## PREFACE — Moldova Governance Assessment (1mdaea2021001) ## Source details **Canonical URL:** [PREFACE — Moldova Governance Assessment (1mdaea2021001)](https://www.imf.org/-/media/files/publications/cr/2021/english/1mdaea2021001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1mdaea2021001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1mdaea2021001.pdf.json) --- ### Mission context and team - Mission period: July 24-August 7, 2020. - Organized by IMF’s Fiscal Affairs (FAD), Legal (LEG) and Monetary and Capital Markets (MCM) Departments. - Team members: Ms. Ioana Luca (head), Ms. Kathleen Kao, Mr. Maksym Markevych, Mr. Pasquale Di Benedetta, Mr. Hans Weenink (all LEG), Mr. Kors Kool, Mr. Michael O’Grady, Mr. Yugo Koshima (all FAD), and Ms. Katharine Seal (MCM). - Approach: virtual meetings and extensive desk study; met government and central bank officials, multilateral donors, private sector and civil society. - Acknowledgments: Prime Minister Mr. Ion Chicu; Minister of Finance Mr. Sergiu Puşcuţa; State Secretary Ms. Tatiana Ivanicichina; Governor NBM Mr. Octavian Armaşu; Director STS Ms. Ludmila Botnari; support from Mr. Ruben Atoyan, Mr. Volodymyr Tulin, Mr. Rodgers Chawani and team. ### Executive summary — substantive findings - Overall assessment: - Legal and institutional frameworks largely in place, but significant corruption and governance vulnerabilities persist. - Areas with pronounced vulnerabilities: rule of law, anti-corruption, AML/CFT, and SOE governance. - Areas with some progress: Public Financial Management (PFM), tax administration, central bank governance, and financial sector oversight. - Rule of law (key points): - Characterized as weak; justice system perceived as ineffective, susceptible to corruption and capture. - Weak protection of property rights and contract enforcement; inconsistent application of commercial legal framework. - Perceived deterrent to foreign direct investment and private sector development. - Anti-corruption framework (key points): - Legal/institutional infrastructure largely present but ineffective and subject to undue influence. - Investigations focused on petty bribery and private citizens rather than public officials; some corruption types (e.g., embezzlement) not adequately prosecuted. - Sanctioning lenient with wide use of fines and reduced/suspended sentencing. - AML/CFT (key points): - Regime strong in some areas but insufficiently leveraged to support anti-corruption enforcement or shield the economy from illicit flows. - Weak understanding and application of preventive measures on beneficial owners and PEPs. - SOE governance (key points): - Institutional framework fragmented; SOE boards populated by multiple government representatives. - Privatization of state assets remains a grave concern. - Recommendation: adopt triage methodology and state ownership policy; professionalize boards and management. - PFM and Tax Administration (key points): - Controls and transparency strong for main budget spending; weaker for spending outside main framework (funds, PPPs, local leases). - STS has made progress reducing corruption vulnerability; public perception of STS corruption remains high. - Recommendation: amend appointment rules for STS Director; postpone and scale back STS criminal investigation powers until safeguards and integrity-vetted investigators in place. - Central bank and financial sector oversight (key points): - NBM governance broadly appropriate per recent safeguards assessment but autonomy undermined by political pressures. - Further legal amendments to NBM Law needed to strengthen independence and safeguard operational independence of prudential supervision. - Supervisory implementation of corporate governance standards in banks remains weak. ### Policy roadmap and ownership - The report provides a road map for governance and anti-corruption reforms across assessed areas (Priority Recommendations in Table 1; full recommendations in Annex 1). - Emphasis: reforms require Moldovan ownership and sustained political support. ### Priority recommendations — selected highlights and timelines - Rule of Law (ST = Short Term; MT = Medium Term; LT = Long Term; Immediate): - Clarify powers/responsibilities of the judicial inspectorate; improve operating procedures. (MOJ, SCM) — ST - Enhance integrity testing of judges, including checks of asset declarations and conflicts of interest. (MOJ, SCM) — ST - Enhance SCM selection process, including independent commission. (MOJ) — ST - Repeal CC 307 to prevent undermining judicial independence. (MOJ) — Immediate - Limit powers of court presidents and document their decisions. (MOJ, SCM) — ST - Anti-Corruption: - Strengthen selection for APO head with international experts and civil society; allow non-prosecutors to apply. (MOJ, APO) — ST - Transfer disciplinary function from PGO to SCP. (PGO, SCP) — ST - Intensify investigations of embezzlement, illicit enrichment, false declarations. (APO, NAC) — LT - Study causes of lenient sanctions in corruption cases and publish results. (Judiciary, APO, NAC, PGO, MOJ) — MT - AML/CFT: - Cross-sectoral thematic bank inspections based on external audits. (NBM) — ST - Provide PSA sanctioning powers for non-compliance with BO registration requirements. (MOJ) — Now - Thematic inspection on banks’ systems for reporting suspicious transactions with focus on PEPs. (NBM, SPCML) — ST - Intensify efforts to investigate and prosecute corruption-related ML. (NAC, APO) — LT - PFM: - Establish agency centralizing Ecological Fund project management with augmented capacity. (MADR M) — S/MT - Amend PPP Law to strengthen appraisal, transparency and introduce strict administrative sanctions. (APP) — S/MT - Develop automated interfaces between RBI, land use records, and register of public patrimony; update registers via mass delimitation. (APP, ASP, ARFC) — MT - SOE Governance: - Issue policy specifying ownership, oversight, responsibilities. (MOF, MOE, PPA) — S/MT - Triage SOE portfolio to define rationale for government ownership. (MOF, MOE, PPA) — MT - Reduce SOEs to one legal form: JSC. (MOF, MOE, PPA) — MT - Tax Administration: - Amend Art. 133 Tax Code to recruit STS Director by competition for fixed term. (MOF) — ST - Safeguards for criminal investigation function; scale back proposed size. (STS, Prosecutor’s Office) — ST - Better monitor integrity and professionalism of inspectors. (STS) — ST - Central Bank & Financial Sector: - Strengthen NBM governance and independence, including operational independence of prudential supervisory function via NBM Law amendments. (NBM with IMF consultation; Government and Parliament) — S/MT - Provide courts’ deference to complex supervisory assessments by NBM unless vitiated by manifest error (amend NBM Law and Law on Activities of Banks where needed). (NBM with IMF consultation; Government and Parliament) — ST ### Report structure (as presented) - Section II: Rule of law vulnerabilities (judiciary, protection/enforcement of economic rights). - Section III: Anti-corruption framework weaknesses. - Section IV: AML/CFT assessment and support for enforcement/asset recovery. - Section V: PFM vulnerabilities. - Section VI: SOE governance weaknesses. - Section VII: Tax administration governance reforms. - Section VIII: Central bank governance. - Section IX: Financial sector oversight. - Recommendations collated in Annex 1; meetings in Annex 2; bibliography in Annex 3. --- ### Rule of law and judiciary — main diagnostics - Public perception and statistics: - 2017 USAID study for SCM: "81% of the general population" and "81% of people who had contact with the court system" did not trust the judiciary; "75% of population" and "83% of those with court experience" believed the judiciary to be corrupt. - Judicial capacity and vacancies: - As of January 1, 2017: 386 judges actively hearing cases (20 in SCJ, 79 in 4 appellate courts, 287 in courts of first instance). - As of November 2020: 28 judicial vacancies (SCJ – 11; Chisinau Appellate Court – 8; trial courts – 9). - Case management and infrastructure: - Reforms since 2016 aim to consolidate courthouses and increase specialization through 2027; plans envision construction of 14 new courthouses, only one built to date. - Electronic case management system implemented in 2020 with donor assistance. - SCM structure and concerns: - SCM membership increased to 15 in 2019 (7 judges, 5 lay members, 3 ex officio). A bill (Nov 2020) proposed excluding ex officio members and reducing SCM to 12 (6 judges, 6 lay members). - Selection, Evaluation, and Disciplinary Boards: composition and tasks summarized; Selection Board recommendations not binding on SCM in practice. - Main problems identified: - SCM decisions often lack reasoned explanations; Selection Board scores frequently overridden (evidence: 2017 USAID/LRCM study shows many successful candidates scored lower than competitors). - Disciplinary processes ineffective: over 7,500 complaints in five years (avg 1,500/year) but only 250 disciplinary cases initiated. - Judicial Inspectorate perceived as subordinated to SCM; inspectors appointed for six-year terms without regular evaluation. - Court presidents exercise extensive informal powers affecting case assignment, promotions and transfers. - Integrity safeguards weak: polygraph practice remains on the books though largely discontinued; asset declaration checks and use of NIA information unclear. ### Protection and enforcement of economic rights - Property registration and cadaster: - Two thirds of country territory covered by property register. - About "4.8 million" out of estimated "6.0 million" immovables are registered in the Real Property Registry. - World Bank land registration/valuation project planned for 2019-2023. - Judicial practice and enforcement: - Reasoned verdicts requested in approximately "25 percent" of civil cases; in remaining "75 percent" no reasoning requested. - Moldova had 33 ECHR judgments in 2018; six related to property rights; historically 40% of ECHR breaches (1995–2010) related to property rights. - Contract enforcement and ADR: - Enforcement agents/private bailiffs introduced in 2010; EBRD 2013 found enforcement framework relatively strong but bureaucratic; clearance rate below 100% leading to backlog. - ADR (mediation, arbitration) underused; judicial mediation mandatory in many civil cases but judges oppose; 2019 EBRD data: "725" mediated cases, "40" at Chamber of Commerce center, remainder mediated by judges. --- ### Anti-corruption institutions, investigations, and sentencing patterns - Institutional landscape: - NAC (detection, prevention, criminal investigations except high-level corruption under APO), APO (high-level corruption investigations and representation), PGO, SPCML (FIU), NIA (asset declarations). - NAC analytical output in 2019: - "425 analytical products": "234 analyses of assets and incomes", "102 analyses of legal persons", "89 analyses of relationships". - Findings included: "31 cases of officials holding unjustified assets"; "31 cases of real estate registered under relatives' names"; "25 cases of suspicious loans"; "51 cases of non-declaring assets". - Case volumes and focus (2016–1H2020 and related figures): - NAC started "1,452" corruption investigations during 2016-2019. - APO started "462" investigations with a steady decrease since 2017; "3" bribery investigations in 1H2020 vs average "41" annual previously. - APO sent "235" corruption cases to court in 2016-2019; two thirds of APO active and passive bribery investigations were terminated. - NAC sent "668" corruption cases to court in 2016-2019. - Profile of indicted persons: - Majority are private citizens and low-level officials; examples of APO cases sent to court include "2 ministers", "1 member of Parliament", "19 judges" in 2017 and subsequent other officials. - Since 2016, "994 out of 2154" persons sent to court were private citizens without official status. - Convictions and sentencing: - 2016-2019 convictions: "129" passive bribery; "183" active bribery; "366" trading in influence. - Almost half of corruption convictions result only in a fine. - Of "42" officials sentenced to prison for accepting a bribe in 2017-2019, only "8" were actually imprisoned; remainder received suspended sentences. - Sentence-reduction provisions applied in "77 percent" of corruption convicts (applied "425" times in "552" persons). - Asset recovery and confiscation: - Trial-stage sequestrations (2019): APO cases almost "MDL 1.5 billion"; NAC cases "MDL 1.1 billion". - Actual confiscations in high-profile cases mostly limited to several thousands of USD with a maximum of "USD 87 000". - Assets recovered: "USD 1.3 million" recovered in five years (2013-2017). - Key recommendations: - Focus enforcement on high-level corruption, illicit enrichment and false declarations; prioritize asset recovery; strengthen operational autonomy and safeguards for APO and NAC; make sanctions more dissuasive and limit routine sentence reductions. --- ### Illicit enrichment and legal remedies (Box 2 highlights) - Illicit enrichment criminalized in 2013 as Article 330/2 CC: defined as assets substantially exceeding received income where proof shows assets could not have been legally obtained. - Enforcement challenges: - Rarely prosecuted; law enforcement tends to require direct proof of illegality rather than presumption with rebuttable defence. - Few cases sent to courts: one judge and one customs officer in 2018–2019; one conviction resulted in a fine. - Sentencing and procedural issues: - Many corruption offences classified as serious with maximum sentences between "5 and 12 years" and minimum "two or three years"; some offences classified as less serious with max sentence not exceeding "5 years". - Certain investigative and special measures excluded for less serious crimes (statute of limitations "5 years"). - Provisions allowing sentence reduction (Article 364-1 CPC; Article 80 CC) widely applied; UNCAC reviewers recommended limiting application in corruption cases. --- ### AML/CFT assessment and banking supervision - NRA and MONEYVAL: - NRA published 2017; MONEYVAL 2019 found weaknesses: over-reliance on typologies from two high-profile schemes; risk-based approach "work in progress"; CDD deficiencies on BO and PEPs; modest results prosecuting corruption-related ML. - NBM initiatives: - Updating risk-based supervisory model and institutional risk assessment methodology. - Planned sectoral risk assessments and IT solution (with USAID) to identify ML/TF patterns (IT hoped to launch in approximately a year from mission). - Recurring banking deficiencies: - Failure to properly identify customers and beneficial owners; lack of transaction monitoring; failure to verify source of funds; weak EDD for high-risk customers; failures to identify and report suspicious transactions. - Beneficial ownership and PEPs: - Public BO register maintained by PSA, but PSA lacks sanctioning powers; data quality questionable. - Banks rely on client information; identification of PEPs weak; SPCML received "889" reports regarding PEPs in 2019 ("3.5 percent" of reports). - SPCML disseminations: SPCML disseminated "14" financial intelligence reports regarding possible corruption/PEP activity in 2019 (vs "2" in 2018 and "5" in 2017). - AML/CFT prosecutions and convictions: - APO initiated "82" ML investigations and secured "14" conviction sentences in 2016-1H2020; APO accounts for more than two-thirds of initiated ML investigations and convictions but many not directly related to corruption. - Recommendations: - Intensify investigations/prosecutions of corruption-related ML; strengthen supervisory enforcement, sanctions and BO/PEP detection; provide PSA with sanctioning powers. --- ### Public Financial Management, procurement, funds and IT controls - COVID-19 procurement: - CAPCS centralized COVID-19 medical procurement for "385" public health institutions; emergency procurement based on transparent, competitive principles; since January 2021 all CAPCS procurements made through MTender. - MTender initially had technical problems; procurement rules were largely not relaxed (Government Decision No. 494-2020 shortened complaint grace period only). - SIMF controls and interfaces: - SIMF modules: budget preparation, contract registration, authorization of payments, bank instructions, cash-based budget execution reports; around "2,600" budget entities have access. - Application-level general controls strong; need improvements in business continuity testing. - Automated interfaces exist with STS, Customs, BNM banking system, State Social and Compulsory Health Insurance Funds, and NBS; no automated interface with procurement system (MTender) and budget entities’ “1C” system (manual file upload). - “1C” usage and risks: - Around "1,000" budget entities use “1C”; decentralised control and backups stored locally; CTIF manages configuration but IT audit not yet conducted for “1C”. - Audit findings for health institutions: "43 percent" use “1C”; "37 percent" use excel; "21 percent" have no financial management system. - Recommendation: shift “1C” to a centralized CTIF-administered platform and roll out to all entities. - Capital projects and funds: - Government framework for “capital investments” captured only "16 percent" of total capital expenditures in 2018; remaining expenditures outside the framework more vulnerable. - Good Road Moldova program practices exist but funding unpredictability in 2018–2019 caused tender cancellations and execution issues. - Ecological Fund: audit found irregularities in project selection and implementation; recommendation to centralize Ecological Fund project management and reappraise long-running projects. - PPP irregularities: - PPP annual investments at a few hundred million lei; Chisinau International Airport received around "1.5 billion lei" since 2014; audit reports show uncompetitive selection and contractual/monitoring issues. - Box 5 examples: Chisinau Airport (planned 5 billion lei); “Gările și stațiile auto” (planned 200 million lei); Balti Solid Waste plant (planned 464 million lei). - Recommendations: amend PPP Law to ban single-bidder selection, require publication of tender documents and contracts, mandatory performance guarantees, and strict sanctions for violations. - Lands and leasing: - Central/local governments still own "43.8 percent" of country’s lands; around "1 million ha" remain unregistered per Audit No.2-2018. - Revenue loss from irregular leasing of local government lands: "3.6 billion lei" in 2018 ("1.9 percent of GDP"). - Recommendation: mass delimitation program (2019-23), harmonize RBI, land use records and register of public patrimony; amend Law on Normative Prices of Land to bring prices closer to market. - Fiscal reporting and audits: - No fiscal report consolidating public corporations; need single framework for fiscal reporting of self-management authorities. - Internal audit: "111" IASs in 2019; total internal auditors’ positions "221" with "99" vacancies (45 percent); functional IASs undertaking audits in 2019: "65"; audit missions "218"; management acceptance of recommendations "93 percent"; implementation within timeframe "61 percent". - Court of Accounts published more than "50" audit reports in 2019; audit recommendations issued in 2019: "1,118"; central level implementation at least some delay: "57 percent". - Recommendations: external IT audits, horizontal audits, shift “1C” centralization, strengthen SIMF–MTender interface. --- ### SOE governance — scale, problems and reforms - SOE sector scale and statistics: - Share of public sector in GDP in 2018: "14.4%". - Share of public sector employees in total employees at end-2019: "39,7 %". - Share of public sector in fixed assets (non-financial companies, 2019): "32.6%". - Portfolio: over "200" enterprises; local/municipal SOEs over "400" enterprises; more than "60" in Chisinau. - Only "40" enterprises (JSC) have adopted corporate form under Company Law; remainder under SOE Law 246/2017. - Board composition and controls: - Average board size: "five"; boards filled with ex-officio government representatives. - Mission data: "70 to 80" MOE ex-officio employees sit on SOE boards; "less than 100" MOF ex-officio employees on boards. - Audit committees and independent members: only "4 SOEs and 8 JSCs" classified as public interest entities with audit committees. - Public depository of financial statements not accessible; only "50%" of SOEs provide reports electronically. - Performance and transparency issues: - Performance monitoring by MoF and PPA inadequate; performance contracts not recurrent practice; dividend payout is the only consistent commitment. - More than "50%" of SOE portfolio de facto insolvent; courts have appointed executive administrators in insolvency cases. - Recommendations: - Streamline government functions; run triage and ownership policy in parallel; reduce SOEs to one legal form (JSC); include independent directors and audit committees; remove Censor Committee; develop remuneration policies and supporting regulations; enforce penalties for failure to report. - Medium-term engagement of at least "five years" envisaged. --- ### Tax administration — STS governance and integrity measures - STS organization and reforms: - STS is part of MoF administrative system; restructured in 2017 replacing 35 territorial inspectorates with a single legal structure. - Since October 2018 given limited competence to identify criminal tax violations; not a criminal investigation body at time of mission. - Perception indicators (selected survey results): - Time to comply with tax obligations: "183 hours in 2019" (World Bank Paying Taxes). - Transparency International – Moldova: businesses resorting to money/gifts/personal contacts to solve STS problems reduced from "41.3 percent" (2015) to "29.7 percent" (2018). - IDIS Viitorul 2017: "45.7 percent" of businesses had little or no trust in STS. - Transparency International – Moldova October 2019: "26.5 percent" of STS central office staff considered there was corruption in STS (37 percent did not respond). - STS-commissioned survey Jan 2019: "82 percent" perceived STS employees as generally honest; "22 percent" would look for known people to solve STS problems. - UNDP 2019: "30 percent" of businesses and "39 percent" of population perceived STS as “pretty corrupt or very corrupt”. - Governance recommendations: - Amend Art. 133 Tax Code to appoint STS Director via competition for fixed term and restore prior pre-2020 appointment method (previously five-year term). - Establish senior STS management group to coordinate corruption risk assessment and mitigation. - Strengthen post-audit quality control, integrity checks for new hires, transparent promotion by competition, job rotation for sensitive posts (remove prior consent requirement). - STS criminal investigation competence changes: - Law amendment to designate STS as criminal investigation body for certain tax/economic crimes with proposed commencement date "January 1, 2021". - Concerns: proposed subdivision size "70 staff" deemed too high vs current "17" in crime "establishment" department. - Recommendations: postpone implementation to set robust procedures, scale back new sub-division size, reserve special investigative powers for significant tax fraud, ensure trained integrity-vetted investigators, clarify inter-agency cooperation legal gateways. --- ### Central bank governance and financial sector oversight - NBM governance and staff protections: - Amendments since 2014 FSAP strengthened NBM; further legal enhancements recommended to protect professional judgment and staff acting in good faith. - Legal protections exist for staff but wording to be refined; draft Law on amending normative acts (Government Decision no. 810 of November 5, 2020) addresses some issues. - Recommend mandatory publication of reasons for dismissal of Governor, Deputy Governors and board members. - Conflicts of interest: prohibit equity holdings in supervised banks; define conflict conditions in law or internal regulations. - Supervisory discretion and enforcement: - NBM faces frequent court challenges to decisions; this encourages conservative, compliance-based supervision rather than forward-looking risk-based supervision. - In June 2018–June 2020 banks filed "18" lawsuits challenging "15" Executive Board decisions. - Recommendations: encode discretion/professional judgment in law; clarify judicial review standard (manifest error test); expand tariffs/fines to be more dissuasive. - Licensing and change of control: - No new banking license applicants in last seven years; "6" applications for change of control in last three years. - Recommend manuals for authorizations and change of control, mandatory interviews for board/management candidates, enhanced staff skills for qualitative assessments. - AML/CFT supervision by NBM (paras. 208–211): - NBM strengthening AML/CFT supervision but compliance culture in banks weak. - Enforcement regime must be effective despite legal challenge risk; NBM should coordinate AML and Banking Supervision departments, pursue legal action for AML/CFT breaches, increase sanctions magnitude, and protect use of professional risk-based judgment in law. - Recommendations summary: - Amend NBM Law and Law on Activities of Banks to protect supervisory discretion; amend internal regulations to document supervisory decisions; enhance recruitment/retention; institute mandatory interview for new board members; prepare authorization manuals; adopt horizontal thematic inspections; ensure systematic coordination between NBM departments. --- ### Annexes & meetings - Annex 1: Full list of recommendations collated by area and timeline (Rule of Law; Anti-Corruption; AML/CFT; PFM; SOE Governance; Tax Administration; Central Bank Governance; Financial Sector Oversight). - Annex 2: Meetings with officials and stakeholders included: Center for Information Technology in Finance; Competition Council; Court of Accounts; EBRD; EU High-Level Advisors; Financial Statements Information Services; General Prosecutor’s Office; IDIS Viitorul; Ministry of Economy and Infrastructure; Ministry of Finance; National Anti-Corruption Center; National Bank of Moldova; National Integrity Agency; Public Property Agency; STS; Transparency International – Moldova; UK Fund for Good Governance; United States Office of Technical Assistance; World Bank. - Annex 3: Bibliography listing studies and reports cited. *Source: 1mdaea2021001 — PREFACE and selected chapters (IMF country report PDF).