion left three of the largest banks in the country insolvent, leading to a government rescue. The amount of money suddenly swept out of the country was the equivalent of more than six weeks of GDP, so it was a difficult blow to the government and has been the subject of political unrest ever since the scale of the problem was discovered.
Who could have perpetrated such an intricate plan to steal so much money so quickly? A government report released this week says that several people must have been involved, but it specifically points to the CEO of one of the three banks, billionaire Ilan Shor. Shor has been indicted and placed under house arrest while the investigation continues. It could take another year of forensic accounting to work out all the details of the transactions, which span at least five countries.
The scale of the theft is so vast and the method so daring the story is sure to be turned into a Hollywood movie sooner or later. Most of all, it is the motive that captures the imagination. What would make a billionaire, already rich beyond the point of material wealth, decide to steal a billion more? The logistics are equally dizzying. Even if you are the CEO, how do you hire someone to erase the records of illicit transactions from the bank’s computers, including the offline backups and paper trail? How do you maintain the coverup after the bank is financially crippled from its massive losses?
As for the financial transactions themselves, they are startlingly mundane. It takes only two bank officers to approve a loan. A scheme like this can minimize scrutiny by issuing a large number of routine-looking “loans” of various sizes to hundreds of seemingly unrelated borrowers. Once the money is out of the bank’s hands, anything can happen to it. Making money disappear then is not much more than a shell game: move it around enough times, and the hope is that the forensic accountants won’t be able to follow. The techniques are obvious enough to anyone who has ever worked with an audit team: make the payments look routine, and they may not raise any red flags. Generally similar approaches were involved in Enron, CorpBank, AIG, Petrobras, the Espírito Santo empire, the “rogue trader” schemes we keep hearing about (which never really involve just a single trader), and the failures of several banks (smaller ones, of course) in the United States over the last few years.
What makes the Moldova case so singular, though, is the way it moved so much money in such a short time, apparently a period of just three business days — well, that and the burning van. Bank robbers who take a more subtle approach must get away with the money far more often than the cases we hear about.
There was a bank failure in Chicago tonight, the first U.S. bank failure in two months. State regulators in Illinois closed Edgebrook Bank, which had $90 million in deposits and about the same amount in assets. Republic Bank of Chicago is assuming the deposits and purchasing most of the assets. The failed bank was having such trouble with its loans that in March, the FDIC ordered it not to make any further loans without regulatory approval.
