Moldova is not on the FATF List of Countries that have been identified as having strategic AML deficiencies
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Moldova was undertaken in 2019. According to that Evaluation, Moldova was deemed Compliant for 9 and Largely Compliant for 20 of the FATF 40 Recommendations. It was also deemed Highly Effective for 0 and Substantially Effective for 3 with regard to the 11 areas of Effectiveness of its AML/CFT Regime.
US Department of State Money Laundering assessment (INCSR)
Moldova was deemed a Jurisdiction of Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -
Moldova is not a regional financial center. The economy is largely cash-based and remains highly vulnerable to money laundering activities. The Government of Moldova monitors money flows throughout the country, but does not exercise control over the breakaway region of Transnistria. Transnistrian authorities do not adhere to Moldovan financial controls and maintain a banking system independent of, and not licensed by, the National Bank of Moldova (NBM). The breakaway region of Transnistria is highly susceptible to money laundering schemes. Due to the Moldova government’s inability to enforce the laws on this territory, Transnistrian banking and financial laws and regulations are not in compliance with accepted international AML/CFT norms.
Criminal proceeds laundered in Moldova derive substantially from tax evasion, contraband smuggling, fraud, and corruption. Money laundering occurs within the banking system, exchange houses, and the offshore financial centers in Transnistria. Currently, 11 banks are operating in Moldova. Neither offshore banks nor shell companies are permitted; despite this ban, shell companies continue to be used to launder illicit proceeds. Internet gaming sites exist, although no statistics are available on the number of sites in operation. Internet gaming comes under the same set of regulations as domestic casinos. Enforcement of the regulations is sporadic.
In late November 2014, an estimated $1 billion was stripped from the assets of three large banks in Moldova, which has led to their liquidation. The theft is being investigated by Moldova’s National Anticorruption Center (NAC) in conjunction with some outside assistance. However, the theft appears politically connected and the investigation is lingering, casting doubt on the government’s ability and commitment to identify and prosecute the perpetrators.
Moldova contains seven free trade zones (FTZs), some of which are infrequently used. Reportedly, goods from abroad are sometimes imported into the FTZ and then resold and exported to other countries with documentation indicating Moldovan origin. Companies operating in FTZs are subject to inspections, controls, and investigations by inspectors from the Customs Service and the General Police Inspectorate.
There are EU restrictions currently in force against this country in respect of persons responsible for the campaign against Latin-script schools in the Transnistrian region. These are regularly reviewed.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 33
World Governance Indicator – Control of Corruption 21
Moldova's business environment is one of the most challenging in the region and is weakened by pervasive government corruption and a burdensome regulatory environment. The government lacks transparency, and Moldova's public officials commit acts of corruption with impunity. The judiciary is one of the weakest in the world in relation to independence from the political elite, and judges and prosecutors regularly extort bribes in exchange for reducing charges or imposing milder penalties. International companies pay bribes and kickbacks to obtain construction permits and operating licenses and to secure government contracts. Moldova's Criminal Code prohibits active and passive bribery, extortion, abuse of office, bribery of foreign public officials and trading in influence. However, Moldova's anti-corruption legislative framework is deficient as a result of inadequate financing and monitoring and a general lack of resources. Facilitation payments are often expected when operating in Moldova and are not addressed in law. For further information - GAN Integrity Business Anti-Corruption Portal
Despite recent progress, Moldova remains one of the poorest countries in Europe. With a moderate climate and productive farmland, Moldova's economy relies heavily on its agriculture sector, featuring fruits, vegetables, wine, and tobacco. Moldova also depends on annual remittances of about $1.12 billion from the roughly one million Moldovans working in Europe, Russia, and other former Soviet Bloc countries.
With few natural energy resources, Moldova imports almost all of its energy supplies from Russia and Ukraine. Moldova's dependence on Russian energy is underscored by a more than $5 billion debt to Russian natural gas supplier Gazprom, largely the result of unreimbursed natural gas consumption in the breakaway region of Transnistria. Moldova and Romania inaugurated the Ungheni-Iasi natural gas interconnector project in August 2014. The 43-kilometer pipeline between Moldova and Romania, allows for both the import and export of natural gas. Several technical and regulatory delays kept gas from flowing into Moldova until March 2015. Romanian gas exports to Moldova are largely symbolic. Moldova hopes to build a pipeline connecting Ungheni to Chisinau, bringing the gas to Moldovan population centres.