* ### PREFACE ________________________________________________________________7 ### PREFACE ### Mission context and team - In response to a request from the authorities of Moldova, a team organized by the IMF’s Fiscal Affairs (FAD), Legal (LEG) and Monetary and Capital Markets (MCM) Departments conducted a country governance assessment of Moldova during the period July 24-August 7, 2020. (The “mission”) - The Moldova governance assessment is being carried out according to the IMF’s Framework for Enhanced Fund Engagement on Governance Issues approved by the Executive Board in April 2018. - The team consisted of Ms. Ioana Luca (head), Ms. Kathleen Kao, Mr. Maksym Markevych, Mr. Pasquale Di Benedetta, Mr. Hans Weenink (all LEG), Mr. Kors Kool, Mr. Michael O’Grady, Mr. Yugo Koshima (all FAD), and Ms. Katharine Seal (MCM). - Given travel limitations related to the COVID-19 pandemic, the team conducted virtual meetings and undertook an extensive desk study. The mission met with a wide range of government and central bank officials, multilateral donors, private sector and civil society representatives. - Acknowledgments: Prime Minister Mr. Ion Chicu; Minister of Finance Mr. Sergiu Puşcuţa; State Secretary (Ministry of Finance) Ms. Tatiana Ivanicichina; Governor of the National Bank of Moldova Mr. Octavian Armaşu; Director of the State Tax Service (STS) Ms. Ludmila Botnari. Support from Mr. Ruben Atoyan (mission chief, European Department), Mr. Volodymyr Tulin (IMF Resident Representative, outgoing), Mr. Rodgers Chawani (IMF Resident Representative, incoming) and team. ### Executive summary — substantive findings - Despite having legal and institutional frameworks largely in place, Moldova continues to suffer from significant corruption and governance vulnerabilities. - Areas with pronounced vulnerabilities: rule of law, anti-corruption, AML/CFT, and SOE governance. - Areas with some progress: Public Financial Management (PFM), tax administration, central bank governance, and financial sector oversight showed some good progress in mitigating vulnerabilities. - Rule of law: - Characterized as weak, with poor implementation of legal and regulatory frameworks. - Justice system perceived as ineffective and susceptible to corruption and capture; main judicial actors perceived as lacking integrity and independence. - Weak protection of property rights and contract enforcement; inconsistent application of commercial legal framework. - Weak rule of law cited as a deterrent to foreign direct investment and private sector development. - Anti-corruption framework: - Legal and institutional infrastructure largely in place but lacks effectiveness and needs insulation from undue influence. - Corruption investigations focused on petty bribery and private citizens rather than public officials; some corruption types (e.g., embezzlement) not adequately prosecuted. - Sanctioning appears lenient with wide use of fines and reduced/suspended sentencing. - Need to target criminal enforcement at high-level corruption with dissuasive sanctions. - AML/CFT: - Regime strong in some areas but not sufficiently used to support anti-corruption efforts or shield the economy from illicit flows. - Understanding of money laundering risks associated with corruption and application of preventive measures (beneficial owners, politically exposed persons) remain inadequate. - AML/CFT tools could be better leveraged for criminal enforcement and asset recovery. - SOE governance: - Institutional framework fragmented, prone to sudden changes, conducive to blurring responsibilities. - SOE boards populated by multiple government representatives from different ministries/agencies. - Privatization of state assets and enterprises remains a grave concern. - Recommendation: develop a triage methodology justifying state ownership and divestitures and adopt a state ownership policy to streamline institutions and improve board/management professionalism. - Public Financial Management (PFM): - Controls and transparency strong for main budget spending but weaker for spending/transactions outside the “main framework”. - Recommendations include: establish transparency framework for funds; framework for projects outside “capital investment” framework; monitor leasing of Local Public Authorities’ lands; systemic procurement monitoring; coverage and linkage of IT systems; strengthen internal audit capacity. - Tax administration: - State Tax Service (STS) has made good progress in reducing corruption vulnerability but community perceptions of STS corruption remain high. - Recommendations: change law for STS Director appointment; improve corruption risk governance, HR procedures, data security, and monitoring of tax auditors. - Proposed law to grant STS criminal investigation powers: recommend postponing implementation until robust procedures and sufficient integrity-vetted, well-trained investigators are in place; scale back proposed size of STS criminal investigation sub-division. - Central bank governance: - Recent IMF safeguards assessment: NBM governance structure with strong independent oversight is broadly appropriate. - Attempts to undermine NBM autonomy have pervasive impact on internal controls. - Amendments to the NBM Law are needed to strengthen independence, improve governance, and safeguard operational independence of prudential supervisory function. - Financial sector oversight: - Legislative and regulatory frameworks largely in place for prudential purposes, but further amendments needed to support central bank governance and independence. - Good progress reducing banks’ related party exposures. - Practical implementation of new supervisory standards on corporate governance in banks is weak due to challenges in using professional judgement; affects supervision and enforcement. ### Policy roadmap and ownership - The report lays out a road map for governance and anti-corruption reforms across assessed areas (see Table 1 on Priority Recommendations and Annex 1 for full recommendations). - Emphasis: reforms must be owned by Moldova and meaningful engagement requires strong and continued political support. ### Priority recommendations (selected highlights and timelines) - Rule of Law (ST = Short Term; MT = Medium Term; LT = Long Term; Immediate): - Clarify powers and responsibilities of the judicial inspectorate and improve operating procedures. (MOJ, SCM) — ST - Enhance integrity testing of judges, including checks of asset declarations and conflicts of interest. (MOJ, SCM) — ST - Enhance the SCM selection process, including by establishing an independent commission. (MOJ) — ST - Repeal CC 307 to prevent its use to undermine judicial independence. (MOJ) — Immediate - Limit the powers of court presidents and clearly document their decisions. (MOJ, SCM) — ST - Anti-Corruption Framework: - Strengthen the selection process for APO head with participation of international experts and civil society, allowing non-prosecutors to apply. (MOJ, APO) — ST - Transfer disciplinary function from the PGO to the SCP. (PGO, SCP) — ST - Intensify investigations of embezzlement by public officials, illicit enrichment and declaring false information. (APO, NAC) — LT - Conduct and publish a study of court practice and factors leading to lenient sanctions in corruption cases. (Judiciary, APO, NAC, PGO, MOJ) — MT - Prioritize investigation of high-level corruption. (APO) — LT - AML/CFT: - Conduct cross-sectoral thematic inspections of banks based on the external audit. (NBM) — ST - Provide the PSA with sanctioning powers for non-compliance with registration requirements re BO info. (MOJ) — Now - Thematic inspection on banks’ systems for reporting suspicious transactions with focus on PEP-related transactions. (NBM, SPCML) — ST - Intensify efforts to investigate and prosecute corruption-related ML in line with risk profile. (NAC, APO) — LT - PFM: - Establish a new agency centralizing project management of the Ecological Fund with significantly augmented capacity. (MADR M) — S/MT - Amend the PPP Law to strengthen project appraisal and transparency and introduce strict administrative sanctions for violations. (APP) — S/MT - Develop automated interfaces between the RBI, land use records, and register of public patrimony and update three registers based on actual survey results through mass delimitation exercise. (APP, ASP, ARFC) — MT - SOE Governance: - Government should issue a policy specifying ownership, oversight, and policy responsibilities on SOE management. (MOF, MOE, PPA) — S/MT - Triage of SOE portfolio to define rationale for government ownership. (MOF, MOE, PPA) — MT - Reduce SOEs to one legal form: JSC. (MOF, MOE, PPA) — MT - Tax Administration: - Amend Art. 133 of the Tax Code to recruit for STS Director position through competition and for a fixed term. (MOF) — ST - Ensure safeguards for the criminal investigation function and scale back proposed size. (STS, Prosecutor’s Office) — ST - Better monitor integrity and professionalism of inspectors. (STS) — ST - Central Bank Governance and Financial Sector Oversight: - Strengthen the NBM’s governance and independence, including operational independence of the NBM’s prudential supervisory function through amendment to the NBM Law. (NBM with IMF consultation; Government and Parliament) — S/MT - Provide for courts’ deference to complex supervisory assessments undertaken by NBM, unless vitiated by manifest error, through amending the NBM Law (and Law on Activities of Banks where needed). (NBM with IMF consultation; Government and Parliament) — ST ### Introduction — context and vulnerabilities - Moldova is among the smallest, poorest, and least competitive European countries, in part due to systemic corruption and political instability. - Despite averaging around 4 percent in recent decades, output growth has been insufficient to raise living standards significantly, with GDP per capita remaining among the lowest in Europe. - Corruption and political instability are often cited as the most problematic factors for doing business in Moldova. - The pervasiveness of corruption and governance vulnerabilities in anti-corruption institutions, including the judiciary, results in widespread vulnerabilities across other public agencies. - The National Anti-Corruption Strategy lists particularly vulnerable areas: law enforcement, customs and tax, education and health, environment, road construction, subsidies in agriculture, public procurement, administration of public property, local public administration, and management of external assistance. - Corruption in law enforcement and the judiciary is particularly dangerous as it allows non-prosecution of criminals, facilitating other economic crimes. *Source: 1mdaea2021001 - PREFACE (https://www.imf.org/-/media/files/publications/cr/2021/english/1mdaea2021001.pdf)* ### 3. While the legal frameworks for some of the areas assessed for purposes of this ### 1mdaea2021001 - 3. While the legal frameworks for some of the areas assessed for purposes of this ### Legal frameworks and implementation gaps - Legal frameworks for some assessed areas are largely in line with best practices but suffer from lack of implementation, exacerbating governance and corruption vulnerabilities. - Examples: - SOE Law: scope appears adequate but requires supporting regulations (such as conflict of interest policy and disclosure of beneficial ownerships) to be effective; without these regulations there is a risk for SOEs to conduct business as usual, without minimizing political interference in the decision making process. - NBM Law: broadly adequate, but further legal enhancements are necessary, notably encoding a definition of “professional judgment” into the law to ensure the NBM is capable of properly implementing the prudential laws and regulations. ### Institutional structure and coordination weaknesses - Institutional mandates lack clarity in some areas and are not conducive to effective cooperation among agencies, including for mitigating corruption and governance vulnerabilities. - SOE administration: - Fragmentation between the management, oversight, and ownership role of the Public Property Agency (PPA) and the line ministries clouds responsibility and accountability for SOE performance. - Financial sector cooperation: - Cooperation and information exchange between the NBM and Moldova’s financial intelligence unit is vital to support effective AML/CFT efforts. ### Transparency, auditing, and accountability deficiencies - Public sector transparency and auditing functions are deficient in several important areas: - No fiscal report on public corporations. - No single framework for fiscal reporting of self-management authorities. - Internal and external auditing functions for SOEs are underdeveloped. - Consequences: - Undermines quality and accuracy of financial information provided. - Impairs SOE portfolio analysis at the aggregate level and quantification of fiscal support SOEs may need. - Deprives authorities of an important source of corruption detection. - Governance and accountability recommendations implied: - Transparent dismissal procedures for senior officials, with mandatory publication of the reasons for dismissal, are essential for public bodies, such as the NBM. - Accountability should be supported through effective codes and practices preventing conflicts of interest, such as equity holdings in supervised institutions. ### Macroeconomic and governance rationale for reforms - Improving governance and curbing corruption can ensure a more even and sustainable path for economic growth. - Anticipated effects of reforms: - Governance reforms to improve the rule of law could increase confidence in the public sector (including the judiciary), promote economic certainty and safety of property rights, bolster investment and private sector development, and improve effective implementation of laws and regulations. - Effective anti-corruption measures can safeguard public funds, hold public officials accountable, and lead to recovery of illicit proceeds. - Strengthening AML/CFT controls would provide fewer opportunities for the use and concealment of illicit gains. - PFM reforms could help improve domestic revenue and expenditure management. - Clarifying and streamlining the SOE institutional framework would minimize political interference in the management of public goods. ### Report structure (as presented) - Section II: main vulnerabilities to corruption in the ambit of rule of law (judiciary, protection and enforcement of economic rights). - Section III: critical weaknesses in the anti-corruption framework. - Section IV: assessment of the AML/CFT regime and its utility in supporting criminal enforcement and asset recovery efforts. - Section V: analysis of key vulnerabilities in the PFM area. - Section VI: governance weaknesses in the SOE sector. - Section VII: governance reforms in the tax administration. - Section VIII: overview of central bank governance. - Section IX: financial sector oversight. - Recommendations collated in Annex 1; list of meetings in Annex 2; bibliography in Annex 3. ### Rule of law: importance and assessment focus - Rule of law is critical for a well-functioning market economy; investors need assurance that rights will be protected and agreements upheld. - IMF’s Enhanced Governance Framework focuses assessment on aspects of rule of law relating to protection of property and contractual rights, including predictability and timeliness of enforcement of economic rights; broad rule of law principles are included. - Essential principles: laws should be accessible and predictable; questions of legal right and liability resolved by application of the law rather than discretion; laws should apply equally to all; public officials should exercise powers in good faith. - The most important determinant for enforcement of economic rights is the quality of the judiciary—technical capacity and independence from private influence and public interference. ### Historical and institutional context of Moldova’s rule of law challenges - Extensive literature documents significant weaknesses in the judiciary from domestic and international organizations (Council of Europe/Venice Commission, GRECO, EBRD, ICJ, LRCM); EU conditionalities in MFAs. - Moldova undertook judicial reforms aimed at strengthening independence, efficiency, and effectiveness with limited tangible results. - Moldova’s National Development Strategy “Moldova 2020” (adopted 2012) identified justice reform as strategic priority; echoed in the 2017–2020 National Integrity and Anti-Corruption Strategy. - Justice Sector Reform Strategy (JSRS) for 2011–2016 (extended to 2017) included legislative initiatives (amending the Criminal Code, updating systems for selection, performance evaluation, and disciplining of judges, addressing governance weaknesses in the Superior Council of Magistrates (SCM)), and Ministry of Justice (MOJ) reported satisfying 86% percent of the accompanying action plan. - A 2017 assessment by MOJ and CoE considered many broad objectives unmet. - A new Strategy for Ensuring the Independence and Integrity of the Justice Sector for 2020–2023 was adopted on October 28, 2020, and is currently being examined by Parliament. - Moldova 2030 reiterates independence of justice as a basic requirement of the rule of law. ### Economic impact of rule of law weaknesses - Weaknesses in rule of law may chill investment and private sector development: - Moldova’s National Development Strategy 2020 recognized “an inefficient judicial system endangers the development of all areas, affecting seriously both the business environment in the country and the investment process”. - EBRD 2017 country diagnostic considered rule of law issues among primary factors undermining private investors’ trust; similar findings in 2014 that political instability, corruption, and an unreliable judiciary were major disincentives for investment. - These findings mirror contemporary views of foreign companies operating in Moldova as well as Moldovan businesses and professionals. ### Main rule of law issues in Moldova - Public perception of state capture and corruption in the judiciary: - Public exhibits little faith in courts’ ability to render impartial judgments; justice sector widely perceived as captured by political and economic interests and marked by deeply entrenched corruption (reflected in the National Strategy). - Perception surveys: in a 2017 USAID study for the SCM, 81% of the general population, and 81% of people who had contact with the court system, did not trust the judiciary; 75% of population and 83% of those with court experience believed the judiciary to be corrupt. - Predominant view: judges are among the most corrupt public officials; for reforms to succeed, state capture and corruption must first be addressed. - Inadequate safeguards: - Procedures governing functioning, governance, and oversight of the judiciary are not consistently respected and do not sufficiently ensure independence. - Safeguards introduced into Moldovan law remain superficial and reportedly skirted in practice. - Recruitment, selection, appointment, evaluation, and disciplining procedures are complex, ineffective, and reportedly exploited to influence judges. - SCM membership and appointment process is a concern: appointments reportedly have a political angle and are determined by a simple majority vote of parliamentarians representing the governing party, without opposition participation; transparency gains have been marginal and decision-making remains opaque and poorly reasoned. - Unpredictable and inconsistent application of law: - Legal and institutional frameworks largely in place for enforcement of contracts and protection of property rights and investment, but implementation and adherence to legal principles are fickle and can depend on interests involved. - Deviations from the law in adjudication of commercial and criminal cases (due to corruption and poor legal knowledge) appear frequent and have resulted in low public trust, discrepancies in case law, and liability for damages at the international level (arbitral awards and ECHR damages). - Low capacity: - Lack of specialized expertise and legal knowledge among judges, stemming from weaknesses in recruitment and selection, is a primary reason for poorly reasoned and inconsistent rulings. - Requirements to provide reasoned verdicts only in certain cases have impeded a judicial culture of basing rulings on well-founded legal arguments. - Judges are believed to be appointed and promoted based on criteria other than merit and legal acumen; lack of transparency in recruitment and selection supports these contentions. - Human and financial resources appear insufficient; historically the number of vacancies in judicial positions created a problem, but this has been improving over time. - As of November 2020, Moldova had 28 judicial vacancies (Supreme Court of Justice – 11 positions; Chisinau Appellate Court – 8 positions; trial courts – 9 positions). - Delays and backlogs contribute to low public opinion of the judiciary. - Disorganization: - Poor organization and case management have led to delays in court proceedings. - Historically, Moldova’s court system had numerous small courts, often with very few or single judges. - Reforms to consolidate courthouses and increase court staff and specialization among judges have been ongoing since 2016 and are anticipated to continue in stages up until 2027. - Plans envision construction of 14 new courthouses, but to date only one has been built. - Some courts have been consolidated administratively but not physically, causing reports of “chaos” as judges and case files are not always physically co-located. - A conversion to an electronic case management system, assisted by international donors, was implemented in 2020. ### Organization and governance of the judiciary - Structure: - Moldova’s ordinary judicial system: 20 courts hearing commercial and criminal matters – 15 first instance courts, 4 appellate courts, and the Supreme Court of Justice (SCJ) as highest court of appeal. - The SCJ is tasked with ensuring consistent application of laws by all courts of law in Moldova. - First instance courts competent in civil, criminal, and administrative matters; cases heard by a single judge or, by decision of the court president, by a panel of three judges. - As of January 1, 2017, all courts in Moldova are of general jurisdiction. - An independent Constitutional Court interprets the Constitution and reviews constitutionality of laws, presidential decrees, and acts of government. - In 2019, Moldova had 386 judges actively hearing cases (20 in the SCJ, 79 in the 4 appellate courts, and 287 in the courts of first instance). - Superior Council of Magistrates (SCM): - Pursuant to Law 947/1996, SCM tasked with judicial self-administration, including submitting proposals on appointment, promotion, transfer or removal of judges and court presidents to the President of Moldova, selecting judicial candidates, and preparing the draft budget of the judiciary. - Decisions of the SCM taken in plenary sessions; since 2019, appeals of SCM decisions are heard by the Chisinau Court of Appeals. - In 2019, following consultation with the Venice Commission and GRECO, SCM membership increased to 15 (7 judges, 5 lay members, and three ex officio members). Lay members must be full-time law professors and are appointed by Parliament by a majority vote. Judge members are elected by the General Assembly of judges. Ex officio members are the Minister of Justice, the Prosecutor General, and the President of the SCJ. - In November 2020, a bill to amend the Constitution to exclude ex officio members from the SCM and reduce the number of SCM members from 15 to 12 (6 judges and 6 lay members) was registered in Parliament. - SCM boards and functions (Box 1 summaries): - Selection and Career Board (Selection Board): - Composition: four judges from courts of all levels elected at the General Assembly of Judges (two judges from the SCJ, one judge from the appellate courts, one judge from district level courts), and three civil society members selected through an open public competition. - Tasks: grading judicial candidates, promotion of judges, appointment of court presidents and deputies, and transfer of judges. - Evaluation Board: - Composition: five judges (two from the SCJ, two from courts of appeal, and 1 from district level courts) elected at the General Assembly of judges and two representatives of civil society through an open competition. - Task: evaluating performance of judges. - Disciplinary Board: - Pursuant to Law on disciplinary liability of judges, hears disciplinary cases against judges and imposes sanctions. - Composition: five judges and four representatives of civil society. Judge members elected by secret ballot by the General Assembly of judges. Civil society members appointed by the MOJ and selected through public competition organized by a candidates’ selection committee comprising representatives appointed by the SCM. Civil society representatives must have an irreproachable reputation and at least seven years of experience in the field of law. - Judicial Inspectorate: - Governed by the Law on Disciplinary Liability of Judges and accompanying regulation. Activities include: (i) verification of organizational activity of the courts; (ii) examination of petitions regarding the ethics of judges; (iii) verification of complaints regarding disciplinary liability of judges; (iv) verification of applications addressed to the SCM to authorize criminal prosecution against judges; and (v) examination of grounds for rejection of SCM nominees for office of judge or promotion. *Italic: IMF content unit 1mdaea2021001, chapter excerpt on governance, rule of law, and judiciary.* ### 20. Questions about the SCM’s independence and the opacity surrounding its activities ### 20. Questions about the SCM’s independence and the opacity surrounding its activities ### Independence and transparency of the SCM - Election process: - Parliament elects lay members by a majority vote rather than a qualified two-thirds majority (Venice Commission recommended). - All SCM members are seconded for a period of four years. - Both judge and lay members are eligible to be President of the SCM. - Decision-making dynamics: - Recent changes created a rift in the SCM; frequent stalemates between judge and lay members, notably with respect to judicial appointments. - Transparency criticisms and reforms: - GRECO (2016 fourth round monitoring report) considered SCM decisions in recruitment, career, and disciplinary matters were not sufficiently justified. - In February 2020, the SCM law was amended to abolish in camera discussions; amendments were largely ignored until a call by SCM lay members. - As of October 2020, the SCM has been moving towards an open voting system; most decisions now made in open sessions. - Despite open sessions, little information on deliberations is available to the public; legally required reasoned decisions are often not provided in practice or are of poor quality. - Deviations from subordinate bodies’ recommendations are not explained; information feeding into decisions is not always documented or disclosed to affected candidates (e.g., intelligence agency inputs). ### Appointment and promotion: merit and Selection Board role - Legal versus practical process: - By law, appointments should be adopted based on objective criteria; in practice, the Selection Board’s scoring is secondary to the SCM’s vote on candidates. - Decisions by the Selection Board on candidates’ merits are submitted to the SCM for approval, but the SCM is not bound by these decisions and gives no reasoning when deviating, citing only number of votes obtained. - SCM decisions do not explain how selection criteria were factored or weighted. - Evidence of divergence from merit-based outcomes: - 2017 USAID/LRCM study (January 2013–May 2017) findings: - In contests with more than one participant, 69% of successful candidates for district court positions had lower scores than their competitors. - 43% of successful candidates for appellate court positions had lower scores than their competitors. - 43% of successful candidates for SCJ positions had lower scores than their competitors. - In 7 out of 10 successful candidates in judicial recruitments had a lower score than their opposing candidates. - Anecdotal practices to circumvent open recruitment include applying for temporary transfers with multiple extensions. - Rumors of appointments and promotions based on political and familial affiliations and compliance with instructions from court presidents, prosecutors, and politically powerful non-judicial actors. - Proposed legal changes: - Amendments to Law no. 154/2012 on the selection, performance evaluation and career of judges have been proposed by the SCM to elaborate procedures and clear criteria; they remain under consideration. ### Recruitment pool and candidate participation - Insufficient qualified pool: - Significant number of recruitments draw only one or two candidates. - 2017 USAID/LRCM study noted high rate of single-candidate contests: - 22% of district court contests had only one candidate. - 31 percent of appellate court contests had only one candidate. - 26 percent of SCJ contests had only one candidate. - Reasons given: - (i) Criteria for judicial posts are restrictive and Moldova lacks enough qualified candidates. - (ii) Judiciary’s poor reputation deters qualified entrants. - (iii) Perception that posts are pre-determined and not based on merits. - Preferential treatment concerns begin early, allegedly at acceptance to and grading by the NIJ. ### Evaluation of judges and performance ratings - Legal framework: - Evaluation governed by Law no. 154 on the selection, performance evaluation and career of judges. - Evaluation criteria include: level of knowledge and professional skills; capacity to apply knowledge in practice; work tenure in prior legal positions; qualitative and quantitative indicators of past legal activity; observance of ethical standards; research and academic activity; extra-judiciary activity. - Ordinary (regular) and extraordinary evaluations: regular evaluations once every three years; extraordinary evaluations triggered by an “insufficient” rating, judge’s initiative, or certain appointments/promotions/transfers. - Receiving an “insufficient” rating in two consecutive extraordinary evaluations constitutes a ground for the SCM to initiate dismissal proceedings. - Practical shortcomings: - Evaluations are reported to be highly politicized and used primarily to validate promotions and career decisions rather than to inform development. - Subjective elements may be given more weight than quantifiable criteria. - Overlap exists between evaluation and disciplinary processes (e.g., discipline for non- or “inappropriate” performance), contrary to CoE recommendations. - Distribution of ratings in 2019: - 36 judges were rated excellent. - 103 judges were rated very good. - 6 judges were rated good. - 2 judges were evaluated as insufficient. - Effect on credibility: - Despite a large number of public complaints, vast majority receive positive ratings, raising concerns about accuracy and utility of ratings. ### Disciplinary framework and Judicial Inspectorate - Disciplinary system weaknesses: - Lack of clear parameters; some offences overlap with evaluation matters or criminal actions (e.g., illegal intervention, use of position for undue advantages). - Several offences are overly broad or subjective (e.g., violation of imperative norms of the law, adoption of an unworthy attitude). - Overlap with Penal Code (CC 307) suggests linkage between disciplinary and criminal enforcement actions, yet SCM confirms disciplinary actions are not regularly initiated even where criminal proceedings have commenced nor are referrals regularly made to law enforcement. - Process is resource-intensive and inefficient; issuance of a simple warning can result in multiple appeals taking up to or over a year. - These flaws contribute to ineffectiveness in deterring, detecting, and punishing corrupt acts. - Case statistics and proposals: - In the last five years, over 7,500 complaints about judges (averaging 1,500 per year) were lodged with the SCM, but