Kremlin Playbook Spotlight: Moldova

Contributor: Heather A. Conley

Context

The poorest country in Europe, wedged between Romania and Ukraine, Moldova was part of the Russian Empire in the 19^th century and most of it became part of Romania after the First World War before being incorporated as a republic of the Soviet Union in 1940. After declaring independence in 1991 after the failed August coup against Soviet President Gorbachev, tensions with pro-Russian separatist movements in Transnistria led to a brief conflict in 1992, which has remained frozen since a July 1992 ceasefire.

Moldova maintains close and historic ties to Romania, its top trading partner (with Russia a close second). The European Union is Moldova’s top export market (66% of the country’s exports go to the EU). In 2014, Moldova signed an Association Agreement and a free trade agreement (Deep and Comprehensive Free Trade Agreement – DCFTA) with the European Union, under protest from Russia, which retaliated with import restrictions on agricultural produce (Moldova’s biggest export to Russia). Moldova’s president, Igor Dodon, is pro-Russian and favors Moldova joining the Russian-led Eurasian Economic Union over the European Union. Moldova struggles with high levels of corruption, ranking 122 out of 180 on Transparency International’s Corruption Perceptions Index 2017. Moldova will have parliamentary elections no later than November 2018.  

Russia has deployed “peacekeeping” troops in Transnistria since the 1992 ceasefire, totaling between 1,500 and 2,000 soldiers. The breakaway Transnistrian “military” is reported to have between 4,000 and 7,500 active troops, which are integrated into the Russian 14^th Army (or Operative Group of the Russian Troops). Despite a 1999 commitment at the OSCE Istanbul Summit to withdraw these forces by 2002, Russia has maintained its military presence in the breakaway region and regularly organizes joint military exercises. The Kremlin also retains a large weapons depot in Cobasna, Transnistria.

Following the 2014 illegal annexation of Crimea and Russian military intervention in the Donbas, the Moldovan government banned Russian forces from crossing into its territory and prevented the Russian air force from landing in Chisinau, the capital. Moldovan intelligence services have asserted that people from Transnistria also have taken part in the conflict in Ukraine.

Malign Russian influence through financial coercion

Key issues:

• The Moldovan banking system has governance weaknesses that enabled large money-laundering schemes to take place for years, involving individuals and entities from Russia, the United Kingdom, and Moldova.


• Entities acquired stakes at three major Moldovan banks, then a complex system of loans and transactions between the banks and Russia, the United Kingdom, and Latvia artificially inflated the banks’ liquidity.


• In November 2014, the loan money was suddenly transferred out of the banks, leading to their collapse, the Moldovan government’s collapse, and deep instability in the Moldovan economy.

In November 2014, five months after the Moldovan government signed its Association Agreement with the European Union, three major Moldovan banks (Unibank, Banca Sociala, and Banca de Economii)—accounting for 30 percent of the banking sector’s total assets at the time—dramatically collapsed after $1 billion disappeared from their coffers. This banking collapse threatened Moldova’s financial stability, caused major public demonstrations, and ultimately led to the collapse of the Moldovan government.

How did this happen?

The Moldovan “missing billion,” as it has come to be known, had a disastrous impact on Moldova’s fragile economy, and was never recovered. The amount itself represented 15 percent of the Moldovan gross domestic product (GDP) at the time. GDP declined by 1.1 percent in 2015, though this was in part due to Russian trade restrictions and lower remittances. The Moldovan lei lost 20 percent of its value in early 2015. And 16 billion lei ($1.025 billion) worth of emergency loans had to be issued to prop up the three banks and protect their customers. The complex movement of money made it difficult for authorities to track; a post-investigation report found that “loans at one bank were paid off with loans from another and were then followed by yet more borrowing.”

To this day, the ultimate beneficiaries remain unclear although Shor, Platon, and Filat were charged for coordinating the activity. Excessive money laundering that exploits financial weaknesses in a country—including the infamous Russian Laundromat scheme that laundered $20 billion through Moldova between 2010 and 2014—can have disastrous consequences on a country while allowing malign actors to financially benefit. This is particularly true of small countries with fragile economies like Moldova.

Spotlight: Military Intimidation

Joint Russia-separatist military exercises in Transnistria have recently intensified despite repeated requests from Moldovan, American, and European authorities for Russia to withdraw its troops. From just 48 in 2016, the number of Russian military exercises and activities jumped to over 150 (300 according to some reports) in 2017, including practicing the crossing of the Dniester River, which separates the region from the rest of Moldova.

Russian military exercises in Transnistria have grown into larger-scale events, which appear similar to the military exercises on the Russian-Georgian border prior to Russia’s military intervention in August 2008—though it is important to note that unlike Georgia, Russia has no border with Transnistria on which it could mass forces ahead of a military incursion. These exercises are prompting fears that future military exercises could follow the Georgian and Ukrainian military intervention pattern from Russia: (1) the Kremlin has willing allies within Transnistria; (2) the Transnistrian population overwhelmingly voted for independence and future integration into Russia in an unrecognized 2006 referendum (no country to date has recognized Transnistria as an independent state); and (3) there are Russian military forces already present in Transnistria.