The government's stated goal of EU integration has resulted in some market-oriented progress. Moldova experienced better than expected economic growth in 2014 due to increased agriculture production, to economic policies adopted by the Moldovan government since 2009, and to the receipt of EU trade preferences. Moldova signed an Association Agreement and a Deep and Comprehensive Free Trade Agreement with the EU during fall 2014, connecting Moldovan products to the world’s largest market. Still, a $1 billion asset-stripping heist of Moldovan banks in late 2014 delivered a significant shock to the economy in 2015; a subsequent bank bailout increased inflationary pressures and contributed to the depreciation of the leu. Moldova’s growth has also been hampered by endemic corruption and a Russian import ban on Moldova’s agricultural products.
Over the longer term, Moldova's economy remains vulnerable to corruption, political uncertainty, weak administrative capacity, vested bureaucratic interests, higher fuel prices, Russian political and economic pressure, and unresolved separatism in Moldova's Transnistria region.
Agriculture - products:
vegetables, fruits, grapes, grain, sugar beets, sunflower seeds, tobacco; beef, milk; wine
sugar, vegetable oil, food processing, agricultural machinery; foundry equipment, refrigerators and freezers, washing machines; hosiery, shoes, textiles
Exports - commodities:
foodstuffs, textiles, machinery
Exports - partners:
Romania 23.1%, Italy 10.2%, Turkey 9.4%, Russia 8%, Germany 6.6%, Belarus 6.4% (2015)
Imports - commodities:
mineral products and fuel, machinery and equipment, chemicals, textiles
Imports - partners:
Russia 22.7%, Romania 18.1%, Ukraine 11.5%, Germany 7%, Italy 4.8%, Turkey 4.4% (2015)
Investment Climate - US State Department
Former Soviet republic Moldova has made some progress towards adopting the principles of a free-market democracy since its independence in 1991, but still has significant shortcomings in its investment climate. Political turmoil in 2015 unseated the government and highlighted major shortcomings in Moldova’s business environment, public and private institutions, rule of law, and practices at odds with the officially declared support for reform and increased foreign direct investment.
The current government has reiterated its support for reforms, but its efforts have not yet had a major impact on the widespread perceptions of a recent massive bank fraud, political instability, and pervasive corruption that have undermined trust in the state and political-economic institutions.
In June 2014, Moldova signed an Association Agreement with the European Union (EU), including a Deep and Comprehensive Free Trade Agreement (DCFTA), committing the government to a course of reforms to bring its governmental, regulatory, and business practices in line with EU standards. Moldova hopes that implementation of the DCFTA will integrate it further into the European common market and create more opportunities for investment in Moldova as a bridge between Western and Eastern European markets.
After political volatility stalled reforms in 2015, a Democratic Party-led parliamentary majority installed a new government in early 2016 which declared its intent to pursue greater integration with the EU. The government has published a roadmap of priority actions it says it will implement by July 31, 2016. These include judicial reforms, public administration restructuring, measures ensuring independence of financial and banking regulators, bank fraud investigations, and enhanced regulatory transparency. These are measures that the EU previously identified as requirements for further integration and donor support, but do not constitute a comprehensive reform plan.
The business climate is challenging. Although the many underdeveloped sectors offer opportunities, investors should proceed with caution. While a number of large foreign companies have taken advantage of tax breaks in the country’s free economic zones, foreign direct investment remains low. Finance, automotive, light industry, agriculture, food processing, wine, and real estate have historically attracted foreign investment. The National Strategy for Investment Attraction and Export Promotion 2016-2020 identified seven priority sectors for investment and export promotion: agriculture and food, automotive, business services such as business process outsourcing (BPO), clothing and footwear, electronics, information and communication technologies (ICT), and machinery.
The Moldovan government has also identified seven priority areas for development and reform in its National Development Strategy “Moldova 2020”: education, access to financing, road infrastructure, business regulation, energy efficiency, justice sector reform, and social insurance. Based on that strategy, the government will set out a new 2016-2018 action plan for a business regulatory framework reform to facilitate day-to-day business activity.
The major investment climate concerns in 2016 include political uncertainties related to presidential elections scheduled for October 30, the lack of public trust in the government as well as public and private institutions, the economic downturn resulting from Moldova’s 2014 banking crisis, continuing fragility of the banking sector, and instability in the wider region.
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