only 250 disciplinary cases against judges have been initiated. - Proposals to streamline the disciplinary process have been developed by the SCM. - Judicial Inspectorate accountability concerns: - By law the Judicial Inspectorate is independent; common perception among judicial profession is that it is subordinated to the SCM and used to target disobedient or outspoken judges. - Reportedly the Judicial Inspectorate almost never acts on its own initiative; all disciplinary cases were commenced at instruction of the SCM. - SCM contends the Judicial Inspectorate is overly independent and lacks sufficient oversight. - Judicial Inspectors are appointed for six-year terms and are not subject to evaluation during that period; no apparent mechanism to sanction or dismiss Judicial Inspectors for misconduct. - SCM prepared proposals to strengthen accountability of Judicial Inspectors, including disciplinary mechanisms. ### Influence of court presidents and self-governance limitations - Role and powers of court presidents: - By law (Law on the organization of the judiciary, art. 161) court presidents coordinate work of judges, distribute tasks, and verify random distribution of cases; some responsibilities should be assigned to professional court managers and administrative staff. - In practice, court presidents reportedly exert extensive powers over judicial practice: assignment of assistants/clerks, allocation of cases when automated system is down, transfer of cases after initial assignment. - Informal role in promotion, evaluation, and transfer of judges; position widely believed to be a purely political appointment despite subject to same recruitment procedures as other judicial posts. - 2017 USAID/LRCM study found that 100% of judges promoted to an administrative position in the appellate courts scored lower than their competitors (in district courts, 32% of judges promoted to an administrative position scored lower). - Judges’ participation in self-governance: - Judges’ involvement in self-governance is reported as superficial and easily overridden. - Judges are not involved in selection or evaluation of court presidents, nor in assessment of those overseeing their activities (SCM and board members), although new Justice Strategy reportedly contains mechanisms to allow greater judge involvement. - Judges feel insufficiently involved in planning or development of the judicial budget. - An initiative to convene a General Assembly to vote out existing SCM members was refused by the SCM, raising questions about legality and appropriate procedure. ### Integrity checks and other vetting practices - Asset declarations and conflicts of interest: - Judges subject to requirements to report assets and conflicts of interest; stakeholders question adequacy of application. - In 2020, seven inquiries into violations of asset declaration and conflicts of interest provisions were initiated with respect to 7 judges and one violation was found. - It is unclear how information from the National Integrity Authority (NIA) is used or weighted; little information on whether candidates have been disqualified on integrity grounds. - Unclear to what extent integrity factors into promotions to higher courts or administrative positions. - Polygraph testing: - By law, candidates are still required to undergo lie detector testing at recruitment—a practice widely considered unreliable. - In practice, judicial candidates are no longer routinely subjected to a polygraph test. - The Constitutional Court ruled that the practice of a successful lie detector test as a prerequisite for public office is unconstitutional (Decision No. 6 from April 10, 2018), but the practice has yet to be officially abolished in the judiciary. - The SCM is pushing for amendment of the law to formally remove this practice, while still favoring polygraph testing of judicial students at various stages (e.g., admission to the NIJ). - Recommendation note in text: - Checks into judges’ and judicial candidates’ integrity and backgrounds should be carried out in a regulated and transparent manner following stipulated protocols. ### Effectiveness of protection of economic rights — Property rights (introductory findings) - Property register and cadaster coverage: - System for recording property titles and mortgages is in place. - Starting in 1999, Moldova established a real estate cadaster and conducted systematic registration of about 80% of real estate following privatization. - To date, two thirds of the country's territory is covered by the property register. - About 4.8 million out of the estimated 6.0 million immovables are registered in the Real Property Registry. - Financing and project support: - Due to lack of financial resources in the state budget to complete registration, Moldova requested financial support from the World Bank in 2018 for a land registration and property valuation project. - The project is expected to take place over five years (2019-2023), focusing on regulatory framework development and a sustainable mechanism for valuation and re-evaluation of immovable property. - Court protection and judicial practice: - Moldovan courts are not considered reliable in guaranteeing property rights in practice. - In the 2019 International Property Rights Index (IPRI), Moldova fell in the bottom 15 countries for protection of property rights, scoring poorly in judicial independence, rule of law, political stability, control of corruption, and property rights protection. - A 2020 USAID/LRCM study on expropriation cases found judges unfamiliar with applicable Cadaster Law rules and inconsistencies in outcomes and reasonings. - Lack of uniformity in national jurisprudence is reflected in number of cases with systematic violations of property rights brought before the ECHR. - Moldova’s National Development Strategy noted that 40% of the total number of breaches found by the ECHR related to property rights during the period of 1995–2010. - Of the 33 judgments issued by the ECHR in 2018, six related to property rights. *Source: 1mdaea2021001 - 20. Questions about the SCM’s independence and the opacity surrounding its activities* ### 31. Moldova has the necessary legal framework for the protection of investor rights. ### 31. Moldova has the necessary legal framework for the protection of investor rights. ### Legal framework and investor protections - Moldova has ratified and/or is party to several multilateral investment conventions and agreements and has signed 39 bilateral investment protection treaties. - The Law on Investment in Entrepreneurship provides guarantees for: - the respect of investors' rights, - protection against expropriation without compensation, - payment of damages in the event investors’ rights are violated. - Domestic courts recognize and enforce foreign arbitral awards. - There are no known cases when the Moldovan government denied voluntary payment under an arbitral award rendered against it. ### Irregularities in judicial practice and implications - Allegations of judicial malfeasance relate to rulings on purported illegal dispossessions of investors’ property and economic rights. - One recent landmark case involved allegations of bribery and corruption where a court of first instance issued a judgement in apparent contradiction of Moldovan law and was upheld by the appellate court; a subsequent hasty legislative initiative attempted to block enforcement of the judgment (the initiative did not garner support after the first reading). - Such cases: - reveal that the letter of the law may be subordinated to the will of certain individuals, - create potential instability in the legal framework when legislative changes are triggered as reactions to specific events. ### Contract enforcement: legal framework and application - Moldova’s commercial legal framework is well developed but inconsistently applied. - Areas considered largely adequate by most stakeholders include: - public-private partnerships, - public procurement, - the energy and telecommunications sectors, - capital markets, - corporate governance, - insolvency. - The EBRD (2014) found a lack of implementation across sectors and inconsistent application of laws by courts. - Moldova’s National Development Strategy similarly concluded that inconsistent court decisions disturb business environment security and generate unequal opportunities. ### Judicial capacity, reasoning, and due process - Low capacity of judges and an underdeveloped culture of judicial reasoning weaken the quality of court proceedings and rulings. - The 2014 EBRD study observed judges often lacked requisite experience in commercial and civil matters and resorted to general legal principles or provisions in the Civil Code rather than specialized laws. - Since 2012, in civil cases, district court judges are not required to issue reasoned decisions unless: - expressly requested by one or more of the parties, - the decision is appealed, - the decision is to be recognized and executed in another State. - Reasoned verdicts are requested in approximately 25 percent of civil cases; in the remaining 75 percent, no reasoning was requested due to parties not being represented or having missed statutory timelines, or where a judge was transferred. - The ICJ (2018) considered this practice insufficient to satisfy article 6 of the European Convention on Human Rights (relating to due process and the right to a fair trial) and to facilitate good public understanding of the law. - The two-tiered system of delivering judgments (ruling issued first, motivation provided subsequently) significantly impacts decision quality as reasoning often follows and must be tailored to justify the judge’s ruling. ### Enforcement and debt recovery - Historically, Moldova experienced systemic non-enforcement of judgments, leading to multiple rulings against Moldova by the ECHR. - A system of private enforcement commenced in 2010, transferring enforcement functions from public officials to licensed professionals (bailiffs). - The EBRD Enforcement Agents Assessment 2013 found the enforcement framework and practice showed relatively good results and is considered to be among the best in the region; however: - the private enforcement system remains highly bureaucratic and time-consuming, - there is inconsistent practice and some allegations of corruption, - the system lacks full tools for self-governance (e.g., an effective professional oversight body, disciplinary liability for bailiffs), - bailiffs appear to be reaching capacity limits; the clearance rate of cases over recent years falls well below 100%, leading to a constantly growing backlog. - The MOJ and the National Union of Bailiffs are undertaking joint efforts to: - improve the evaluation of the performance of the system, - modernize case management, - increase the efficiency and the quality of enforcement services. ### Corruption, judicial influence, and intimidation - Susceptibility of judges to corruption and influence undercuts the effectiveness of contract enforcement; corruption is considered to permeate all levels of the court system from courts of first instance to the SCJ. - Judges are viewed as showing deference to government bodies and entities in which the state has a substantial interest. - Parties reportedly resort to out-of-court measures to settle disputes or recover debt to avoid the formal court system. - Judges report experiencing intimidation through various channels, including the judicial inspectorate and the possibility of being found criminally liable for “illegal” judgments pursuant to Criminal Code art. 307. - The LRCM reports 31 such cases being opened against 28 judges over the period of 2012–2017. - Arguments for maintaining art. 307 highlight the need for accountability, but existing mechanisms (disciplinary and evaluation proceedings; Criminal Code provisions on abuse and excess use of power) may be more appropriate for inappropriate decision making; currently, shortcomings limit applicability to judicial misconduct. - As it stands, art. 307 provides a potential channel of intimidation and an underhanded mechanism for the state to correct undesirable verdicts and rulings. ### Alternative dispute resolution (ADR) - Moldovan law provides ADR mechanisms in the form of mediation and arbitration (following UNCITRAL rules), but in practice these are not effective in reducing judicial caseload. - Judicial mediation is mandatory for many categories of civil cases, but judges strongly oppose this practice as it adds to their workload. - In 2019, the EBRD records 725 mediated cases; only 40 were heard by the Chamber of Commerce’s mediation center, while the rest were mediated by judges. - Arbitration is a relatively novel concept in Moldova; inclusion of arbitration clauses in contracts is not well established. - Foreign investors report: - the slow pace of court enforcement of arbitral awards, - judges’ excessive discretion over arbitral decisions as discouraging factors. - Mediation and arbitration are perceived as preferable options due to corruption in the court system, but they cannot displace the court system because arbitral and mediation decisions must still be enforced by domestic courts and mandatory judicial mediation is a precursor to seeking recourse in a mediation center. ### ECHR complaints and due process indicators - In 2018, Moldovans complained to the ECHR two and a half times more than the European average. - Among the most frequent violations presented to the ECHR were: - non-enforcement of judgments, - irregular annulment of final judgments. - Eleven percent of violations presented to the ECHR in 2018 related to art. 6 (due process/right to a fair trial). - Of 33 judgments issued by the ECHR in 2018, six related to violations of art. 6. - In two other cases involving art. 6, Moldova acknowledged the violation and provided the applicant with redress out of court. - In all cases except for two, the ECHR found Moldova liable for damages. - Established violations in 2018 include non-execution of judicial decisions within a reasonable time and unjustified retroactive application of law. ### Public perception, corruption prevalence, and sectoral vulnerabilities - Entrenched and systemic corruption is identified by the public, civil society and the authorities as a fundamental obstacle to Moldova’s development and is described as encompassing all three branches of government, resulting in “state capture”. - The 2019 Parliament Resolution recognizing Moldova as a captured state stressed endemic corruption as the main danger to freedom, safety and well-being of Moldova and its citizens. - The Resolution denounced unconstitutional and illegal political control over the judiciary, the Prosecutor General’s Office, National Anti-corruption Center (NAC), National Integrity Authority (NIA), NBM and other agencies, and called for dismissal of these agencies’ leadership. - Sectoral areas listed as particularly vulnerable to corruption in the National Anti-Corruption Strategy include: - law enforcement, - customs and tax, - education and health, - environment, - road construction, - subsidies in agriculture, - public procurement, - administration of public property, - local public administration, - management of external assistance. - Corruption in law enforcement and the judiciary facilitates non-prosecution of criminals and enables other economic crimes. - Main profit-generating crimes include drug and human trafficking, tax evasion and smuggling, with some activities led by organized crime groups supported by corrupt officials. - Public perception statistics: - In 2016 TI survey three quarters of respondents considered the members of Parliament corrupt and 42 percent of households paid a bribe to access basic services. - Almost seven in ten people in Moldova say that the officials working in the main public sector institutions are highly corrupt. - The government is perceived by 84 percent of respondents to be doing badly in fighting corruption. - Half of respondents perceive the fight against corruption as a political or oligarchical tool, while only a fifth of respondents consider it as the beginning of real reforms. - The Transparency International Corruption Perception Index and the Worldwide Governance Indicators show perceptions of high levels of corruption and a consistent deterioration from 2012 to 2016 followed by a slight improvement. - IMF reports noted corruption is perceived to be systemic; while anticorruption institutions and legislation are largely in place, enforcement is perceived as poor. ### Priority recommendations (judicial governance and anti-corruption) - Strengthen judicial governance and oversight within a short timeframe by focusing on: - placing more importance on checking/assessing the integrity of judges and judicial candidates, - improving systems for oversight of judges (including for evaluation and discipline), - clarifying responsibilities of the judicial inspectorate and strengthening its autonomy, - strengthening the SCM selection process, - curtailing the powers of court presidents, - emphasizing integrity testing of judges with procedures clearly enumerated in law, - repealing or reforming Criminal Code art. 307 to prevent abuse of the provision. - Regarding criminalization of abuse of power: - Moldova’s criminalization provides a good basis for anti-corruption enforcement, but the requirement that significant damage occur to trigger criminal liability (Article 327 (1) to (3) CC) is an additional element not foreseen by art. 19 of the UNCAC and can impede application (e.g., judicial officials whose misconduct may not generate quantifiable damages). - The scope for application of the abuse of office offence was narrowed after the Constitutional Court declared criminalization of the abuse of office resulting in damage to public interests unconstitutional. - Authorities should consider broadening the application of abuse of power, in particular eliminating the current narrow scope of required consequences. - To limit vulnerability of the abuse of power offence to political misuse and ensure predictability and legal certainty, authorities may consider criminalizing only sufficiently grave offences. *Source: 1mdaea2021001 - 31. Moldova has the necessary legal framework for the protection of investor rights.* ### Box 2. Criminalization of Illicit Enrichment in Moldova ### Box 2. Criminalization of Illicit Enrichment in Moldova ### Overview of the illicit enrichment offence - Illicit enrichment allows the state to prosecute corrupt officials and confiscate proceeds of corruption on the basis that unexplained wealth is evidence of corrupt conduct. - Burden to prove that such wealth is unexplained lies with the prosecution; prosecution does not need to prove the source of the illegally acquired wealth by identifying and proving underlying offences (e.g., bribery, embezzlement, trading in influence, abuse of functions). - Illicit enrichment was criminalized in Moldova in 2013 (Article 330/2 CC), defined as “ownership by a person holding a position of responsibility or a public person, personally or through third parties, of assets, the value of which substantially exceeds the received income, and it is established, on the basis of proofs, that these assets could not have been legally obtained”. - Constitutional context: the Constitutional Court noted the constitutional presumption of legality of acquired property implies the state's responsibility to present evidence of illegality of property; adoption of illicit enrichment offences by State Parties to UNCAC is subject to Constitutions and fundamental principles of legal systems. ### Implementation and enforcement challenges - Illicit enrichment is rarely investigated and prosecuted due to the structure of the offence in the Criminal Code (CC), despite perceptions of large unexplained wealth of some officials. - Law enforcement difficulties: need to prove that assets could not have been legally obtained. Law enforcement appears to interpret this as requiring direct proof of illegality (e.g., link to a specific offence or criminal proceeds) rather than demonstrating that possession/ownership could not be justified by legitimate sources of income. - Comparative practice: in other jurisdictions criminalizing illicit enrichment, determination gives rise to a presumption that enrichment is proceeds of corruption, rebuttable by the public official. - Empirical testing: illicit enrichment remains scarcely tested; one case regarding a judge and one regarding a customs officer were sent to the courts in 2018 and 2019 respectively. One official was convicted of illicit enrichment to a fine. ### Sanctions, classification, and sentence-reduction mechanisms - Classification and sentences: - Most corruption offences are classified as serious offences, with a maximum sentence between 5 and 12 years of imprisonment and a minimum of two or three years of imprisonment. - Some corruption offences and non-aggravated money laundering are classified as less serious crimes with maximum sentence not exceeding 5 years of imprisonment. - Less serious crimes: statute of limitations of 5 years; special investigative techniques, measures to protect witnesses and other criminal process participants are not permitted; wiretapping and recording communications cannot be applied in certain corruption offences (e.g., illicit enrichment, misuse of external funds, forgery of public documents). - Concerns and recommendations: - Statutory sanctions for some corruption offences appear insufficiently dissuasive; sanctions should be revised to increase dissuasiveness so all corruption offences can be classified as serious where appropriate. - Sentence reduction and plea bargaining: - Article 364-1 CPC allows a sentence reduction by one third (or one quarter in the case of imposition of a fine) if the accused admits committing all the acts listed in the indictment and does not contest the evidence. This reduction is applied automatically and unconditionally. - Article 80 CC permits sentence reduction by a third of the maximum sanction if the accused person enters into an agreement admitting guilt with prosecution. - UNCAC reviewers noted application of these provisions should be limited in corruption cases and subject to cooperation in identifying other persons involved. - Mitigating and exceptional circumstances: - Article 79 CC allows a court to impose a punishment below the minimum limit provided for by law or not apply mandatory complementary punishment, taking into account exceptional circumstances. - Admission of guilt is a general mitigating circumstance (Article 76 CC); cumulative qualification of mitigating and exceptional circumstances can lead to disproportionate lowering of sanctions. - Article 55 allows exemption from criminal liability for some less serious crimes (notably for non-aggravated money laundering and performance of duties in the public sector in situations of conflict of interest), applying instead administrative liability. ### Exemptions from liability and discretionary application - Exemptions from criminal liability for active bribery and trading in influence are currently applied automatically to bribe-givers and influence peddlers if either: - the bribe or service/exercise of influence were extorted from them, or - the person confesses without knowing that criminal investigative bodies are aware of the crime. - Recommendation: change from automatic to optional application of these exemptions to allow prosecutors to consider culpability, participation, and nature of extortion or denunciation before granting exemption. ### Liability of legal persons and confiscation tools - Criminal liability of legal persons: - Article 21 CC provides for criminal liability of legal entities (except public authorities) if guilty of non-fulfillment or improper fulfillment of direct legal requirements and at least one of: (i) act committed in interests of legal entity by, (ii) allowed/authorized/approved/used by, or (iii) committed as a result of lack of supervision and control of, a natural person with managerial functions. - Legal persons can be convicted for embezzlement, active bribery and trading in influence; criminal liability of legal persons does not exclude liability of a physical person for the same offence. - Chapter VI of the CPC introduces special procedural rules for proceedings against legal persons. Sanctions include fines, deprivation of the right to conduct certain activities and liquidation (Article 63 CC). - To date, no legal person was convicted of corruption offences; framework appears sufficient but not pursued by law enforcement, possibly due to inexperience. - Confiscation and provisional measures: - Moldova has a suitable legal framework on confiscation and provisional measures; provisions assessed as compliant with FATF Standards. - Article 106 CC provides for confiscation of instrumentalities and proceeds and extends to property equivalent in value; confiscation may be ordered in absence of conviction (art. 106 CC) and in administrative cases. - A new chapter “The criminal assets recovery” in the CPC establishes tracing, evidence gathering, evaluation and management of illicit assets; sequestration (art. 204 CPC) can secure eventual confiscation or recovery. - Extended confiscation (art. 106-1 CC) is defined as “confiscation not only of assets associated with the specific crime, but of additional assets which the court determines are the proceeds of other, unspecified crimes”. - Extended confiscation can be applied as part of a conviction where financial investigation uncovered a significant discrepancy between legitimate income and a person’s assets and lifestyle in five years prior and after the commission of the offence. - Court can apply extended confiscation to unjustified wealth, its corresponding value, and assets transferred to third parties who knew or should have known about the illegal acquisition. - The Prosecutor General’s Guidelines on confiscation outline financial investigation specifics, including tracing proceeds and scrutiny of stock of assets to create a “financial profile”. - Extended confiscation provisions establish a rebuttable presumption of the illicit origin of the property of the defendant which does not contradict article 46 of the Constitution. ### Public procurement safeguards - Public procurement law includes procurement-specific safeguards against potential corruption: - Commitment by procuring authorities to eliminate conflict of interest situations. - Banning participation of bidders convicted of corruption and money-laundering offences. - Recommendation: collect beneficial ownership information from bidders for public procurement contracts and consider making beneficial ownership information public to enable scrutiny and enhance detection of corruption. - The Ministry of Finance is working on developing amendments for the Law on public procurement and secondary legislation to strengthen transparency and anti-corruption safeguards. ### Anti-corruption institutional structure and NAC performance - Key institutions: - NAC: preventive and law enforcement agency investigating corruption and corruption-related offenses and contraventions; performs anti-corruption analysis of draft normative acts, institutional integrity assessments, operational and strategic analyses. Within NAC, the Criminal Assets Recovery Agency (CARA) is responsible for recovery of proceeds of corruption, money laundering and other crimes. - APO: conducts (i) prosecutorial oversight of NAC’s investigations, (ii) investigations of high-level corruption and (iii) represents such cases in courts. - Prosecutor General’s Office (PGO): key body in prosecution system, can lead and conduct criminal investigations in select cases. - Service for Prevention and Fight against Money Laundering (SPCML): collects financial intelligence, analyzes it and disseminates reports regarding potential corruption and other crimes to law enforcement. - National Integrity Authority (NIA): controls assets and interests of public officials and compliance with rules regarding conflict of interests, incompatibilities, restrictions and limitations. - NAC operational gaps: - NAC conducts routine anti-corruption analysis of normative acts: 581 anti-corruption analysis reports and 562 opinions on draft normative acts issued in 2019. - Almost a third of the Government’s acts and about 14 percent of draft laws were not sent to NAC for anti-corruption expertise, in violation of the law. - NAC completed institutional integrity assessment of 12 public entities since June 2016, including five in 2019. - Officials were dismissed in only one agency as a result of professional integrity testing since 2016, despite negative results for most tested officials. - No cases where implementation of integrity plans was assessed as failed; no heads of public agencies were dismissed on these grounds. *IMF governance assessment — Box 2. Criminalization of Illicit Enrichment in Moldova.* ### 54. NAC’s strategic and operational analysis is focused on the detection of corrupt acts ### 54. NAC’s strategic and operational analysis is focused on the detection of corrupt acts ### Operational and strategic analysis: uses and limitations - NAC’s operational analysis is focused on detection of corrupt acts and corruption risks, and appears useful for detecting and investigating illicit enrichment and declaration of false information in asset declarations, which is currently used insufficiently. - NAC conducts strategic analysis and studies of corruption regarding sectoral threats and vulnerabilities, trends and relevant activities of public institutions; however, the number of published studies and strategic analyses has decreased in the last year. - Recommendation: renew the practice of publishing corruption studies and analyses to raise awareness and improve understanding of corruption risks and trends. - Key statistics from NAC analytical output in 2019: - 425 analytical products in 2019: - 234 analyses of assets and incomes of public officials, - 102 analyses of legal persons activity, including winners of public tenders, - 89 analyses of relationships between investigated persons. - Analyses of public officials’ assets and incomes established: - 31 cases of officials holding unjustified assets, - 31 cases of real estate registered under the relatives’ names, - 25 cases of suspicious loans, - 51 cases of non-declaring real estate, shares, sources of income and transport units. ### NAC investigative jurisdiction and caseload unpredictability - NAC investigates all corruption offences except high-level corruption cases under APO jurisdiction, and also investigates a broad range of non-corruption economic crimes. - Non-corruption criminal cases initiated by NAC: - more than a third of all cases in 2018, - more than a quarter of all cases in 2019. - In 2019: - 640 criminal cases initiated by NAC, - 487 criminal cases transferred to NAC from other investigative agencies, mostly economic rather than corruption offences. - Example non-corruption offences NAC investigates (Article 269 of the CPC): Art. 239, Art. 239-1, Art. 239-2, Art. 279, Art. 328, Art. 329, Art. 330-1, and related classifications under the Integrity Law no.82/2017. ### APO mandate, scope issues, and caseload composition - APO was established to investigate high-level corruption but has an overly broad investigative jurisdiction that includes offences not related to corruption. - APO investigates all corruption offences, except illicit enrichment, if: - (i) they are committed by a high-level official, or - (ii) if the value of goods, services, advantages in any form that were claimed, promised, accepted, offered, given or received, approximatively USD 15,000 or if the value of the damage caused by the crime exceeds approximately USD 150,000. - Because criterion (ii) is not restricted to crimes committed by officials, APO investigates non-corruption offences and offences in the private sector. - Composition of APO case types and burdens: - Non-corruption offences (e.g., fraud and embezzlement) amounted to 11 and 18 percent (28 and 7 cases) of all initiated criminal cases in 2019 and first half of 2020 respectively, and to 14 and 24 percent of APO cases submitted to court in the same periods (11 and 4 cases). - Categories such as tax evasion, smuggling, crimes against justice represented more than half of the cases initiated in 2019 and first half of 2020. - Recommendation: adjust APO’s investigative jurisdiction to target high-level corruption — exclude offences committed purely in the private sector while enabling investigation of some non-corruption offences in the public sector where APO’s expertise is beneficial. - Note: PGO developed a draft law to amend the CPC to regulate investigative jurisdiction regarding high-level corruption (sent to MOJ in September 2020). ### APO prosecutorial oversight, representation, and resource strain - APO exercises prosecutorial oversight over NAC investigations and represents prosecution in courts, which unduly stretches its resources due to: - the broad mandate of NAC, - higher number of low-level corruption cases relative to high-level corruption handled by APO. - Data on APO internal resourcing imbalance: - The prosecutorial oversight unit in APO employs 12 prosecutors that lead 369 cases, compared to 19 prosecutors and 178 cases in the investigative unit. - 85 percent of cases sent by APO to courts in first half of 2020 and 77 percent in 2019 are NAC’s investigations. - Effects and recommendations: - Lifting or reallocating the prosecutorial oversight burden would allow APO to focus on high-level corruption. - APO represents prosecution in first instance courts for itself and for NAC; appeals and cassation can be handled by territorial prosecution offices. This arrangement may cause duplication, risk APO’s operational autonomy, and produce inconsistency and inefficiency in prosecution representation. ### APO independence, budgetary and procedural constraints - APO lacks necessary procedural, operational and budgetary independence: - PG can unilaterally withdraw or transfer criminal cases from APO, undermining APO’s exclusive investigative jurisdiction over high-level corruption. - CPC defines PG as hierarchically superior prosecutor to the head of APO; PG can request control, alter or cancel acts of the APO head, examine complaints, issue written instructions (CPC indicates motivations should be provided, but in practice motivations are not sufficiently detailed and case specific). - Hierarchically superior prosecutors can cancel detentions, approve arrest extensions, renew terminated investigations. - Recommendation: implement a single obligatory case management system to record all procedural decisions and formalize motivations for important procedural decisions to facilitate consistent prosecutorial discretion and safeguard procedural autonomy. - Budgetary constraint: APO does not have its own budget (envisaged in law on specialized prosecution) and relies on PGO to approve budgetary allocations. - Recommendation: authorities should consider whether operational autonomy of anti-corruption prosecution can be achieved under current subordination to PGO or whether an alternative institutional or legal set-up is required. ### Human resources, secondments, and staffing authority - APO lacks sufficient authority over its human resources due to prosecutorial hierarchy: - APO prosecutors’ professional background is mostly in prosecutorial oversight and court representation rather than evidence collection and investigative activities. - APO does not have its own investigative officers on staff and is heavily dependent on seconded and other external staff for investigations. - Secondments and external staff comprise a majority of investigation unit personnel: seconded investigative officers and consultants are 34 out of 60; 27 out of 60 positions for these external staff in specialized prosecution offices were vacant. - Effects: - Reliance on external staff can negatively affect sustainability and continuity of investigations. - SCP and Prosecutor General hold authority over APO staffing, including secondment decisions; PG proposes transfers between APO and other prosecution offices. - Example: 8 prosecutors delegated to APO in 2018 increased to 27 in 2019; prosecutors transferred from other prosecutorial bodies accounted for more than half of APO prosecutors, while 7 APO prosecutors were suspended or seconded. - Recommendation: subject secondments to the same transfer rules as regular vacancies to ensure equality of opportunity and adequate assessment of candidates’ skills and experience. - Policy question: consider whether required operational autonomy of a law enforcement agency focused on high-level corruption can be achieved for an agency that is part of the PGO. ### Selection, dismissal, and leadership appointment safeguards - Selection and dismissal processes: - Selection and dismissal of APO prosecutors are centralized in the SCP selection and disciplinary boards, subject to approval by the Prosecutor General. - Recommendation: involve APO staff in selection of APO prosecutors; at least one member of the appointment board should have experience working in APO. - Some degree of APO participation in disciplinary cases against APO prosecutors recommended as safeguard against retaliation. - Selection of APO head: - APO heads have status of deputy PG and follow the same selection process as regular prosecutors (selection by SCP selection board and appointment by PG). - Recommendation: strengthen the selection process by establishing a commission comprised of members with impeccable reputation and high professional and moral qualities — including civil society representatives with appropriate experience and experts with experience in anticorruption prosecution (including relevant international experience) — with the experts having a crucial role and decisive vote. - Allow legal professionals with required years of work experience in law, but without prosecutorial experience, to apply for prosecution positions; consider allowing non-prosecutor legal professionals to apply for all positions in prosecution services given perceptions of endemic corruption and capture. - Suggestion: appointment process for NAC head by Parliament can be similarly strengthened. ### Performance evaluation, integrity, and disciplinary framework - Current evaluation and integrity measures: - Reputation and integrity account for 8 out of 100 points in the performance evaluation scorecard for prosecutors, a lower weight than respect for established practices and following instructions of hierarchically superior prosecutors. - Integrity criterion includes assessment of professional reputation and respect for professional ethics based on information from the chief prosecutor, PGO’s Inspection of Prosecutors, SCP’s disciplinary and ethics board, interviews with judges, and any disciplinary violations in the last four years. - Recommendation: integrity criteria should have a higher weight in performance evaluation and be included in promotion and transfer decisions for prosecutors. - The integrity assessment should include analysis of publicly available information on prosecutors’ reputation and an assessment of their assets, leveraging information from asset declarations. - Performance evaluation outcomes: - 2019: 36 out of 38 prosecutors assessed as “very good”. - 2018: 155 out of 159 prosecutors assessed as “very good”. - No prosecutors assessed with a “failed” or “insufficient” score in the reported years. - Disciplinary procedures and Inspection of Prosecutors: - Complaints and notifications are registered in the SCP and forwarded to the Inspection of Prosecutors where a disciplinary case is launched only after PG approval. - PG appoints and dismisses inspectors and chief inspectors and establishes structure, budget and composition of the Inspection, which may lead to self-censorship in high-profile cases. - The disciplinary process is multi-staged and cumbersome; combined with a one-year statute of limitations for disciplinary offences, the process may hinder timely accountability. - Recommendation: streamline the framework for disciplinary proceedings with an independent disciplinary function as part of SCP; consider requiring PG to abstain from participating in SCP voting on decisions related to disciplinary liability, promotion, evaluation or other HR decisions regarding individual prosecutors. ### Asset declaration regime: scope, system, and usage - Role of asset declarations: - Serve preventive function by requiring civil servants to be accountable for assets and increasing transparency where published. - Serve enforcement function by facilitating identification of potential corruption and conflicts of interest and supporting charges of illicit enrichment. - Where published, allow public watchdog role to monitor and verify assets of public officials. - Legal framework: - Law no.133/2016 governs declarations of income and personal assets, conflicts of interest, incompatibilities, restrictions, and limitations. - A wide range of public officials are subject to Law no.133/2016, including elected and appointed officials, Prime Minister and Vice-Prime Minister, President and Vice-President, ministers and deputy ministers, members of Parliament, judicial oversight bodies, and heads of agencies. - Declarations must include subjects’ family members and concubines; reported assets include tangible and intangible assets, accounts, debts, shares, and other rights including those situated abroad. - Beneficial owners of financial assets and accounts must be disclosed if their total value exceeds 15 annual salaries. - Moldova participated in regional cooperation in asset disclosure, including ratification of an International Treaty on Exchange of Data for the Verification of Asset Declaration (signing postponed due to COVID pandemic). - Electronic asset declaration system: - Newly implemented electronic asset declaration system introduced in January 2018 (e-integrity information system developed with World Bank support). - System allows asset declarations to be submitted directly online; all declarations are published on the public portal (NIA’s website) in PDF format and are searchable by name and surname. - All previous paper declarations have been scanned and uploaded into the e-system. - The e-system is linked to databases: population, cadaster, registration of transport units, tax service, although automatic cross-checking is not yet possible. - Between 2018–2020: 212,070 digitally signed asset and personal interests declarations were submitted electronically. *Source: 1mdaea2021001 - 54. NAC’s strategic and operational analysis is focused on the detection of corrupt acts* ### 67. Effective implementation of the asset disclosure regime is hampered by low ### Effective implementation of the asset disclosure regime is hampered by low capacity ### Asset declaration regime: effectiveness and challenges - Judicial actors, such as judges and prosecutors, often exhibit signs of unexplained wealth and the prevailing impression is that such officials have corruptly benefited from their position. - Although judges and prosecutors have been the subject of administrative or criminal cases stemming from false asset declarations, conflicts of interest, or illicit enrichment, few have been sanctioned. - Footnote data: In 2019, 9 prosecutors and 8 judges were the subject of administrative cases; 1 prosecutor was found in violation. In the first 9 months of 2020, 15 prosecutors and 7 judges were the subject of administrative cases; 1 judge and 1 prosecutor were found in violation. ### National Integrity Agency (NIA): mandate and capacity constraints - The NIA is responsible for implementing and overseeing the asset declaration regime and has oversight responsibilities including identifying violations of conflicts of interest, incompatibilities, and restrictions, and pursuing administrative cases. - The NIA also issues integrity certificates to candidates for civil service positions; these certificates attest only to the fact that the candidate has not been sanctioned for asset declaration irregularities or conflicts of interests and are described as a formalistic and time-consuming procedure that yields little actual value. - Footnote data: 1,083 such certificates were issued by the NIA in the 2019 calendar year and 1,374 in the preceding year. - Staffing: - The NIA has 76 staff positions, but as of July 1, 2020, only 40 of those positions (52.6 percent) were filled. - Capacity concerns: - NIA may lack requisite expertise to coordinate with law enforcement agencies on cases of illicit enrichment. - The NIA’s security, audit and integrity verification unit (meant to be staffed with three senior inspectors/auditors) is currently unstaffed and not operational. ### Enforcement of asset declaration requirements: activity and outcomes - 2019 enforcement: 133 administrative cases resulting in a total of EUR 8,960 worth of fines. - First half of 2020: 103 administrative cases were opened, resulting in a total of EUR 6,540. - June 2018 – 2020 (two-year period): only 15 referrals were made by the NIA for criminal investigation for false statements; these included 1 prosecutor, 1 Member of Parliament, 2 mayors, and 2 heads of districts. - Given allegations of public officials flagrantly misusing positions, the level of enforcement is assessed as meager. ### Market-based declaration system: proposed change and critique - In September 2019, the NIA submitted draft amendments to require declarants to declare assets at the real market price in addition to contract price. - Criticisms and practical concerns: - Identification of unjustified variations of wealth requires the value of an asset at the time of acquisition, not at declaration, and requires the real value as opposed to market value. - Market value for many assets may be difficult to determine (if lacking credible quantitative indicators), potentially highly subjective and resource intensive. - NIA already has tools to combat fraudulent declarations by enforcing sanctions against false declarations; proving false declaration on market value may be more difficult than proving fraud related to purchase price. - NIA may lack capacity to administer a market-based system. - Concrete implementation aspects remain unaddressed: which market reference points or indicators will be used to estimate market value, acceptable margin of error, and how to account for assets that appreciated but have not yet been capitalized. - Legislative amendments considered but lacking practical implementation planning include empowering NIA inspectors to make assessments and appraisals and allowing NIA to recruit additional specialized staff. ### Anti-corruption investigations and prosecutorial patterns - APO investigations: - APO started 462 investigations with a steady decrease since 2017 and a significant drop in the first half of 2020. - Decrease to 3 initiated bribery investigations in the first half 2020 as compared to 41 average annual launched investigations in previous years. - APO has sent 235 corruption cases to court in 2016-2019, more than half of which were trading in influence cases. - Two thirds of APO active and passive bribery investigations were terminated; almost 80 percent of initiated trading in influence cases were sent to court (121 out of 155 started investigations). - Number of corruption cases sent to court is decreasing: from 147 cases in 2017 to 12 in the first half of 2020. - NAC investigations: - NAC started 1,452 corruption investigations during 2016-2019, with some decrease in the first half of 2020. - NAC and APO received financial intelligence disseminations from SPCML in 2019: NAC received 14 disseminations and APO received 22 disseminations, which amounted to 8 and 13 percent of SPCML’s disseminations respectively. - NAC sent 668 corruption cases to court in 2016-2019, more than half of which were trading in influence cases. - Less than a quarter of NAC investigations into passive corruption were sent to court (115 cases out of 467 started investigations). - Two thirds of NAC investigations into active corruption were sent to court (201 cases out of 326 started investigations). ### Profile of indicted persons and focus of prosecutions - APO sent to courts cases against (selected figures since 2017 and since 2016 where noted): - 2 ministers, 1 member of Parliament, 19 judges and 1 state secretary in 2017. - Since 2017 also: 2 heads of central agencies, 10 judges, 9 prosecutors and 1 local district president. - Cases against 41 mayors were sent to court, but 36 were low-level corruption and non-corruption cases. - Cases against 69 other civil servants, 30 investigative officers and 104 employees of state-owned enterprises, including 34 administrators. - Highest number of officials sent to courts: employees of Ministry of Internal Affairs (189), mostly traffic inspectors; followed by Customs Service, mostly customs inspectors. - Significant numbers of indicted persons in hospitals (31) and education institutions (54), including cases against 23 doctors and 24 teachers. - Category with highest number of persons sent to court by APO and NAC since 2016: administrators and employees of private sector companies (216); cases against 54 private lawyers. - Almost half of all persons sent to court (994 out of 2154 since 2016) don’t have an official status and are mostly regular citizens. - Observations: - Persons indicted in corruption offences are mostly private citizens rather than public officials. - Focus in most public sector corruption cases appears to be on petty bribery and low-level corruption. - High-level corruption of public officials is not targeted adequately. ### Convictions, sentencing, and perceptions of impunity - Conviction totals during 2016-2019: - 129 persons convicted of passive bribery. - 183 persons convicted of active bribery. - 366 persons convicted of trading in influence. - Case outcomes and terminations: - Cases against 63 persons were terminated as the statute of limitations has expired. - Number of officials convicted of accepting a bribe is more than four times lower than the number of persons convicted of trading in influence and giving a bribe. - Sentencing patterns: - Almost half of all convictions in corruption cases result only in a fine. - For receiving a bribe, the number of officials sentenced to prison was lower than the number of officials sanctioned only by a fine in the last three years. - Out of 42 officials sentenced to prison for accepting a bribe in 2017-2019, only 8 were actually imprisoned; the rest received suspended sentences. - For trading in influence and giving a bribe over the same period: 28 persons were imprisoned with additional 221 persons imprisoned with suspended sentence. - Reduction of sentencing: - Provisions allowing automatic reduction of sanction by a third if the accused admit guilt were applied for 77 percent of all convicts in corruption cases (425 times in the cases of 552 persons). - Authorities are advised to review these provisions to limit application to cases where the defendant assists the investigation significantly and to reconsider routine use as it negatively affects dissuasiveness. - Application of other provisions to lower sanctioning (e.g., imposing punishment below minimum statutory limit or a milder one) should be reconsidered and limited to exceptional circumstances. ### Gaps in offence coverage and investigative priorities - Over-emphasis on trading in influence: - Trading in influence accounts for a third and almost a half of corruption investigations launched by APO and NAC respectively since 2016. - Half of all corruption cases sent by APO to court are trading in influence cases—an increase in the share of this offence from a third of all started corruption investigations launched by APO. - Authorities are encouraged to continue bribery investigations where an intermediary promising to bribe officials is identified. - Limited use of illicit enrichment and false declaration offences: - Since 2016 APO sent to court 49 cases of abuse of official position, which may include acts of embezzlement. - Only two cases of illicit enrichment were sent to court (against a judge and a custom inspector) and no official was convicted for illicit enrichment. - Two cases of declaring false information in asset declarations were sent to court (against a member of parliament and an investigative officer), but no final convictions were achieved. - Embezzlement by public officials appears not investigated in line with significant risks of diversion of property by public officials. ### Asset sequestration and recovery - Trial-stage sequestrations (2019): - APO cases: almost MDL 1.5 billion sequestrated to secure eventual special or extended confiscation, damage recovery and potential fines. - NAC cases: MDL 1.1 billion sequestrated. - Actual confiscations and recovery: - Confiscations in high-profile corruption cases in the last three years were mostly limited to several thousands of USD with a maximum of USD 87 000. - Assets actually recovered: USD 1.3 million was recovered in five years (2013-2017) in corruption cases. - Assessment: - Amounts actually recovered are low in corruption cases relative to the extent of corruption. - Significant weaknesses exist regarding application of extended confiscations and recovery of assets from abroad. - Authorities were not able to provide updated information on asset recovery in corruption cases. ### Key recommendations and priorities - Strengthen anti-corruption enforcement with emphasis on: - Investigation of high-level corruption. - Scrutiny of top public officials’ wealth using illicit enrichment and declaring false information offences. - Prioritizing asset recovery. - Strengthen operational autonomy of anti-corruption institutions and safeguard them from undue external influences, with a particular focus on APO. - Address lenient sanctioning to make sanctions more dissuasive and shift perceptions of impunity of corrupt public officials. - Review and limit routine application of sentence-reduction provisions to cases with significant investigative assistance. - Reassess move to market-based declaration system given implementation complexity, valuation challenges, and NIA capacity constraints; consider reinforcing enforcement of existing tools to combat fraudulent declarations instead. ### AML/CFT context and relevance - Inadequate AML/CFT controls can undermine macroeconomic stability by allowing concealment of illicit proceeds of corruption. - An effective AML/CFT regime supports anti-corruption efforts through preventive measures, detection, deterrence, enforcement, and international cooperation for recovery of corrupt proceeds. - Moldova’s AML/CFT framework: - Moldova passed its AML/CFT Law in 2017, with latest amendments in 2018. - Main bodies for ML/TF detection, investigation, and prosecution: SPCML (financial intelligence unit), General Prosecutor’s Office, Prosecutor’s Office for Combating Organized Crime and Special Causes, APO, and NAC. - Moldova completed and published its National Risk Assessment (NRA) in 2017. - NAC and APO have experience using financial intelligence disseminated by SPCML for corruption investigations (e.g., procurement-related corruption). *Source: IMF country report chapter provided in the content unit.* ### 83. In Moldova, corruption offences are recognized by the NRA as among the most ### 83. In Moldova, corruption offences are recognized by the NRA as among the most ### Corruption as a source of illicit proceeds - The NRA recognizes corruption offences among the most relevant crimes generating illicit revenues and cites corruption as one of the most “stringent” problems in Moldova. - High incidence of bribery among households and businesses is noted. - 2015 reported bribe values: - Households: approximately 860 million MDL (43 million EUR) - Businesses: 381 million MDL (19 million EUR) ### MONEYVAL 2019 assessment of AML/CFT regime - MONEYVAL identified weaknesses in Moldova’s AML/CFT regime in its 2019 report. - Key findings: - Overall understanding of ML/FT risks in the financial sector overly reliant on typologies from two high-profile money laundering schemes in Moldova. - Application of a risk-based approach by the financial sector remains a “work in progress”. - CDD deficiencies in relation to identification of beneficial owners and politically exposed persons (PEPs). - Money laundering enforcement not fully in line with the country’s risk profile. - Although high-level corruption was recognized as a major risk, only “modest results” were achieved in corruption-related ML cases. ### National Bank of Moldova (NBM) risk-based supervision initiatives - NBM is updating its risk-based supervisory model and has revised its methodology for institutional risk assessments. - In risk assessment of a financial institution, NBM examines: - risk of money laundering - sectoral risk - cross-border relations - complexity of products - the entity’s inherent risk - geographic risk - NBM also assesses an entity’s control framework: - internal procedures and controls - application of CDD and enhanced due diligence (EDD) - transaction monitoring - corporate governance - Planned/ongoing initiatives: - Sectoral risk assessments pursuant to a methodology currently being finalized. - IT solution (with USAID assistance) to identify patterns and linkages pointing to ML/FT risks; hoped to be launched in approximately a year and bidders were being assessed at the time of the mission. - Status: NBM’s risk matrices and internal procedures still being developed; practice cannot yet be assessed. ### Supervisory organization and external audits - Since 2017, prudential supervision and AML/CFT supervision have been conducted by separate departments to facilitate NBM focus on AML/CFT priorities, but more resources and greater coordination/communication between departments are needed. - Annual external auditor reviews of AML/CFT standards in banks: - Scope set by NBM; approach provides important information and leverages NBM’s limited resources. - Second review by external auditors of banks recently completed. - NBM has exercised power to reject external auditor appointments lacking requisite skills and capacity. - External reviews corroborated NBM’s inspections and off-site activity results. ### Recurring deficiencies in banks’ preventive measures - NBM identified continuing deficiencies in Moldovan banks: - Failure to properly identify customers and beneficial owners - Lack of transaction monitoring - Failure to verify source of funds - Weaknesses in identifying and assessing specific ML/FT risks - Failure to apply EDD measures for high risk customers - Failure to identify and report suspicious transactions - Second round of external auditing of the banking sector reached similar findings. - NBM issued clarifications on beneficial ownership regarding: - verification of beneficial ownership - situations in which the person(s) in a senior management position should be identified - factors requiring an update of CDD - circumstances necessitating EDD - SPCML guidelines on beneficial ownership: - Take the position that senior management should be listed as the beneficial owner after exhaustion of all possible means to identify the beneficial owner (and where no suspicion exists), which contradicts international standard and the instruction to terminate any business relationship where it is not possible to identify the beneficial owner(s). - NBM has not yet incorporated some aspects into its supervision through sectoral thematic inspections or regular targeted exams. ### Beneficial ownership (BO) challenges - Understanding of BO across the banking sector is lacking; obtaining accurate and up-to-date information is difficult. - Public register for beneficial owners exists, maintained by the Public Services Agency (PSA), which: - lacks the power to sanction entities for submission of false or incorrect information or where changes are not reported - due to absence of enforcement powers, the quality of information in the register is questionable - MONEYVAL (2019) noted serious deficiencies in banks’ ability to correctly identify BO in complex legal structures. - Industry practices and misunderstandings: - Companies often refuse to furnish documentation or provide false documentation to avoid BO disclosure. - Some industry representatives reported listing an administrator or manager where an earnest effort is made and no BO can be identified, contrary to international standard. - Some bank representatives stated they do not accept foreign beneficial owners, potentially incentivizing customers to provide false information. ### Politically Exposed Persons (PEPs) - Identification of PEPs is a significant challenge: - Banks appear to rely largely on self-reported information from customers without cross-checking or verification. - Banks are not sufficiently proactive in identifying PEPs. - Industry representatives believe regulatory authorities should provide a list of national PEPs; note that FATF does not promote publication of a national list of PEP names but recognizes the utility of government-issued lists of domestic positions/functions considered prominent. - NBM findings: - Few targeted exams detected no major weaknesses, but an inspection in 2019 revealed major AML/CFT violations relating to PEPs and applied sanctions. - External audit findings: - Significant weaknesses in identification of and due diligence related to PEPs, including: - failure to update classifications of PEPs - failure to identify family members and associates - failures to properly screen for PEPs - failures to check or verify information submitted by customers - failure to identify PEPs if not self-declared ### SPCML, suspicious transaction reporting (STR), and financial intelligence - SPCML is reforming STR system to move from a rule-based approach to a more risk-based, detailed, analytical STR, including corruption-related reporting. - SPCML STR activity (2019): - SPCML received 889 reports regarding the activity of PEPs in 2019, amounting to 3.5 percent of all submitted reports. - Reporting entities are required by AML/CFT law to apply enhanced on-going monitoring of business relations with PEPs. Some financial institutions have: - enhanced scrutiny of PEPs - restricted cash transactions - established lower thresholds for wire transfers - dedicated resources to mitigating risks emanating from PEPs - SPCML’s outputs and operational analysis: - SPCML disseminated 14 financial intelligence reports regarding cases of possible corruption and PEP activity in 2019, compared to 2 and 5 reports in 2018 and 2017 respectively. - APO and NAC request financial intelligence to investigate ML and predicate corruption-related offences: - APO submitted 117 requests in 2019 and 10 requests in 2018 - NAC submitted 186 requests in 2019 and 11 requests in 2018 - APO has increased the number of ML investigations started based on its own sources. ### Investigations, prosecutions, and convictions for corruption-related ML - MONEYVAL assessors noted only modest results in prosecuting and convicting corruption-related ML cases. - APO activity (2016–1H2020): - Initiated 82 ML investigations and secured 14 conviction sentences in 2016-1H2020, with some deceleration in 2018 and the first half of 2020. - APO accounts for more than two-thirds of initiated ML investigations and convictions over the period, but most cases were not directly related to corruption; ML investigations, prosecutions and convictions involving PEPs were achieved since 2018. - Conclusion: corruption-related ML investigations and prosecutions are not fully consistent with corruption threats, risk profiles and national policies. ### Recommendations and priority actions - Continue progress in AML/CFT to safeguard financial integrity from proceeds of domestic and foreign corruption. - Intensify efforts to investigate and prosecute corruption-related ML and use financial intelligence to detect corruption and conduct financial investigations. - Build on NBM and SPCML progress by further supervisory efforts to strengthen application of AML/CFT preventive measures by banks, such as suspicious transaction reporting, particularly to address risks related to PEPs and non-resident legal entities. - Improve accuracy of available beneficial ownership information by providing the PSA with sanctioning powers for non-compliance with BO requirements. *IMF staff report content unit 1mdaea2021001* ### 101. The emergency COVID-19 procurement has been undertaken based on transparent, ### 101. The emergency COVID-19 procurement has been undertaken based on transparent, competitive principles. ### COVID-19 procurement: implementation and oversight - The Center for Centralized Public Procurement in Health (CAPCS) undertakes centralized procurement of medicines and medical goods for 385 public health institutions. - The CAPCS made significant efforts to ensure transparency and competition in emergency COVID-19 procurement. - Government Decision (No. 494-2020) only shortens a grace period for filing of complaints for COVID-19 procurement; procurement rules were not broadly relaxed. - Mass purchases of COVID-19 related medical goods (e.g. masks, gloves, ventilators, sanitizers) were made through open tenders with multiple bidders. - The MoF and AAP resolved technical problems in MTender that initially prevented CAPCS from using it for COVID-19 purchases. - Since January 2021, all procurements of the CAPCS have been made through MTender. ### Limitations in contract implementation transparency - Current e-procurement systems track transactions only until contract award; there is no centralized IT system that keeps track of contract status. - Individual agencies (e.g. the SRA and CAPCS) publish annual reports on contract execution, but there is no consolidated report. - Several CAPCS contracts had below 50 percent execution rates in 2019 because hospitals often changed demands after the tender, resulting in multiple lawsuits by suppliers. - MTender is being modified to enable monitoring of contract implementation through the system. - A draft regulation is being prepared to require all contracting authorities to publish an annual report on contract execution on their websites. ### Roles and performance of AAP and ANSC - The ANSC was created in 2016 as an independent procurement appeals body. - Filing of appeals to the ANSC increased from 726 cases in 2018 to 1026 cases in 2019. - Acceptance rate of cases examined by the ANSC increased from 45 percent in 2018 to 53 percent in 2019, resulting in cancellation of a large number of tenders. - The LPP allows the ANSC to annul procedures on grounds included in Article 71 of the LPP, even if not raised by plaintiffs; this has led to arguments that the ANSC is acting more like a control body. - After MTender’s introduction, the AAP shifted from central control of each procurement to ex-post monitoring of irregularities, detecting 3,342 irregularities mainly associated with deficiencies in documentation in 2019. - Under the LPP, the AAP can only provide recommendations and does not have power to impose administrative sanctions against irregularities. ### Information system controls: overall importance - Information system controls are fundamental for preventing corruption in PFM; breaches can cause massive corruption and theft of public money. - Financial management information systems require high-level general controls (cybersecurity, access controls, business continuity) and business process controls (data verification, elimination of manual interventions). - When multiple systems are involved, secured automation of interfaces is critical to avoid discrepancies and manipulation of data. ### Controls for the MoF’s Financial Management Information System (SIMF) - The SIMF has modules and functionality for: (i) budget preparation, (ii) registration of contracts, (iii) authorization of payment orders, (iv) issuance of bank instructions, and (v) preparation of cash-based budget execution reports. - Around 2,600 budget entities at central and local levels have access to the SIMF. - Since operationalization in 2016, various improvements have been made; most recommendations of the MoF’s internal audit on the SIMF in 2017 have been implemented according to the Court of Accounts. - Important exceptions to strong information system controls include interfaces with procurement and budget entities’ financial management systems. Findings on SIMF controls: - Application level general controls are strong, with room for improvement in business continuity areas: - Government Decision (No. 201-2017) requires documented comprehensive cybersecurity policies for the SIMF. - Logical access controls integrated into the e-government platform (MPass and MSign). - Servers placed in government data center with physical access controls (e.g. fingerprint authentication). - Roles of MoF (owner and user) and CTIF (system administrator) are contract-defined. - CTIF conducts annual security checks and penetration tests for the SIMF. - Business Continuity and Disaster Recovery Plans documented; back-up servers exist in separate government DR facility. - No comprehensive simulation exercise has been undertaken to switch to the DR site and test all functionalities; ideally system operations should be shifted to the secondary site frequently. - Business process for contract registration and payments is centrally controlled by the MoF without manual intervention: - Business process documented in MoF Order (No. 215-2015). - All contracts and payment orders are verified by the State Treasury or regional treasuries before registration in the SIMF and before bank instructions are generated. - Contract registration and payment authorization done solely in the SIMF without manual intervention. - SIMF database secured with referential integrity; no hard deletions permitted; all digitally signed records are final and no rollback of transactions is permitted. - All SIMF modules are integrated; discrepancies are monitored by the State Treasury via fiscal reports. - Interfaces with other systems are automated, except for procurement systems and budget entities’ financial management systems: - SIMF automated interfaces include: STS information system (supplier details updated weekly), Custom Service’s system, the banking system of the BNM, systems of the State Social and Compulsory Health Insurance Funds, and the system of the National Bureau of Statistics. - Data import/export between SIMF and banking system and bank reconciliation of TSA are fully automated without manual interventions. - There is no interface between SIMF and procurement system, posing risks of discrepancies between procurement-published contract data and SIMF-registered data. - Interface between SIMF and budget entities’ financial management system (“1C”) is not automated: a budget entity must manually download a file from “1C” and upload it to SIMF; while files are accompanied by digital signature, there is no automated reconciliation between SIMF and “1C”. ### Budget entities’ systems and risks - Around 1,000 budget entities use “1C” software, which has 16 modules with critical functionality (payroll processing, contract management including authorization of invoices and delivery notes, accrual accounting), none of which can be done through the SIMF. - For “funds” and self-management authorities, “1C” is used for budget preparation and both cash and accrual-basis fiscal reporting; the SIMF is used only for making payments out of the TSA. - Controls of budget entities’ financial management systems are highly decentralized and appear weak and inefficient: - Configuration of “1C” is managed by CTIF, ensuring software quality, but application level general controls and business processes depend on each budget entity. - No IT audit targeting “1C” has been undertaken; audit reports of individual budget entities often reveal discrepancies in recording accrual items (e.g. financial and non-financial assets), implying weaknesses in information system controls for “1C”. - Decentralized structure requires each of the 1,000 entities to have separate servers and database management software, imposing high IT costs on the State budget. - Database backups are facilitated by CTIF but are stored locally and thus unsecured and prone to data manipulations. - Large number of budget and self-management authorities use other systems (not “1C”), quality of which is not ensured by CTIF. - Audit report (No.16-2017) findings for health institutions: - Only 43 percent use “1C”. - 37 percent use an excel based system. - 21 percent have no financial management system at all. - Recommended direction: - Shift “1C” to a centralized platform where servers are administered by CTIF and accessed online by users, similar to the SIMF, and roll out to all budget and self-management authorities and funds. - CTIF considers such centralized platform technically feasible if the Government decides to proceed. - An IT audit could be undertaken against “1C” of major entities until they are shifted to the centralized platform. ### Asset and Liability Management — Public investment risks and coverage - Capital projects have high risks of irregularities due to procurement scale, multi-year contractor controls, lack of transparency in project selection, uncompetitive procurement, unpredictable budget allocations, and weak inspection of contractors’ works. - Government Decision (No. 1029-2013) and MoF Order (No. 185-2015) provide a framework for appraisal, selection, and implementation of “capital investments” but captured only 16 percent of total capital expenditures of the general government in 2018. - Outside this framework: - 12 percent of capital expenditures are externally financed projects subject to development partners’ governance frameworks. - 37 percent are local governments’ projects, mainly small capital repairs. - Remaining 35 percent of capital expenditures (mainly financed under “Good Road Moldova” program or through “funds” or PPPs) sits outside the standard framework and is therefore more vulnerable to irregularities. ### Good Road Moldova program: practices and vulnerabilities Findings and good practices: - Good Road Moldova is a program to undertake mass capital repairs of townhall (primăria) roads; started in 2018 and continued in 2019 and 2020 but is not included in the 2021 budget. - Good practices developed by SRA (not codified in law) include: - Allocation to each townhall is rule-based and involves little political interference. In 2018, each townhall is given 1 million lei, adjusted by coefficients of population (example: population between 5,000 and 10,000, coefficient is 1.3, i.e. 1.3 million lei). - Selection of a project (road section) is made with expert advice of the SRA; after 2019, when a townhall council selects a project, SRA provides expert advice on candidates. - Project preparation and procurement is centralized: SRA engineers select designs from 7 standardized specifications and SRA is contracting authority for all projects. - Project implementation is centralized: SRA has field engineers in all districts to supervise contractors. - Transparency ensured through publication of detailed project reports (length, actual costs, planned and actual dates, photographs). - These good practices operate solely on an annual basis without any multiyear state program document and are not codified in law or government decision; they can be undermined if government officials so desire. Budget instability and consequences: - 2018: original budget allocated 1.2 billion lei to the program; Government cut the budget by 300 million lei during the year. Works had been contracted; SRA asked contractors to complete work while delaying payments until next year, resulting in payments of 288 million lei postponed into 2019. - 2019: original budget allocated 950 million lei; Government increased allocations to 1.7 billion lei in March; SRA undertook procurement on this basis; in September, next Government cut allocation down to 671 million lei. Resulted in confusion in procurement procedures: 55 out of 122 SRA tenders were cancelled or unsuccessful in 2019. - These budget changes in 2018 and 2019 appear driven by political motivation rather than economic situation; likely to cause procurement irregularities and affect construction quality despite technical good practices. - Recommendation: when a similar program is revived, establish more predictability in program duration and improve credibility of allocations in the original budget. ### Ecological Fund: irregularities and recommendations - In 2018, around 14 percent of capital expenditures was made through three funds (the Road Fund, RDF, and Ecological Fund). - The Ecological Fund finances around 300 million lei of water and sewerage projects every year. - Project selection is made by the Board of Directors chaired by MADRM and includes representatives of various ministries and an NGO; project appraisal and payments to local governments are made by FEN Service (division of MADRM). - Audit report (No. 39-2018) revealed almost all 31 projects (534 million lei) covered by the audit experienced irregularities from project selection to implementation. Examples of irregularities from Box 4: - Project selection process is not transparent: Board typically selects projects based on list presented by FEN Service; law requires expert opinions but negative expert opinions are often not submitted to the Board (example: expert’s negative opinion on building a treatment plant 5 km away from another was ignored). - Procurement irregularities suggest uncompetitive practices: in 27 out of 31 projects covered by the audit, bidders were not informed about results; in 17 projects declarations of confidentiality and impartiality were missing; 4 projects lacked minutes of evaluation. Five contractors won 85 percent of tenders. 2013 audit report revealed an “NGO” representative in the Board had business relations with these contractors, indicating severe conflict of interest. - Construction often not verified by public work inspectors: legal requirement to inspect before payments was not followed in several projects; contractors were paid without completing work or were overpaid by inflating cost or paid for unsatisfactory quality. Example: in Galesti village, a contractor did not put a manhole on sewerage pipes, which were buried under mud. Court of Accounts filed some cases with Prosecutor’s Office for criminal investigations. Structural issues and proposed options: - Ecological Fund decentralizes project preparation, procurement, and implementation to individual townhalls that lack engineering capacity; FEN Service has only 10 staff, only a few engineers, cannot conduct field visits to all sites and verifies public works mostly by paper review. - Tens of new projects approved every year have led to more than 200 projects being “ongoing”, in some cases since 2012. - RDF experienced much lower levels of irregularities due to centralized project management in three Regional Development Agencies with around 100 staff. - Planned options include establishing a new agency that centralizes the Ecological Fund’s project management with significantly augmented capacity. - There is a plan to establish a high level “national council” composed of relevant ministers responsible for decision-making on resource allocations for projects of various funds (RDF, Ecological Fund, Road Fund); such a council may improve transparency in project selection and procurement regularity. - Existing Ecological Fund projects ongoing for a long period should be reappraised to determine whether they should be discontinued or restricted in scope. *Source: 1mdaea2021001 - 101. The emergency COVID-19 procurement has been undertaken based on transparent,* ### 114. PPPs have been another source of irregularities in public investments in Moldova. ### 1mdaea2021001 - 114. PPPs have been another source of irregularities in public investments in Moldova. ### PPPs and scale of investments - Annual investments made through PPPs have been at around a few hundred million lei, at the same level as spending of the Ecological Fund. - A majority of investments are associated with the Chisinau International Airport project, which has received around 1.5 billion lei of investments since 2014. - Few PPPs in Moldova require payments from the budget, as they are typically financed by tariffs. - High levels of irregularities were revealed in the three largest PPP projects both at the central and local levels. These irregularities indicate a possibility that a private partner hides tariff revenue and defrauds government assets, causing revenue loss for the budget. ### Box 5 — Examples of Irregularities in PPPs - Chisinau International Airport project (planned investment: 5 billion lei) - Audit report (No. 1-2020) found the private partner was selected through an uncompetitive procurement process: the tender was by invitation only, excluding major international competitors (such as Turkish TAV). - An association of Russian companies was selected in a single bidder case, since the other bidder was disqualified. - This association has been charging expensive airport tariffs without the approval of the tariff setter (Civil Aviation Authority) and provided 1.7 billion lei of no interest loans to other persons, which were bigger than investments it has made. - A money laundering case was filed with the law enforcement authority for criminal investigation. - The association refused public work inspections which tried to verify the amount and quality of its investments. - “Gările și stațiile auto” project (planned investment: 200 million lei) - Project rehabilitates bus stations of a state-owned bus company. - Audit report (No. 69-2019) found project selection process was not transparent; feasibility studies seem to have been produced by the SOE. - The APP requested the Financial Inspectorate to inspect an unclear cost structure of the SOE, but feasibility studies were approved by the APP only in 5 days before conclusion of the financial inspection. - Tender documents seem to have been produced by the SOE and were approved by the Selection Committee only in 1 day. - An Association of two companies was selected in a single bidder case. After contract award, one company left the association without the approval of the Monitoring Committee and the investment was delayed. - Balti Municipality Solid Waste Treatment Plant project (planned investment: 464 million lei) - Would have been the largest PPP project at a local level if implemented. - Mission informed of irregularities in project selection, procurement, and implementation though external audits are not undertaken yet. - Municipality refused APP’s participation in the Selection Committee. - Allegedly, a Romanian company was selected even though another bidder offered more favorable terms; it charged high tariffs while not meeting specifications. - The Supreme Court cancelled the concession (No. 3rh-101/14), but the same year the municipality reselected the same company for the same project. - Municipality refused APP’s participation in the Monitoring Committee and did not provide information, breaching the law. - Project was eventually terminated without any investment being made. - Source: Mission based on the Audit Reports. ### Weaknesses in the PPP legal framework and proposed corrections - The Public Property Agency (APP) is preparing amendments to the PPP Law (No. 179-2008) in response to audit reports. - Weaknesses to be corrected to prevent PPP irregularities: - The feasibility studies should not be approved before the completion of the examination by the Agency for Technical Supervision and in case of SOE-related PPPs the financial inspections by the Financial Inspectorate. - Tender documents (“standard documentation”) and PPP contracts should be published on the APP website, in order to attain at least the same level of transparency as public procurement. - Single bidder case should be prohibited for the selection of a private partner. - Performance guarantees from banks should be made mandatory. In the Chisinau International Airport project, performance guarantees were provided by an insurance company, which refused to pay claims against misbehavior of a private partner. - Strict sanctions should be introduced for breaches of the law. The violation of e.g. the PPP Law, the Construction Code, and the Anti-Money Laundering Law should trigger the annulment of selection process, termination of PPP contracts, and monetary damages. ### Cash and debt management controls - Safeguarding public money requires controls over cash resources and financing transactions. Consolidation of bank balances in the TSA is the key to prevent irregularities. - Financing transactions are treated outside the revenue management or expenditure control framework and require strong central controls. - Loans and guarantee programs to the private sector require transparent and robust credit risk management, to prevent abuse by commercial banks particularly when they are facing financial problems. - Controls over cash resources through the TSA - Most of cash resources are consolidated in the TSA, which covers all budget authorities at central and local levels. - Entities managing “funds” (e.g., Regional Development Agencies for the RDF) often have accounts with commercial banks for operating costs, but payments from the funds (e.g., payments to contractors) are made through the TSA. - Self-management authorities may have accounts with commercial banks depositing own revenue, but expenditure financed from grants from the State budget and funds is paid from the TSA. - Bank accounts for externally financed projects are outside the TSA, but they are held with the BNM and controlled by the State Treasury. - Note: In 2017, the “liquidity reserve” was created by depositing proceeds of government bond issuance into term deposits with the BNM. The term deposits are remunerated by the BNM at weighted average of government bond yields. Although the liquidity reserve is held outside the TSA, its balance was decreased from 610 million lei in 2018 to 258 million lei in 2019 and is expected to be reduced further in 2020 as the government bonds issued for creation of the liquidity reserve are being redeemed. - Public debt management framework - The Law on State Debt, Guarantees, and on Lending (No. 419-2006) sets out the sole power of the MoF to borrow and provide guarantees and on-lending on behalf of the central government. - No other central public authority is allowed to borrow or provide guarantees or on-lending. - The Law on Local Public Finance (No. 397-2003) allows local governments to borrow only within the debt limit (20 percent of revenue excluding special purpose transfers), which is subject to the MoF’s monitoring. - Data on state debt, guarantees, and on-lending are published on a monthly basis on the MoF website. An annual report on public sector debt, including those of local governments and public corporations, is also published on the MoF website. - Transparency in credit risks of loan and guarantee programs needs strengthening - At the end July 2020, all outstanding State guarantees (1.1 billion lei) arose from the mortgage guarantee program (“First House”), which started in 2018. - A large part of outstanding State on-lending (2215 million lei by the end of June 2020) arises from loan programs to the private sector, mainly farmers, managed by the MoF External Assistance Programs Management Office. - Credit underwriting for the First House program is made by the Organization for the Development of Small and Medium Enterprises (ODIMM), a subordinated institution of the Ministry of Economy and Infrastructure (MOE), under the supervision of the MoF. - In these loan programs, financial institutions take credit risks from default of private sector borrowers, although the government still bears credit risks from default of financial institutions. - These loan and guarantee programs charge interest and fees and have conservative credit policies. - To cover default risks, the loan programs have accumulated 40 million lei of reserve at the BNM account and the First House program has provisioning in the State budget based on estimated default rates. - However, credit risk monitoring of existing portfolios is limited to performance and default of underlying loans and does not track changes in credit ratings of debtors or values of houses and collaterals. - There is no published report that discloses ratios of non-performing loans or quantity of credit risks in these credit portfolios. Preparation of such report is most likely to require substantial inputs from the BNM and financial institutions. - Example: For the First House program, guarantees only 50 percent of mortgage principal up to 1 million lei and requires debt to income and loan to value ratios of respectively 50 percent and 95 percent. ### Management of publicly owned lands and lease irregularities - Transparency and controls over publicly owned lands are key for preventing mismanagement of government assets. - Infrastructure is controlled by central agencies (e.g., SRA for roads), but management of lands is more fragmented and less transparent. - Complete registration of publicly owned lands through delimitation exercises (land survey to determine a boundary) is needed to detect and prevent abuse. - Particular attention should be paid to controls over leasing of lands, which is often used to circumvent an orderly privatization process. - Registration status and problems - Mass privatization and registration to establish private ownership of lands was undertaken between 1998 and 2006, but privatization of some agricultural lands was not completed. - As a result, central and local governments still own 43.8 percent of the country’s lands, which include lands for natural resources and infrastructure as well as agricultural and residential use. - Audit report (No. 2-2018) found around 1 million ha of lands, which are one-third of the country’s area, remain unregistered. The publicly owned lands may comprise a large part of these unregistered lands. - Information in the Real Estate Register (RBI) is inaccurate particularly on lands owned by local governments. Thousands of land plots are registered without information on delimitation or purpose of use in some municipalities. - In Chisinau municipality, there were 2,200 ha of discrepancies in the land ownership reported by the municipal council and the city hall. - Several disputes between central and local governments about land ownership exist, partly because the RBI started identifying their ownership only in 2007. - Mass delimitation exercise and register coherence - Government approved the state delimitation program 2019-23 to undertake mass survey of lands and update and complete land registration. - New Law on Delimitation of Public Property (No. 29-2018) approved in 2018 establishes the APP’s leadership roles. - Government Decision (No. 63-2019) standardizes survey outputs, but risks remain of data discrepancies between: - (i) the RBI (maintained by the Public Service Agency (ASP) and registering cadaster records and rights and obligations over real estate), - (ii) the land use records (maintained by the Agency for Land Relation and Cadaster (ARFC)), and - (iii) the register of public patrimony (maintained by the APP and registering ownership and value of public property). - Land use records are updated on annual reporting from local governments rather than actual survey, often lacking accuracy. - The register of public patrimony contains broader and more detailed information, which is annually updated on the basis of reports submitted from each entity, rather than the survey. - Scale and nature of revenue loss from irregular leasing - Revenue loss arising from irregularities and inefficiencies in leasing of local government’s lands was 3.6 billion lei in 2018 (1.9 percent of GDP). - Own revenue of local governments (4.3 billion lei in 2018, excluding transfer from the State budget) would have been doubled without these irregular leases. - Most of these were “leases for construction” where a lessee constructs its building on a government land; although not prohibited by law, this effectively circumvents privatization as the government cannot use the land for any other purpose once construction is completed. - In these leases, discounted value of total rents is often much lower than market prices that the government would obtain if lands were auctioned. ### Box 6 — Examples of Irregularities in Lease of Local Governments’ Lands - Several leases are not based on written contracts or the contracts do not specify the amount of rents. - Several leases were not renewed at the expiration, but the lessees continued to use the lands for free. - Lessees enjoyed free use of lands for a long period through an irregular privatization process where lands were privatized without the approval of the municipal council and no sale proceed was paid until the privatization agreement was finally cancelled. - Lands were leased as agricultural lands, although they were actually water basins that would allow municipalities to charge sizable fishing fees. - There were “abusive construction” cases where a lessee built frivolous constructions (e.g. a fence) to establish the right to use a government land, which was further strengthened by selling the construction to seemingly unrelated persons. - Leased lands were illegally resold to multiple seemingly unrelated persons who acquired the ownership through the “innocent purchaser” principle. - Lands were leased for an irregular concession where a lessee promised to build a cultural facility for children but instead built commercial buildings. - Lands were leased to build only a temporary booth but a lessee built a permanent building and the city hall, instead of cancelling the lease or applying a sanction, leased additional lands to help the lessee’s construction. - Source: Mission based on the Audit Report (No. 2-2018). ### APP monitoring and short-term reforms for leasing - Central government land leases are centralized in the APP, which scrutinizes lease-for-construction applications through the procedure in Government Decision (No. 1428-2008). - Privatization transfers are visible through the RBI, but there is no central monitoring or registration over lease of local governments’ lands. - Leases exceeding three to five years are registered in the RBI, but there is no register of leases for shorter periods. - Municipalities publish no information or report on lease of their lands. - The Chisinau city hall uses an obsolete IT system for lease management not updated since 2004; other town halls may have no IT system. - In the absence of systems or records, municipalities frequently fail to take legal actions against lessees’ abusive behaviors until it is too late. - Short-term measure: Amending the Law on Normative Prices of Land (No. 1308-1997), which requires certain publicly owned lands to be sold and leased at prices fixed in the law, would be useful to discourage irregular leasing practices, since such statutory prices are far cheaper than market values. ### Fiscal reporting and audits (opening points) - Comprehensive fiscal reporting is essential for transparency; fiscal reports should consolidate all public sector entities and report on each subsector according to international standards. - Moldova’s fiscal reports cover budgetary authorities comprehensively but do not consolidate all self-management authorities. - The MoF publishes a monthly report on the “National Public Budget”, consolidating State and local budgets and the State Social and Compulsory Health Insurance Funds with breakdown for each subsector. - Other funds (FNDAMR, FVV, RDF, Ecological Fund, and Road Fund) are consolidated as part of accounts of parent ministries. - Several self-management authorities are not consolidated into this report (e.g., no breakdown of hospitals financed by transfers from the Compulsory Health Insurance Fund, shown in one line (goods and services)). - There is no fiscal report that consolidates public corporations. A fiscal risk statement in the budget document presents summary financial information of public corporations but is limited to fiscal risk analysis and captures only major public corporations owned by the central government. - Necessary first step: establish a single framework for fiscal reporting of self-management authorities. - Currently no common chart of accounts or accounting policy for self-management authorities; they are not required to use the charts of accounts of the budget authorities specified in the MoF Order (No. 208-2015). - Consolidating self-management authorities in the National Public Budget report requires centralization of the “1C” platform and needs a medium to long-term horizon. - To prepare for further reform, the single framework should be established for a harmonized chart of accounts and accounting standards of self-management authorities. *Source: Mission based on the Audit Reports and referenced audit documents as presented in the chapter.* ### 129. Internal and external audits are critical to detect and correct irregularities. In ### 1mdaea2021001 - 129. Internal and external audits are critical to detect and correct irregularities. In ### Internal and external audits — role and practices - Internal and external audits are critical to detect and correct irregularities in public entities. - In accordance with the “Guideline for the Audit of Corruption Prevention” of the INTOSAI, the supreme audit institution: - efficiently performs the mandatory annual financial audits, including assessing the reliability of internal controls; - submits recommendations to remove any deficiencies identified; - publishes audit results in a timely and transparent manner; - informs investigation and integrity control bodies on suspicions of fraud and corruption; - provides annual training of the staff in the field of integrity and fight against corruption; - implements a complaints collection system through the telephone helpline (hotline) and internet technology (official website and e-mail) which ensures the anonymity of the alarms; - participates with auditors, as experts, in criminal proceedings initiated on the basis of audit materials. - Internal financial controls aim to achieve economy, efficiency, and effectiveness; legality and general conformity of public entities’ activities are integral and should be objectively assessed by internal auditors. ### Internal audit framework in general government - The Law on Public Internal Financial Control (PIFC) (No. 229-2010) applies to central and local public administration authorities, public institutions, and autonomous authorities/institutions that manage means of the national public budget. - The law requires all ministries, National Health Insurance Company, National Social Insurance House and local public authorities of the second level to establish an internal audit subdivision (IAS) and defines its functions and independence. - The MoF PIFC Division is the central harmonization unit; it has developed governmental decrees, ministerial orders and manuals to implement the Law on PIFC and publishes an annual report on activities of internal auditors. - Training of internal auditors is provided by the Ministry of Finance with support of the CTIF. - The Financial Inspectorate, subordinated to the MoF, focuses on compliance inspections. ### Internal audits — resources, activity, and follow-up (2019) - Total IASs in 2019: 111. - At central level: all ministries have IASs. - At local level: 31 out of around 900 townhalls have IASs. - IASs with one staff position: 69. - Total internal auditors’ positions: 221. - Vacant positions: 99 (45 percent). - Functional IASs undertaking audits in 2019: 65 (limited due mainly to vacancies). - Audit missions undertaken in 2019: 218. - Management acceptance of internal audit recommendations in 2019: 93 percent. - Implementation of recommendations within suggested timeframe in 2019: 61 percent. - Internal audit reports are generally not published. ### Options to improve internal audit quality and efficiency - Planned horizontal audit by MoF PIFC Division: multiple IASs audit the same nationally important topic using common methods and templates to: - provide learning opportunities for internal auditors; - share audit findings with MoF to assess IAS capacity and feed training programs. - Proposal to concentrate internal auditors at the ministerial level to increase depth and efficiency of high-risk audits. - Example: MADRM ministry’s IAS has two internal auditors auditing the ministry and various funds, while seven internal auditors are scattered across subordinated institutions with simpler operations. ### External audits — Court of Accounts (institutional independence and performance) - Law on Court of Accounts (No. 260-2017) ensures institutional independence; Court reports directly to Parliament. - Financial independence strengthened by amendments to the Law on Public Finance and Budgetary-Fiscal Responsibilities (No. 181-2014) in 2018. - In 2019 the Court of Accounts published more than 50 audit reports, many covering compliance issues; these audits revealed significant irregularities in various PFM areas. - The Court of Accounts does not sanction irregularities directly but referred 12 cases to law enforcement for criminal investigation in 2019. - In 2019 the Court implemented certification of public auditors through 168 hours of training and evaluation. - Introduction of IT system “MKInsight” to automate preparation of financial tables in audit reports and increase efficiency. ### External audit follow-up and planned expansions - Court of Accounts uses IT system “Register of Audit Missions” to follow up audit recommendations. - Audit recommendations issued in 2019: 1,118. - Central level implementation of audit recommendations (at least with some delay) in 2019: 57 percent. - Court plans risk-based audits of priority areas such as Good Road Moldova program and COVID-19 related procurement. - Court is diversifying training; currently 7 percent of auditors have IT or engineering backgrounds. - Court assesses entity IT systems “1C” in financial audits; performance audits can evaluate information systems and business process controls (e.g., approval and recording of invoices, consistency of contract data across systems). - Data integrity issue example: procurement system data include several contracts with negative value entries due to absence of a single contract-tracking system, implying risk of divergences between procurement and “1C” systems. ### Recommendations and priorities (selected PFM priorities) - PFM governance vulnerabilities are concentrated outside the State budget control framework — in funds and programs outside the ordinary State budget and in management of assets other than cash (such as lands). - Priority recommendations associated with PFM: 1. Establish a new agency that centralizes the project management of the Ecological Fund with significantly augmented capacity, 2. Amend the PPP Law to strengthen the project appraisal and transparency and introduce strict administrative sanctions against violation of the PPP Law and other relevant laws, 3. Develop automated interfaces between the RBI, land use records, and register of public patrimony and update three registers based on the actual survey results through the mass delimitation exercise. ### SOE governance — overview and performance - Concerns around governance and corruption are high in the Moldovan SOE sector; inefficient SOE portfolio is an impediment to private sector development. - Law 246 of 2017 on State Enterprises and Municipal Enterprises (SOE Law) is a critical reform; an ownership policy is under discussion to better define rationale for state ownership, division of roles, monitoring, and corporate governance practices. - Moldova presents one of the largest SOE sectors in the region, operating in 19 sectors including key infrastructure (railways) and utilities (energy). - Key SOE sector statistics: - Share of public sector in GDP in 2018: 14.4%, of which public administration, defense, health, education and compulsory social security - 7.4%, and other activities – 7,0 %. - Share of the number of employees from public sector in total number of employees in economy at the end of 2019: 39,7 %, of which public administration, defense, health, education and compulsory social security – 22,3%, and other activities – 17,4 %. - According to data from the financial statements for 2019, for companies in the non-financial sector: the share of the public sector in the value of fixed assets was 32.6%. - NBS data cited. ### SOE privatizations, governance shortcomings, and political economy - Past privatizations left murky and complex legal issues with alleged corruption, asset mismanagement, and vested political interests. - Governance shortcomings include political appointments on boards, low tariffs and subsidized inputs, and weak safeguards on corruption and audit, especially among local/municipal SOEs: - Local/municipal SOEs: over 400 enterprises, more than 60 only in Chisinau. - Reportedly over 70% of local SOEs with no safeguards on corruption and audit. - More than 50% of the SOE portfolio are de facto insolvent, and courts have appointed executive administrators to manage insolvency proceedings. ### Institutional and legal framework for SOE oversight - Current portfolio: over 200 enterprises; only 40 enterprises (JSC) have adopted corporate form under the Company Law; remaining enterprises operate under Law 246 of 2017 (SOE Law). - The SOE Law defines founding/registration procedures, asset composition/use criteria, minimum capital requirements, liquidation procedures, and roles/responsibilities of founders, boards, censor committees, and executive administrators. - SOE Law shortcomings: - Does not mandate creation of a corporate governance code for SOEs; - Does not mandate inclusion of independent directors or creation of an audit committee; - Prescribes internal controls and internal audit processes but lacks secondary guidance for implementation. - Law on management of public property is being amended with two major changes discussed: concession contract assignment procedures and procedures on sale of state assets and public patrimony (as suggested by the Court of Accounts). ### Governing agencies, overlaps, and capacity challenges - PPA assigned greater SOE management role by SOE Law, but Line Ministries retain many responsibilities, resulting in fragmented institutional arrangements and governance vulnerabilities. - Roles: - MOE: policy maker for SOEs; - Line ministries: policy makers and strategic managers of SOEs; - PPA: implementer/coordinator, oversight role in operations, approves selection of board members, sets remuneration, and oversees operations; - MOF: financial monitoring department exercises oversight; - SSFS (State Service of Financial Statements) collects and analyzes SOE financial statements and submits them to MOF and PPA; with Government Decision no. 935/2018, SSFS is now part of the National Bureau of Statistics. - Division of oversight roles among line Ministry, MOF, MOE, PPA, and SSFS may blur responsibilities and accountability for accuracy of SOE financial information. - Board appointment process: - MOF has a working group with specific criteria to select ex-officio board members; - It remains unclear how PPA, MOE, and Line Ministries select their representatives. - Institutional instability example: PPA moved between MOE, Prime Minister Office, and in 2017 (Government Decision No 902) became a central administrative authority subordinated to the Government and under the MOE. - PPA mission is broad (administer public property, privatization, post-privatization, PPPs, recording public patrimony, ensure observance of patrimonial rights) and should be streamlined to essential functions. - Operational challenges for PPA and SSFS: political instability, weak capacity, high staff turnover, and limited budget resources; development partner capacity building has been undermined by turnover and lack of medium-term commitment. *Source: 1mdaea2021001* ### 150. Board composition remains heavily in the hands of the Government. With an average ### 150. Board composition remains heavily in the hands of the Government. With an average ### Board composition and appointments - With an average board size of five, SOE boards are filled with government representatives. - The MOE and MOF sit on every SOE and JSC board where the government has a majority of shares, and so do Line Ministries and the PPA. - De facto, boards are only filled with ex-officio government employees. - According to data obtained during the mission: - "70 to 80" MOE ex-officio employees sit on SOE boards. - "less than 100" MOF ex-officio employees sit on SOE boards. - PPA should coordinate and vet board appointments but currently records appointment decisions made by Ministries and issues clearance to operationalize their roles. - Appointment processes: - Government, and not the board, appoints the CEO (administrator) in SOEs and recommends the individual in JSCs. - The MOF has established a working group that follows a specific set of criteria to select ex-officio members to sit on boards. - It remains unclear how PPA, MOE, and Line Ministries select their representatives. - It is unclear who in the government selects administrators for SOEs and what process is followed to identify candidates and ensure their professional experience matches SOE needs. - SOE Law provides for boards to recommend to the Founder candidates for the position of administrator (CEO) after carrying out a competitive evaluation process and that the government has issued detailed regulations for these procedures. - Relevant legal/regulatory references mentioned: - Government Decision no. 484/2019 on the approval of some regulations providing functioning of the Law No. 246/2017 on the state and municipal companies (models and regulations approved). - MOE has elaborated the draft of Government Decision for approving the Regulation on the organization and conduct of the competition for selecting and appointing members of the board of director’s / censor committee of the state enterprise and their remuneration conditions (in the process of reviewing by the authorities). ### Controls and audit - Audit committees and independent members: - JSCs must comply with Company Law requirements that provide for independence on boards and audit committee set up. - The vast majority of the SOE portfolio (which is not JSC) is not required to have independent members. - Under art.44 of the Law no.271 / 2017 on the audit of financial statements, the public interest entity is obliged to set up an audit committee. - At the moment, "4 SOEs and 8 JSCs" are part of the category of public interest entities and have established an audit committee. - Internal control and internal audit functions are not fully developed in SOEs: - Several SOEs assume the government, through its agencies, plays a control function and have not set up dedicated internal control departments, internal audit departments, or risk departments. - Some internal control functions are performed in SOEs by the censor committee. - Censors’ Committee issues: - The Censors’ Committee’s mandate of control over financial and economic activities encroaches on the normal mandate of a SOE board. - Functions assigned to the Censor Committee overlap with those normally performed by the SOE board (e.g., ensuring the integrity and timeliness of financial information). - The Censor Committee is made up of government representatives (who are not board members) and is sometimes considered tantamount to an audit committee (which normally is composed of board members). - Footnote/context: In a number of former Soviet countries, the censor committee or revision committee was a sub-optimal control function that has been removed over time and replaced with audit committees of the board, with independent members having a prominent role. - Performance monitoring: - Performance monitoring is conducted by MoF and PPA and is not adequate. - Under Government Decision no. 56/2018 for the approval of the Regulation on financial monitoring of self-managed public authorities, PPA annually presents to the MoF information on SOE performance. - A set of Key performance indicators have been identified by PPA and MoF, and SOEs are supposed to report on the basis of the agreed indicators, but it is not fully clear what the consequences are if indicators and targets are not met; the mandatory and binding nature of this oversight function is unclear. - Performance contracts: - Performance contracts between SOEs and Government are not a recurrent practice. - The only commitment that appears to be in place relates to dividend payout. ### Transparency and disclosure - External audits and reporting: - Hiring external auditors is mandatory for JSCs and PIEs. - A large number of SOEs do not fall in any of these categories either because they are not incorporated under company law or they are not large enough to fall under the PIE definition. - Disclosures: - The SOE Law requires SOEs to produce annual reports and management reports (which include KPIs and overall SOE performance against KPIs) and publish information related to board and employees, financial statements, and auditor report. - In practice these requirements are rarely met: many state enterprises do not have a website, and the PPA website does not provide for all the information on SOEs that is mandatory to be published under the legislation. - Public depository and availability: - The State Services of Financial Services is charged to manage the public depository of financial statements, which is supposed to be available to public. - The public depository does not exist or is not accessible. - As a result: - Financial statements are not available to the public. - Audit reports are not available. - The State Services of Financial Services revealed that "only 50% of the SOEs provide their reports electronically, the other 50% bring hard copies to their offices, some SOEs just don’t provide reports at all, and other SOEs that are included in the category of SOEs with a duty to report are simply no longer operative." - Accounting standards and aggregation challenges: - It remains unclear how to collate financial information at an aggregate level and which accounting standards apply across the SOE spectrum. - PPA and MoF produce annual reports on their SOE portfolio. - JSCs and PIEs will this year allegedly report on the basis of IFRS, pursuant to the 2011 Law on Accounting. - The remaining SOEs will continue to report on the basis of the Law 287/2017 on accounting and financial reporting. - PPA remains in charge of providing the list of SOEs that are required to submit financials, but collating information across different standards will be challenging. ### Recommendations and priorities (SOE reforms) - Reforms will have to be prioritized and a medium-term engagement of at least "five years" will need to be put in motion to begin to see change. - Institutional arrangements — urgent needs: - Streamline government functions and rationalize the portfolio, while establishing an arm’s length relationship between Government and SOEs. - Run two exercises in parallel: triage of SOE portfolio and ownership policy. - The triage helps to: (i) identify overlapping mandates among SOEs, (ii) eliminate defunct SOEs, and (iii) decide what to retain and where to divest. - The ownership policy feeds the triage and the triage feeds back the policy as it crystalizes why the government should retain or divest (the so-called rationale for ownership). - The policy also helps to clarify who in the government is responsible and accountable for certain functions. - Currently, government presence in SOE governing bodies remains very high, and political interference and vested interests have reportedly permeated a number of operations, including privatizations — hence the need to streamline government presence and better clarify the accountability framework. - Corporate governance measures (SOE Law has initiated reform but more is needed): - Reduce SOEs to one legal form, preferably JSC incorporation for all. - Include independent directors and audit committees and remove Censor Committee. - Develop supporting regulations for board member appointment, and especially for board evaluation. - Develop remuneration policies for executives and board members, and while non-executive independent directors phase in, minimize presence of ex-officio employees on the board. - Develop supporting regulation on model charters, internal control and internal audit expectations for SOEs, clarify accounting standards, and develop clear and enforceable penalties for failure to report and disclose financial information. - Development partners: - Several development partners are already involved or willing to be part of this reform process. - IMF should leverage its convening powers and develop a reform strategy with the partners involved to tackle all the reform areas. --- ### VII. Tax Administration — introduction and STS governance (beginning) - This Section assesses corruption vulnerabilities in the Moldovan tax administration and makes recommendations to strengthen governance in line with the IMF’s good governance framework for tax administration and with the 2018 Framework for Enhanced Fund Engagement on Governance. - The STS (State Tax Service): - Is a separate organization structure within the administrative system of the MoF and is subordinated to the ministry. - Is responsible for collecting and administering most of Moldova’s tax revenues (apart from import taxes collected at the border). - The legislative framework for the STS, as set out in the tax code (Article 1321), provides that the MoF sets objectives and performance indicators for the STS, approves its structure and administrative budget, and evaluates the performance of the director and deputy directors. - The tax code also specifies arrangements for appointment of the director and deputies and provides that the STS has decisional and administrative autonomy. - The STS was restructured in 2017 to replace 35 territorial tax inspectorates with a single legal structure. - Headquarters was organized on functional lines and most core tax administration operations were consolidated in four regions plus an office dealing with the largest taxpayers, with smaller offices providing service functions only. - Since October 2018, it has been given limited competence to identify criminal tax violations, but is not a criminal investigation body. - Tax policy context and perception indicators: - Moldova’s tax system suffers from a high level of informality, high compliance costs, and a frequently-changing and often ambiguous tax code. - High labor tax wedge in personal income tax and social security contributions and differences between regimes (wage earners vs self-employed) contribute to high informality. - Tax holidays, exemptions and other preferential regimes increase complexity and open opportunities for corruption. - The Government Action Plan for 2020-2023 includes objectives for reducing tax incentives, replacing them by direct subsidies. - Time needed to comply with tax obligations was "183 hours in 2019" (World Bank Paying Taxes). - STS initiatives to reduce corruption vulnerabilities: - Development of a strong headquarters with greater operational control and oversight since 2017 unification. - Central selection of tax audits based on risk analysis (and recent centralization of tax arrears management and certain audit functions). - Expansion of electronic services. - Increase in transparency through its website, including a section dealing with integrity-related information. - Based on civil society monitoring reports, STS performs better than many central state institutions in implementing the national anticorruption strategy. - Perceptions: - Perception surveys indicate a downward trend in the percentage of households and businesses that see the STS as a corrupt institution, but public trust remains low. - UNDP integrity monitoring report in 2019 indicated: - "30 percent" of businesses rated the STS to be “pretty corrupt or very corrupt”. - Box 7: STS-related Integrity Perception Surveys (selected results) - Transparency International – Moldova Sociological Studies: percentage of businesses that frequently resort to money, gifts, or personal contacts to solve problems with STS reduced from "41.3 percent" in 2015 to "29.7 percent" in 2018. - IDIS Viitorul survey in 2017: "45.7 percent" of businesses had little or no trust in STS and STS was in the top four institutions where frequent informal payment is made. - Transparency International – Moldova survey October 2019: "26.5 percent" of STS staff in central offices considered there was corruption in STS (37 percent of STS staff did not respond). - STS-commissioned survey of legal entities (January 2019) indicated "82 percent" of participants perceived STS employees as generally honest and work fairly; "22 percent" indicated they would look for known people to solve a problem with STS. - UNDP 2019 indicated "30 percent" of businesses and "39 percent" of the population perceived the STS to be “pretty corrupt or very corrupt”. - Recommendation: The STS should commission regular independent integrity perception surveys and track progress over time. - Governance framework recommendations for STS: - The mission advises that the Director should be appointed through competition for a fixed term, independent of any change of Finance Minister. - Since January 2020, appointment of the STS Director is at the discretion of the Minister of Finance (subject to minimum requirements) without a competition and without a term of office being specified. - Before 2020, appointment was made by the Minister through competition for a "five-year term". - Removal from office is allowed if there is a breach of certain civil service law provisions (of a serious disciplinary nature) or – without any justification – "6 months after the appointment of a new Minister of Finance". - Recommendation: Restore the pre-2020 law and ensure the STS Director’s term of office is independent of the political cycle or change of Finance Minister. - Governance arrangements for assessing corruption risks can be improved: - Currently there is no senior management governance group or senior responsible person in STS with a specific mandate for developing and implementing an anti-corruption strategy, including risk assessment and mitigation. - A senior STS management group should be established with a specific remit to coordinate assessment of corruption risks and develop more comprehensive action plans. - Staff integrity assurance and internal controls: - The integrity and professionalism of tax inspectors can be better monitored through structured and independent post-audit quality controls. - While there is some local management review of tax inspectors’ case files following audits, a more structured and independent system of post-audit quality control is needed. *https://www.imf.org/-/media/files/publications/cr/2021/english/1mdaea2021001.pdf* ### 173. Human resource management procedures can be improved in the areas of integrity ### 1mdaea2021001 - 173. Human resource management procedures can be improved in the areas of integrity ### Human resource management and integrity controls - Integrity checking of new recruits should be strengthened: "Integrity records should be sought from the national anticorruption authorities for all new hires"; this is already standard for the State Customs Service. - Promotion arrangements need greater transparency: "A more transparent promotion system, through competition, is desirable to give greater confidence that promotion appointments are merit-based and related to skills/competences." - Job rotation is recommended for sensitive posts: "Job rotation, particularly for sensitive posts, is an important protection against corruption." The job rotation policy needs updating and "the current legal requirement for prior consent of the staff member should be removed, subject to appropriate staff safeguards." - Footnote context: "The STS has advised that seeking integrity records for new recruits may require a law change." ### STS staff integrity assurance function - Current mandate and resourcing issues: - The STS sub-division responsible for staff integrity assurance "has a small staff of just 4" and currently monitors a wide range of staff conduct issues (including time-keeping, dress code etc.), which "dilutes the focus" on preventing and detecting corruption. - Recommended refocus: - The sub-division "needs to focus more on corruption prevention and detection (rather than wider disciplinary issues)." ### Data security and relationship with external IT provider (CTIF) - Governance weaknesses identified: - "Robust internal controls around data security are essential" given sensitivity and risks of fraud and corruption via data manipulation or inappropriate access. - Internal Audit Department has developed IT audit competence, and "early missions have identified vulnerabilities around data security controls that still need to be fully addressed." - Need for greater clarity on data security and access protocols with the external IT provider (CTIF). Protocols should be documented in a security regulation document and set out in a Memorandum of Agreement, with annexed protocols including arrangements for access to data by internal audit. ### Integrity training, transparency, and reporting culture - Training and transparency: - "Almost all STS staff have received training during the past two years, with the help of the national anticorruption authorities." - Monitoring by Transparency International - Moldova indicates "some training weaknesses that may be dealt with by introducing tests as part of the training sessions." - "The STS has a section of its website dedicated to integrity-related matters." - Reporting and whistleblowing: - Reported integrity incidents are very low: "just a handful over the past three years", inconsistent with perception surveys (Box 7). - Recommendation: STS should "more actively engage with its staff and with the business community to encourage and support such reporting," via improved staff training and specific anti-corruption outreach programs for business. ### New criminal investigation competence for STS - Legal change and timing: - A legal amendment designates the STS as a criminal investigation body for certain tax and economic crimes; "The proposed commencement date is January 1, 2021." - The law changes STS from a tax crime "establishment" body (able to establish evidence but not formally investigate under the Criminal Procedure Code) to having full criminal investigation competence "under the supervision of the prosecutor." - Governance and implementation challenges and recommendations: - Ensure comprehensive procedural safeguards and availability of trained investigators; procedures must include "adequate working procedures and decision-making authorities around the selection (and de-selection) of cases for criminal investigation to ensure objectivity and prevent prosecution bias," with "strong prosecutor oversight mechanisms." - Quality assurance measures and strong integrity vetting for recruited investigators are required. - Staffing and scale concerns: - "The proposed size of the tax crime subdivision (70 staff) seems much too high." This compares with current staffing of 17 in the crime "establishment" department. - Recommendation: "Consideration should be given to scaling back on the number of criminal investigators – at least until this new STS competence has become well established." - Special investigative powers "should normally be reserved for suspected significant tax fraud rather than 'low-level' shadow economy investigations. Quality is more important than quantity in the initial stages." - Inter-agency cooperation: - "Collaboration and exchange of information arrangements between STS and other law enforcement bodies need to be reviewed." - Recommendation: Review arrangements and ensure clear legal "gateways" are in place to allow coordinated tackling of wider financial crime, "within a proper legal framework, rather that relying too much on memoranda of understanding." ### Conclusion (STS-related) - Overall assessment: "The STS has made good progress in reducing corruption vulnerability but further action will help reduce remaining risks and improve trust and public perception." - Key actions recommended: - Improvements to HR procedures, data security and monitoring of tax auditors. - Changes to the law on appointing the STS Director, and enhancements to corruption risk governance (including considering "the establishment of a senior STS management group to coordinate the assessment of corruption risks, and to develop more comprehensive action plans"). - "Postponing the implementation of the law change to give the STS criminal investigation powers should be considered to allow for sufficient time to set up robust procedures," and "STS may want to consider scaling back the now proposed size of the new sub-division." *Source: 1mdaea2021001 - 173. Human resource management procedures can be improved in the areas of integrity* ### 190. Amendments to the NBM Law and to the Law of Activities of Banks have ### 190. Amendments to the NBM Law and to the Law of Activities of Banks have ### Independence, legal protection of staff, and governance - Findings: - Amendments to the NBM Law and to the Law of Activities of Banks have strengthened the situation of the NBM since the 2014 FSAP. - Independence of the NBM can be undermined by: exposure to undue influence of political or industry representatives; insufficient powers to enforce supervision; insufficient resources (numbers, skills); lack of legal protection to staff when carrying out their functions in good faith. - Significant progress has been made in most areas, but further work is needed; recommendations in section VIII on Governance of the Central Bank apply equally to the FSO function. - Legal protection of staff when carrying out their professional functions in good faith remains a concern; discussion relates to civil liability (legal protections provided in the NBM Law also apply to criminal liability). - Legal protections in the NBM Law include: staff should not be subject to legal liability except in case of an act or omission in bad faith; the NBM will cover staff’s legal costs; protection is extended to staff after they have left the NBM. - Recommendations: - Amend legal protections for staff: - Current protections may not be fully in line with the Moldovan legal tradition; wording should be amended and aligned as needed to avoid any possible weakness in protections related to civil liability. - Issue addressed by the draft Law on amending some normative acts (approved by Government Decision no. 810 of November 5, 2020). - Transparent dismissal procedures: - Mandatory publication of the reasons for dismissal of the Governor, Deputy Governors and members of the Executive Board and Supervisory Board. - Publication must not be merely customary or generally in place. - Conflicts of interest: - The NBM Law, or internal regulations, should clearly set out conditions that constitute a conflict of interest. - NBM decision-makers and supervisory staff should not be permitted to have equity holdings in supervised banks. - Disclosure of equity holdings or loans is insufficient to guard against potential conflicts of interest. - A cooling off period preventing an NBM supervisor from working in a licensed bank does not mitigate risks if supervisors are permitted to have equity holdings. - Internal procedures and governance: - Enhance internal regulations to ensure full documentation of meetings at which supervisory decisions are taken. - Staff required to act on supervisory decisions must have access to these documents to support due process in supervisory action. - Hiring and retention of skilled supervisory staff: - Despite remuneration reform, including the 2018 initiative, it is hard to recruit from the market; further reforms needed to identify roles/responsibilities and create senior positions to attract mid-career candidates. - Periodic reassessment and realignment of remuneration of grades with the market will be necessary. - Consider targeting young professionals with high-quality training and late-career individuals (“grey panthers”). - Success of recruitment/retention strategies depends on ensuring appropriate legal protection for staff. - Note: - The concept of legal protection is taken from the Basel Core Principles, Principle 2, Essential Criterion 7. ### Enforcement Powers and Practices - Findings: - The NBM has a broad suite of supervisory powers but faces significant challenges in using its powers effectively. - Many corrective and sanctioning actions pursued by the NBM have been challenged in court; under administrative law, NBM acts can only be tested on their legality. - The context of litigation has made the NBM highly conservative in its legal approach; corrective and sanctioning actions have focused on clear violations. - Current practice is backwards looking and compliance-based (“tick-box supervision”) rather than forward-looking, risk-based supervision. - The 2014 FSAP observed a very similar dynamic. - In the last two years (June 2018 - June 2020), banks, their administrators (and former administrators) or their shareholders filed in total 18 lawsuits (challenging 15 decisions of the NBM Executive Board) in court. - Implications: - Restricting corrective and sanctioning actions to clear legal/regulatory violations prevents development of a functional risk-based supervisory approach. - The NBM needs to use professional judgment (discretion) to gauge potential future weaknesses and intervene timely. - Recommendations: - Encode the concept of discretion more strongly into the law: - Confirm in legislation that the NBM is expected to use its discretion (professional judgement) in supervisory decisions. - Clarify judicial review standards to define a high bar (manifest error test) requiring courts to defer to NBM discretion and expertise. - Draft legal amendments prepared in consultation with the IMF: “Provide for the courts’ deference to complex supervisory assessments undertaken by NBM, unless vitiated by manifest error.” - Expand the tariffs applied to sanctions: - Present levels of fines are not dissuasive; higher sanctions would broaden the suite of powers available to the NBM. ### Licensing and Change of Control - Findings: - The NBM is a vital gatekeeper through its power to approve or deny new entrants or changes of control. - There have been no new applicants for a license in Moldova in the last seven years, but there have been 6 applications for changes of control within the last three years. - The NBM remedied ownership and Board suitability issues noted in the 2014 FSAP via the Law on Banking Activities and associated regulation (Arts.8-23 of the Law no.202/2017 and Regulation no. 328/2019). - The ability to act as an effective gatekeeper depends on NBM decision making practices, including the ability to exercise discretion (professional judgment) and how departments respond if the Executive Board overturns a staff recommendation. - When the Executive Board grants approval against staff advice, clear records of the negative recommendation and reasons for override are imperative. - Minutes of Executive Board decisions are reportedly not available to staff who must implement decisions. - Recommendations and process enhancements: - Prepare a manual for authorizations and approvals for change of control: - A fully articulated manual will support comprehensive analytical work and consistent decision making. - Mandatory interviews for members of management and supervisory boards: - A mandatory process gives a clear signal about the importance of individuals being able to demonstrate knowledge and experience. - Increased use of supervisory judgment in assessing applications and decision-making: - Legislation should support professional judgement; staff skills must be developed to assess qualitative aspects (strategic/operating plans, business models, corporate governance, risk management, internal controls). - Deeper skillset likely located in Banking Supervision departments rather than Regulation and Authorization; closer collaboration is important. - Over time, consider a specialized unit in the Regulation and Authorization Department when staffing levels increase; not an immediate priority given current staff shortages. - Operational safeguards: - Ensure supervisory departments tailor supervision if Executive Board overrides staff concerns. - If unable to reach a sound decision within statutory timeframes, a negative decision should be given and a new application submitted; supervisory authority should not feel pressured to approve due to the “clock” in law. - Legal/regulatory alignment: - Moldova’s framework for authorisations and changes of control is largely EU-based and has used EBA guidance (prudential assessment of acquisitions of qualifying holdings, suitability of management body and key function holders, Internal Governance). - Suggest updating the Law on Banking Activities (and relevant regulations) to reflect recent enhancements to EU legislation (e.g., Article 1(6) of Directive 2019/878/EU (Capital Requirements Directive 5, CRD5) which amended Articles 10 and 74 of Directive 2013/36/EU (CRD4)). ### Corporate Governance and Related Parties - Findings: - Authorities have devoted significant effort to developing legislative and regulatory framework for supervision of corporate governance and related parties. - Examination processes have been enhanced and corporate governance aspects embedded into SREP; World Bank targets for number of inspections on corporate governance were exceeded. - Supervision of corporate governance shows considerable improvement since the 2014 FSAP. - However, some regulatory language is unclear regarding banks’ obligation to notify the supervisor “as soon as they become aware of any material information that may negatively affect the fitness and propriety of a Board member or a member of senior management.” - Regulation 292/2018, Chapter II, Section 1 appears to provide for a full assessment and decision process before the NBM is notified, which does not meet the “as soon as” standard. - The NBM acknowledges the challenge of moving to professional judgment in evaluating corporate governance rather than relying on regulatory violations. - Recommendations and supervisory practices: - Sharpen regulatory language or issue supplementary guidance to ensure banks notify the NBM “as soon as they become aware” of material information affecting fitness and propriety. - Issue more supervisory guidance to banks on supervisory expectations and observed good practices in corporate governance to clarify duties under the law. - Continue on-inspections and off-site analysis of banks’ corporate governance to deepen experience and hone skills. - Consider horizontal/thematic inspections covering the entire banking sector to provide sector-wide perspective and anonymous feedback on good and bad practices. - Increase specialized resources (experts) for supervision of banks’ corporate governance. - Related parties: - Significant progress made in supervision of related parties since the last FSAP; detailed regulations require banks to manage down exposures to related parties. - All banks have complied with limits: maximum exposure to a related party or group of related parties who are connected to each other is 10 percent; aggregate limit for all exposures to related parties is 20 percent. - Related party activity is examined as a dimension of credit risk and receives frequent attention from inspectors. - Continued supervisory efforts needed to monitor banks’ corporate governance requirements on related party transactions (prudent policies, exposures’ approval and oversight by the Board, decision-making that avoids conflict of interest). *IMF staff summary based on section 190–207 of the source document.* ### 208. As discussed in Section IV on AML/CFT, the NBM has been strengthening its ### NBM AML/CFT Supervision and Enforcement (paras. 208–211) ### Strengthening supervision and current shortcomings - The NBM has been strengthening its approach to the supervision of AML/CFT in banks. - Despite training, communication, guidance, recommendations and outreach by the supervisor, the compliance and control culture in many banks is poor, leaving the banking sector exposed to AML/CFT risks. - Vigorous and dissuasive enforcement by the NBM is essential for progress to be made in the banking sector in terms of guarding against AML/CFT risks. - The NBM needs to exert and maintain strong pressure on banks to improve their standards. ### Sanctions regime and legal challenges - It is critical for the NBM to have access to and to operate an effective sanctions regime, but there are challenges that must be overcome in achieving this. - The NBM currently must act on the assumption that all of its enforcement decisions will be challenged, as this is the current experience. - An important test case was before the Constitutional Court, at the time of the mission, in which a bank was challenging the concept of “seriousness” because it had been sanctioned for “serious” breaches; should the judgement go against the NBM, future opportunities to successfully impose sanctions and operate a meaningful and effective enforcement regime will be further weakened. ### Recommendations for the NBM (as stated) - Strong coordination and cooperation between the AML and Banking Supervision Departments is needed; proactive sharing of information and analysis of banks will support the effectiveness of the work of both departments. - Strong pressure on banks concerning any weaknesses in their AML/CFT regimes, with particular attention on PEPs and BOs. Regardless of the risk of legal challenge, the NBM needs to pursue every weakness that it identifies in banks’ management of these risks. - The AML/CFT Law should be amended to increase the magnitude of sanctions for AML/CFT failings. - The law needs to be amended to protect the use of professional, risk-based judgment by the NBM. ### Conclusion: legal foundations and broader governance context - The rule of law and the supervisor’s ability to base decisions and actions on professional judgement (use of discretion) are essential for sound governance with respect to financial sector oversight; these two conditions underpin all the recommendations in this section. - Interaction between NBM and courts is a long-standing issue; although judicial review provisions applicable to the NBM have become more advanced than many jurisdictions, broader governance issues have forestalled meaningful outcomes. - Without stronger rule of law and protections for supervisory discretion, further progress in Moldova is unlikely to be achieved and existing progress will be on fragile grounds. - Advances in governance with respect to financial sector oversight cannot be made in isolation from wider and deeper reforms discussed elsewhere in the report (notably, Section II on Rule of Law and Section VIII on Central Bank Governance). - The use of professional judgment by the supervisor needs to be protected in law; supervisory staff require enhanced legal protections (which should not be confused with immunity from gross negligence). These changes can be achieved through legislative amendment. - The effective use of amended laws depends on Moldova fostering a transparent and consistent application of the law, through an efficient and independent judiciary and the availability of competent, independent and experienced professionals (lawyers). *Source: paragraphs 208–211 of the provided IMF content unit.* ### ANNEX 1. FULL LIST OF RECOMMENDATIONS ### ANNEX 1. FULL LIST OF RECOMMENDATIONS ### Rule of Law - Improve the procedure for selecting successful judicia l ca ndida tes and ensure tha t stipula ted procedures a re followed in a ll ca ses. - Authority in Charge: MOJ, SCM - Objective: Improve ca pacity a nd integrity of judges; reduce corruption vulnera bilities. - Timeline: S/MT - Increa se tra nsparency in SCM decision-ma king to require a ll SCM decisions to be well-rea soned a nd for such rea soning to be ma de publicly a va ila ble. - Authority in Charge: MOJ, SCM - Objective: Improve integrity a nd a ccountability of judicia ry. - Timeline: Immediate - Cla rify powers a nd responsibilities of the judicia l inspectora te. Improve procedures for ca rrying out the conduct of such a ctivities – a ll communica tions a nd inquiries into judges should be properly documented a nd linked to specific potentia l disciplina ry a ctions. Judicia l Inspectors should a lso be subject to performa nce eva luations a nd sa nctions for misconduct. - Authority in Charge: MOJ, SCM - Objective: Improve integrity a nd a ccountability of judicia ry; reduce corruption vulnera bilities. - Timeline: ST - Strea mline the process for disciplina ry proceedings. - Authority in Charge: MOJ, SCM - Objective: Improve efficiency a nd integrity of judicia ry. - Timeline: S/MT - Ensure tha t disciplina ry proceedings a re initia ted where judges a re subject to crimina l proceedings a nd ensure tha t referra ls to crimina l prosecution a re ma de where crimina l misconduct is detected. - Authority in Charge: MOJ, SCM - Objective: Improve integrity a nd a ccountability of judicia ry; reduce corruption vulnera bilities. - Timeline: S/MT - Enha nce the integrity testing of judges. Integrity of judges a nd ca ndidates should be verified a t ea ch sta ge of their ca reer. Integrity vetting should be done in a n officia l a nd tra nsparent manner a nd should include checks of a sset dec la ra tions a nd conflicts of interest. - Authority in Charge: MOJ, SCM - Objective: Improve integrity a nd a ccountability of judicia ry; reduce corruption vulnera bilities. - Timeline: ST - Enha nce the selection process of SCM ca ndida tes a nd members to ensure tha t its judicia l members ha ve impeccable reputa tion a nd integrity, including by esta blishing a n independent commission (including interna tiona l experts a nd members of the lega l profession a nd civil society) to pre-screen ca ndida tes/nominees to the SCM a nd a ssess their integrity. - Authority in Charge: MOJ - Objective: Improve integrity a nd a ccountability of judicia ry; reduce corruption vulnera bilities. - Timeline: ST - Repe a l CC 307 in its current form to prevent the use of this provision to undermine judicia l indpendence. - Authority in Charge: MOJ - Objective: Improve independence a nd integrity of judicia ry; reduce cha nnels for corruption a nd intimida tion. - Timeline: Immediate - Era dica te the pra ctice of lie detector testing of judicia l ca ndida tes a t a ll stages of a judge’s training and career. - Authority in Charge: MOJ, SCM - Objective: Improve independence a nd integrity of judicia ry; reduce cha nnels for corruption a nd intimida tion. - Timeline: Immediate - Na rrow the scope of powers a nd responsibilities of court presidents. - Authority in Charge: MOJ, SCM - Objective: Improve independence a nd integrity of judicia ry; reduce cha nnels for corruption a nd intimida tion. - Timeline: ST - Ensure tha t a ll tra nsfers a re subject to proper recruitment procedures. - Authority in Charge: MOJ, SCM - Objective: Improve integrity a nd a ccountability of judicia ry; reduce corruption vulnera bilities. - Timeline: ST - Cla rify the procedures of convening of the Genera l Assembly (including by specifiying the requirements for convoca tion a nd the grounds for denia l of a convoca tion). - Authority in Charge: MOJ, SCM - Objective: Strengthen a bility of judges to self-govern. - Timeline: ST - Esta blish a mecha nism to involve judges in the a ppointment, eva luation, a nd remova l of court presidents a nd deputies of the courthouses in which they sit. - Authority in Charge: MOJ, SCM - Objective: Improve independence a nd integrity of judicia ry; reduce cha nnels for corruption a nd intimida tion. - Timeline: S/MT - Conduct a n external a udit/assessment of how effectively NIJ is educa ting judicia l tra inees a nd whether recruitment pra ctices a re sufficiently merit-ba sed. - Authority in Charge: MOJ - Objective: Improve ca pacity a nd integrity of judges; reduce corruption vulnera bilities. - Timeline: ST - Esta blish a mecha nism to ga ua ge a nd monitor the effectiveness of reforms, inclduing periodica lly commissioning externa l a udits of the judicia ry to a ssess independence a nd effectiveness. - Authority in Charge: MOJ - Objective: Improve ca pacity a nd integrity of judges. - Timeline: ST - Libera lize the justice sector by permitting judges to pa rticipa te in externa l meetings without SCM a uthoriza tion. - Authority in Charge: MOJ, SCM - Objective: Improve ca pacity of judges. - Timeline: MT - Strengthen oversight over ba iliffs by a mending the La w on Ba ilifs to esta blish a disciplina ry lia bility mecha nism for ba iliffs a nd defining the role a nd responsibilities of the professiona l body. - Authority in Charge: MOJ - Objective: Improve integrity a nd a ccountability of justice officia ls; efficiency of commercia l dispute resolution. - Timeline: Medium term - Strea mline mecha nisms to tra ce debtors’ assets. - Authority in Charge: MOJ - Objective: Improve efficiency of commercia l dispute resolution. - Timeline: MT - Strea mline the procedures for enforcing court judgements. - Authority in Charge: MOJ - Objective: Improve efficiency of commercia l dispute resolution. - Timeline: MT - Remove ma ndatory mediation from the courts. - Authority in Charge: MOJ - Objective: Improve efficiency of commercia l dispute resolution. - Timeline: MT - Develop the methodology for the of monitoring of implementa tion of the new Na tiona l Justice Stra tegy, including with the development of specific indica tors of effectiveness in consulta tion with designa ted members of the monitoring group. - Authority in Charge: MOJ - Objective: Improve independence, integrity, a nd effectiveness of justice sector. - Timeline: Immediate ### Anti-Corruption Framework - Crimina lize a buse of power in line with the UNCAC. - Authority in Charge: MOJ - Objective: Strengthen a nti-corruption lega l fra mework. - Timeline: MT - Review the structure of the illicit enrichment offence, including the interpreta tion of the burden of proof. - Authority in Charge: MOJ, La w Enforcement, Judicia ry - Objective: Strengthen a nti-corruption lega l fra mework. - Timeline: MT - Increa se the ma ximum sa nctions for performa nce of duties in the public sector in situa tions of conflict of interest, non-a ggra va ted tra ding in influence a nd money la undering to a t lea st six yea rs. - Authority in Charge: MOJ - Objective: Strengthen a nti-corruption lega l fra mework. - Timeline: MT - Amend a rticles 364-1 CPC a nd 80 CC to limit their a pplica tion in corruption ca ses a nd to condition on accused’s a ssista nce to investiga tion. - Authority in Charge: MOJ - Objective: Strengthen a nti-corruption lega l fra mework. - Timeline: MT - Review provisions on mitiga ting a nd exceptiona l circumsta nces a nd their a pplica tion, which ma y result in reducing dissua siveness of sa nctions. - Authority in Charge: MOJ, Judicia ry - Objective: Improve dissua siveness of sa nctions in corruption ca ses. - Timeline: MT - Ma ke a pplica tion of exemptions from crimina l lia bility for a ctive bribery a nd tra ding in influence optiona l. - Authority in Charge: MOJ - Objective: Strengthen a nti-corruption lega l fra mework. - Timeline: MT - Pursue ca ses of possible lia bility of lega l persons in corruption offences. - Authority in Charge: La w Enforcement - Objective: Improve effectiveness of a nti-corruption enforcement. - Timeline: ST - Amend the PG Guidelines to ma ke fina ncia l investiga tions into possibility of extended confisca tion obliga tory in a ll corruption ca ses. - Authority in Charge: PGO - Objective: Improve a sset recovery in corruption ca ses. - Timeline: ST - Ensure full complia nce with the requirements of a n a nti-corruption expertise for norma tive a cts. - Authority in Charge: Government - Objective: Limit a nti-corruption risks. - Timeline: ST - Leverage NAC’s operational analysis for detecting a nd investiga ting illicit enrichment a nd decla ring fa lse informa tion in the a sset decla ra tions. - Authority in Charge: NAC, APO - Objective: Improve effectiveness of a nti-corruption enforcement. - Timeline: ST - Conduct a nd publish stra tegic a na lysis a nd studies of corruption. - Authority in Charge: NAC - Objective: Increa se understanding of corruption risks. - Timeline: ST - Adjust investiga tive jurisdiction of APO to ta rget exclusively high-level corruption. - Authority in Charge: MOJ, APO - Objective: Improve effectiveness of a nti-corruption enforcement. - Timeline: MT - Reconsider APO’s role in overseeing a nd representing in court investiga tions by NAC. - Authority in Charge: MOJ, APO, NAC, PGO - Objective: Improve effectiveness of a nti-corruption enforcement. - Timeline: MT - Tra nsfer the representa tion of APO ca ses in the a ppeal a nd ca ssation courts to APO. - Authority in Charge: APO, PGO - Objective: Improve effectiveness of a nti-corruption enforcement. - Timeline: MT - Reduce the relia nce of APO on externa l sta ff, including by a mending the lega l fra mework to hire own investiga tive officers. - Authority in Charge: APO - Objective: Strengthen the opera tional independence of APO. - Timeline: LT - Gra nt APO a uthority over its HR, including limiting the PG powers to tra nsfer prosecutors to APO a nd involvement of APO in selection a nd disciplining of APO sta ff. - Authority in Charge: APO, PGO - Objective: Strengthen the opera tional independence of APO. - Timeline: MT - Strengthen the selection process for APO hea d with pa rticipa tion of interna tiona l experts, civil society, a llowing non-prosecutors to a pply. - Authority in Charge: MOJ, APO - Objective: Strengthen the independence of APO. - Timeline: ST - Introduce the integrity criteria, including the scrutiny of a ssets, to promotion a nd tra nsfers of prosecutors a nd eva luation of their performa nce. - Authority in Charge: SCP - Objective: Promote integrity in prosecution service. - Timeline: ST - Tra nsfer the disciplina ry function from the PGO to the SCP. - Authority in Charge: PGO, SCP - Objective: Promote integrity in prosecution service. - Timeline: ST - Limit the rights of PG a s a superior prosecutor to the APO hea d a nd to withdra w or tra nsfer ca ses from/to APO. - Authority in Charge: PGO, MOJ - Objective: Strengthen the independence of APO. - Timeline: ST - Gra nt a sepa ra te budget to APO. - Authority in Charge: PGO, APO, MOF - Objective: Strengthen the independence of APO. - Timeline: ST - Levera ge fina ncia l intelligence to detect corruption. - Authority in Charge: APO, NAC, SPCML - Objective: Improve effectiveness of a nti-corruption enforcement. - Timeline: MT - Intensi fy investiga tions of embezzlement by public officia ls, illicit enrichment a nd decla ring fa lse informa tion. - Authority in Charge: APO, NAC - Objective: Improve effectiveness of a nti-corruption enforcement. - Timeline: LT - Review a nd publish a study of court pra ctice a nd fa ctors lea ding to lenient sa nctions in corruption ca ses. - Authority in Charge: Judicia ry, APO, NAC, PGO, MOJ - Objective: Improve dissua siveness of sa nctions in corruption ca ses. - Timeline: MT - Refocus corruption investiga tions from priva te citizens to public officia ls a nd public sector corruption. - Authority in Charge: APO, NAC - Objective: Improve effectiveness of a nti-corruption enforcement. - Timeline: LT - Intensi fy efforts in pursuing a sset recovery gra nting CARA the necessa ry a utonomy. - Authority in Charge: Government, NAC - Objective: Improve effectiveness of a nti-corruption enforcement. - Timeline: LT - Prioritize investiga tion of high-level corruption. - Authority in Charge: APO - Objective: Improve effectiveness of a nti-corruption enforcement. - Timeline: LT - Recruit a dditiona l NIA sta ff to fill a ll va ca nt posts. - Authority in Charge: NIA - Objective: Improve effectiveness of a sset decla ra tion regime. - Timeline: Immediate - Refine the a ssessment of high-risk public officia ls to be in line with the ma in corruption risks identified in the country. - Authority in Charge: NIA - Objective: Improve effectiveness of a sset decla ra tion regime. - Timeline: S/MT - In a n exceptiona l exercise (to be repea ted periodica lly), conduct a sectora l verifica tion of a ll a ssets of judges a nd prosecutors. - Authority in Charge: NIA - Objective: Improve effectiveness of a sset decla ra tion regime. - Timeline: ST - Bolster enforcement efforts a ga inst non-complia nce with a sset decla ra tion requirements a nd impose sa nctions that a re dissua sive, effective, a nd proportiona te. - Authority in Charge: NIA - Objective: Improve effectiveness of a sset decla ra tion regime. - Timeline: S/MT - Fill a ll va ca nt posts in the security, a udit, a nd integrity verifica tion unit a nd opera tionalize the unit. - Authority in Charge: NIA - Objective: Improve effectiveness of a sset decla ra tion regime. - Timeline: Immediate - If proceeding with the tra nsition to a ma rket-based decla ration system, the NIA should develop a clea r pla n of verifica tion including which ma rket ba sed indica tors a re to be referenced a nd wha t ma rgin of error is to be a cceptable. - Authority in Charge: NIA - Objective: Improve effectiveness of a sset decla ra tion regime. - Timeline: Immediate ### AML/CFT - Conduct cross-sectora l thematic inspections of ba nks ba sed on the main a rea s of deficiencies identified by the externa l a udit. - Authority in Charge: NBM - Objective: Improve a pplica tion of preventive mea sures a mong reporting entities. - Timeline: ST - Conduct regula r ta rgeted exa ms following deficiencies identified in the context of full-scope exa ms. - Authority in Charge: NBM - Objective: Improve a pplica tion of preventive mea sures a nd understa nding of ML/TF risks a mong reporting entities. - Timeline: S/MT - Provide the PSA with sa nctioning powers for non-complia nce with registra tion requirements rela ting to beneficia l ownership informa tion. - Authority in Charge: MOJ - Objective: Improve qua lity of beneficia l ownership informa tion in compa ny registry. - Timeline: Immediate - Ca rry out a comprehensive a ssessment of ML risks from lega l entities a nd develop risk mitiga tion stra tegies. - Authority in Charge: NBM, SPCML - Objective: Improve understanding of ML risks a mong regula tory a uthorities a nd reporting entities. - Timeline: S/MT - Compile a list of domestic positions/functions that a re considered to be prominent public functions for the purpose of identifying PEPs. - Authority in Charge: NBM, SPCML - Objective: Improve a pplica tion of preventive mea sures by reporting entities. - Timeline: S/MT - Impos e effective, proportionate a nd dissua sive sa nctions for non-complia nce with AML/CFT obliga tions. - Authority in Charge: NBM - Objective: Effectively sa nction ML/TF. - Timeline: S/MT - Considering the reform of STR system, conduct a thematic inspection rega rding banks’ systems for reporting of suspicious tra nsa ctions, with a particular focus on tra nsa ctions rela ting to PEPs. - Authority in Charge: NBM, SPCML - Objective: Improve a pplica tion of preventive mea sures by reporting entities. - Timeline: ST - Conduct a stra tegic a na lysis of corruption-rela ted ML trends a nd methods. - Authority in Charge: SPCML, APO - Objective: Improve understanding of ML risks stemming from corruption. - Timeline: S/MT - Enha nce ca pacity of la w enforcement to use fina ncia l intelligence a nd to conduct fina ncial investiga tions through ta rgeted tra inings. - Authority in Charge: NAC, APO, SPCML - Objective: Improve detection a nd investiga tion of corruption a nd a sset recovery. - Timeline: MT - Intensi fy efforts to investiga te a nd prosecute corruption-rela ted ML in line with Moldova’s risk profile, including by levera ging the evidence in corruption-rela ted pa ra llel fina ncia l investigations. - Authority in Charge: NAC, APO - Objective: Increa se effectiveness of a nti-corruption crimina l justice. - Timeline: LT ### Public Financial Management - Publish in the online register of lega l acts the Orders of the Minister or the Boa rd of Directors on the a nnua l budgets of the FNDAMR, the RDF, the FVV, a nd the Ecologica l Fund a t the beginning of a fina ncia l yea r a nd their supplementary budgets if a ny. - Authority in Charge: MADRAM - Objective: Ensure budget tra nspa rency of funds. - Timeline: ST - Customize MTender to publish a ll informa tion on low va lue public procurement a nd monitor contract execution in the system. - Authority in Charge: AAP, ANSC - Objective: Improve tra nsparency a nd regula rity of public procurement. - Timeline: S/MT - Amend the LPP to clarify the ANSC’s jurisdictions and establish the AAP’s powers to impose a dministra tive sa nctions a ga inst irregula rities. - Authority in Charge: (listed above) - Objective: Improve tra nsparency a nd regula rity of public procurement. - Timeline: S/MT - Shift “1C” application to the centralized pla tform a dministered by the CTIF a nd roll it out to a ll budgeta ry a nd self-ma nagement a uthorities a nd funds. - Authority in Charge: CTIF, MOF - Objective: Strengthen informa tion system controls for fina ncia l ma nagement. - Timeline: M/LT - Develop a n a utomated interfa ce between the SIMF a nd MTender. - Authority in Charge: (listed above) - Objective: Strengthen informa tion system controls for fina ncia l ma nagement. - Timeline: M/LT - Issue a Government Decision on the project selection a nd ma nagement for ca pita l repa irs of townha ll roa ds, by incorpora ting lessons lea rnt from the Good Roa d Moldova progra m. - Authority in Charge: MOE, MOF, MADRM, APP - Objective: Strengthen public investment ma nagement. - Timeline: S/MT - Rea ppra ise the Ecologica l Fund projects tha t ha ve been ongoing for a long period of time to determine whether they should be discontinued or the project scope should be limited. Esta blish a new a gency tha t centralizes the project ma nagement of the Ecologica l Fund with significa ntly a ugmented ca pacity. - Authority in Charge: (listed above) - Objective: Strengthen public investment ma nagement. - Timeline: (not specified) - Amend the PPP La w to strengthen the project a ppra isal a nd tra nsparency a nd introduce strict a dministra tive sa nctions a ga inst viola tion of the PPP La w a nd other releva nt la ws. - Authority in Charge: (not specified) - Objective: Strengthen public investment ma nagement. - Timeline: (not specified) - Publish a report tha t includes cla ssifica tions of non-performing loa ns a nd qua ntifica tion of credit risks a rising from the “First House” and loan progra ms to a priva te sector. - Authority in Charge: MOF, BNM - Objective: Enha nce tra nsparency in the loa n a nd gua ra ntee progra ms. - Timeline: ST - Develop a utomated interfaces between the RBI, la nd use records, a nd register of public pa trimony a nd update three registers ba sed on the a ctual survey results through the ma ss delimita tion exercise. - Authority in Charge: APP, ASP, ARFC - Objective: Develop a complete register of government owned la nds a nd ensure regula rity of their lea sing. - Timeline: MT - Revise the La w on Norma tive Price of La nd to bring prices of sa les a nd lea se of publicly owned la nds close to ma rket va lues. - Authority in Charge: (not specified) - Objective: Develop a complete register of government owned la nds a nd ensure regula rity of their lea sing. - Timeline: (not specified) - Esta blish the single fra mework for fisca l reporting of self-ma na gement a uthorities ba sed on the ha rmonized cha rt of a ccounts a nd a ccounting sta nda rds. - Authority in Charge: MOF - Objective: Ha rmonize the fisca l reporting of self-ma nagement a uthorities. - Timeline: MT - Continue underta king externa l a udits of high priority a rea s (including a udits of the Good Roa d Moldova progra m a nd PPPs a nd IT audits of “1C” systems of ma jor entities etc.). - Authority in Charge: Court of Accounts - Objective: Continue underta king externa l a udits of high priority a rea s. - Timeline: Medium-term - Orga nize the horizonta l a udit of topics of na tiona l importa nce by interna l a uditors. - Authority in Charge: MOF, MADRM - Objective: Fa cilita te the development of interna l a udit ca pacity. - Timeline: S/MT - Concentra te internal a uditors a t the ministeria l level for la rge ministries (e.g. MADRM). - Authority in Charge: (not specified) - Objective: Fa cilita te the development of interna l a udit ca pacity. - Timeline: S/MT ### SOE Governance - Government should issue a policy tha t specifies ownership, oversight, a nd policy responsibilities on SOE ma nagement. - Authority in Charge: MOF, MOE, PPA - Objective: Strea mline Government responsibilities on SOE ma nagement a nd oversight. - Timeline: S/MT - Tria ge of SOE Portfolio. - Authority in Charge: MOF, MOE, PPA - Objective: Define ra tiona le for Government ownership. - Timeline: MT - Reduce SOEs to one lega l form, prefera bly JSC incorpora tion for a ll. - Authority in Charge: MOF, MOE, PPA - Timeline: MT - Include independent directors a nd a udit committees a nd remove Censor Committee. - Authority in Charge: MOF, MOE, PPA - Objective: Enha nce corpora te governa nce of SOEs. - Timeline: S/MT - Develop supporting regula tions for boa rd member a ppointment and eva lua tion. - Authority in Charge: MOF, MOE, PPA - Objective: Enha nce corpora te governa nce of SOEs. - Timeline: S/MT - Develop remunera tion policies for executives a nd boa rd members, a nd limit to the ba re minimum, with a medium-term objective of elimina ting completely the presence of ex-officio employees on the boa rd. - Authority in Charge: MOF, MOE, PPA - Objective: Enha nce corpora te governa nce of SOEs. - Timeline: S/MT - Develop supporting regula tion on model cha rters, interna l control a nd interna l a udit expecta tions for SOEs, cla rify a ccounting sta nda rds, a nd develop clea r a nd enforceable penalties for fa ilure to report a nd disclose fina ncia l informa tion. - Authority in Charge: MOF, MOE, PPA - Objective: Enha nce corpora te governa nce of SOEs. - Timeline: S/MT ### Tax Administration - Commission regula r independent integrity perceptions surveys of the STS. - Authority in Charge: STS - Objective: Increa sed a wa reness of community concerns; tra cked progress over time. - Timeline: M/T - Amend Art. 133 of the Ta x Code to provide tha t the STS Director position is filled through competition a nd is for a fixed term independent of the political cycle or new Ministeria l a ppointments. - Authority in Charge: MOF - Objective: Strengthened independence a nd grea ter public trust in the STS. - Timeline: S/T - Esta blish a senior STS ma nagement group with a specific remit to coordina te the a ssessment of corruption risks a nd develop more comprehensive a ction pla ns. - Authority in Charge: STS - Objective: A more complete a ssessment of corruption risks a nd a ctions required; a clea rer locus of responsibility within STS for a nticorruption policy. - Timeline: S/T - Better monitor the integrity a nd professiona lism of ta x inspectors with a structured a nd independent system of post-a udit qua lity control. - Authority in Charge: STS - Objective: Reduced corruption in the a rea of ta x a udit a nd control. - Timeline: S/T - Cha nge HRM procedures to (a) request integrity records for a ll new recruits, (b) ma ke promotions through competition, a nd (c) upda te sta ff rotation policy a nd remove lega l requirement for prior consent. - Authority in Charge: STS - Objective: Reduced corruption vulnera bility a nd grea ter tra nspa rency on promotion a ppointments. - Timeline: M/T - Cha nge the ma ndate of the STS subdivision responsible for sta ff integrity a ssura nce to focus on corruption prevention a nd detection. - Authority in Charge: STS - Objective: Increa sed focus on a nti-corruption a nd grea ter likelihood of detecting integrity incidents. - Timeline: S/T - Address wea knesses in da ta security a nd forma lize security a nd a ccess protocols with the externa l IT provider in a n MoU. - Authority in Charge: STS a nd CTIF - Objective: Improved da ta security; less vulnera bility to corruption or fra ud. - Timeline: S/T - More a ctively enga ge with STS sta ff a nd businesses (through tra ining a nd outrea ch progra ms) to encoura ge reporting of integrity incidents. - Authority in Charge: STS - Objective: Increa sed level of reported integrity incidents. - Timeline: S/T - Ensure tha t the new crimina l investiga tion competence for STS is grounded on comprehensive procedural sa fegua rds a nd sufficient tra ined investiga tors; a nd sca le ba ck the proposed size of the new sub-division. - Authority in Charge: STS, Prosecutor’s Office - Objective: Increa sed confidence that proper procedura l sa fegua rds a nd sufficient high-integrity, professiona l sta ff will be in pla ce from the sta rt. - Timeline: S/T - Review colla bora tion a nd exchange of informa tion a rra ngements between STS a nd other la w enforcement bodies, a nd put them on a clea r lega l ba sis. - Authority in Charge: STS - Objective: More effective inter-a gency coopera tion in ta ckling wider fina ncia l crime; less relia nce on MoUs. - Timeline: M/T ### Central Bank Governance - Amend the NBM La w. - Authority in Charge: NBM, Government, Pa rlia ment - Objective: (i) Sa fegua rding the opera tional independence of the NBM’s prudential supervisory function, (ii) strengthening NBM’s a utonomy a nd (iii) further improve its governa nce a nd a utonomy. - Timeline: S/MT ### Financial Sector Oversight - Amend the NBM La w (a nd La w on Activities of Ba nks where needed). - Authority in Charge: NBM (with IMF consulta tion), Government a nd Pa rlia menta ry process - Objective: Ensure the lega l a bility of the NBM to use discretion (i.e. professiona l judgement) in rea ching decisions a nd ta king supervisory a ctions. - Timeline: ST - Amend lega l protections for NBM sta ff, in pa rticula r for a ll personnel in respect of a ny work ca rried out in, or in support of the activities of the Regula tion, Supervision a nd AML/CFT Depa rtments. - Authority in Charge: NBM - Timeline: ST - Set out deta iled requirements to a void conflicts of interest, for members of the Ma na gement or Executive Boa rds a nd a ll sta ff members of the NBM. Equity ownership of a ny supervised institution must be prohibited. - Authority in Charge: NBM - Timeline: S/MT - Cla rify tha t the objective of the supervisory ma ndate is to promote the sa fety a nd soundness of the ba nks a nd banking sector. - Authority in Charge: NBM - Timeline: S/MT - Require the rea sons for the dismissa l of the Governor or a ny member of the Supervisory or Executive Boa rd of the NBM to be ma de public. - Authority in Charge: NBM - Timeline: S/MT - Increa se ma gnitude of ta riffs where sa nctions a pply, including for AML/CFT fa ilings in ba nks. - Authority in Charge: NBM - Timeline: S/MT - Amend interna l regula tions of the NBM to develop interna l NBM regula tions to set out the conditions tha t constitute a conflict of interest. Underta ke a review to identify if a ny sta ff member a lrea dy ha s a n equity holding in a supervised entity a nd a pply mitiga ting mea sures if a pplica ble. - Authority in Charge: NBM Regula tion Depa rtment a nd Ma na gement and Executive Boa rds - Timeline: MT - Amend interna l regula tions of the NBM to ensure interna l procedures a nd governa nce must esta blish a comprehensive process for the documentation a nd decision ma king on supervisory ma tters. - Authority in Charge: NBM Regula tion Depa rtment a nd Ma na gement and Executive Boa rds - Timeline: ST - Enha nce personnel policy: Focus on the hiring a nd retention of increa sed number of skilled sta ff for the supervisory function. - Authority in Charge: NBM Huma n Resources Depa rtment a nd Ma na gement and Executive Boa rds - Timeline: ST - Institute a ma ndatory interview for a ny new Boa rd member. - Authority in Charge: NBM Regula tion a nd Supervision Depa rtments - Objective: To ra ise intensity of fit a nd proper a ssessments of a ll new members of ma nagement or supervisory boa rds. - Timeline: Immedia te a nd ongoing - Prepa re ma nuals on a uthoriza tion a nd cha nge of control. - Authority in Charge: NBM Regula tion Depa rtment - Objective: To ensure robust consistency of a pproach in a na lysis a nd decision ma king. - Timeline: Immedia te a nd ongoing - Adopt horizonta l/ thematic inspections, to cover a ll ba nking sector. - Authority in Charge: NBM Supervision a nd AML/CFT Depa rtments - Objective: To understa nd ra nge of pra ctice a nd provide releva nt feedba ck to ba nks. - Timeline: Immedia te a nd ongoing - Ensure systema tic, regula r coordina tion a nd informa tion exchange between NBM Ba nking Supervision a nd AML/CFT Depa rtments to a void ga ps in informa tion a nd a nalysis a nd ensure coordina ted a ction when needed. - Authority in Charge: NBM Ba nking Supervision a nd AML/CFT Depa rtments - Timeline: Immedia te/ST - Initia te lega l a ction for a ll AML/CFT breaches. - Authority in Charge: NBM AML/CFT a nd Lega l Depa rtments - Objective: To ensure tha t a ll AML/CFT brea ches a re sa nctioned in a n effective, dissua sive, a nd proportiona te manner. - Timeline: Immedia te a nd ongoing *Source: ANNEX 1. FULL LIST OF RECOMMENDATIONS* ### ANNEX 2. LIST OF MEETINGS WITH OFFICIALS AND STAKEHOLDERS ### ANNEX 2. LIST OF MEETINGS WITH OFFICIALS AND STAKEHOLDERS ### Meetings with officials and stakeholders - Center for Information Technology in Finance - Competition Council - Court of Accounts - EBRD - EU High-Level Advisors in the fields of anti-corruption, anti-money laundering and customs policy - Financial Statements Information Services - General Prosecutor’s Office - IDIS Viitorul - Ministry of Economy and Infrastructure - Ministry of Finance - National Anti-Corruption Center - National Bank of Moldova - National Integrity Agency - Public Property Agency - STS - Transparency International – Moldova - UK Fund for Good Governance - United States Office of Technical Assistance - World Bank ### Annex pagination note - Page number displayed: 107 ### ANNEX 3. BIBLIOGRAPHY - Besley, Timothy, and Torsten Persson. 2014. "Why Do Developing Countries Tax So Little?" Journal of Economic Perspectives, 28 (4): 99-120. - Grote, Martin, c.s., July 2018. “Moldova: Rebalancing Taxes on Employment, Capital Gains, Energy and Consumption to Co-Finance Public Pensions.” IMF Fiscal Affairs Department. - Kroll and Steptoe & Johnson – 2017. “Project Tenor II Summary Report.” - Transparency International – Moldova. 2015 and 2018. “Sociological Study – Corruption in Republic of Moldova: Perceptions vs. Personal Experiences of Business People and Households.” - Transparency International – Moldova. December 9, 2019. “Survey of civil servants – the quality of anticorruption policies and the working climate in central public authorities.” - Transparency International – Moldova. 2020. “Monitoring anti-corruption policies in central public authorities: conflicts of interest, incompatibilities, restrictions.” - UNDP. 2019. “The National Integrity and Anticorruption Strategy Impact Monitoring Survey – Moldova 2019, p.46.” - World Bank Group and PWC. 2019. “Paying Taxes 2020, The Changing Landscape of Tax Policy and Tax Administration Across 190 Economies.” *Source: 1mdaea2021001 - ANNEX 2. LIST OF MEETINGS WITH OFFICIALS AND STAKEHOLDERS* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1mdaea2021001.pdf_