Moldova Considers Adopting the Global Magnitsky Act

Opposition lawmakers took the first step toward making Moldova the seventh country to pass the Global Magnitsky Act, an anti-corruption initiative named for the Russian lawyer and auditor, Sergei Magnitsky, who died in prison in 2009. The Moldovan legislators introduced the Magnitsky bill in parliament, in late July, as a response to efforts by the ruling Democratic Party of Moldova (PDM) to legalize undeclared income, which many Moldovans see as a legitimization of money laundering and corruption. Adopting Magnitsky legislation would address the serious problem of corruption presently plaguing the country’s financial and banking systems, and which holds back economic reform and Euro Atlantic integration.

Modeled after the 2012 U.S. law of the same name, the Moldovan version of the Global Magnitsky Act would also impose sanctions on people who commit human rights abuses or acts of corruption. The UK, Canada, and the Baltic states have all approved similar legislation. The Moldovan version is the result of growing concern in recent years over regional organized crime groups using the country’s banks for money laundering transactions, which has resulted in the transfer of tens of billions of dollars from Russia.

These activities culminated with the embezzlement of $1 billion from three Moldovan banks in November 2014, leading to a political and financial crisis that resulted in the loss of one-eighth of Moldova’s GDP. The opposition describes the Magnitsky proposal as a way for lawmakers to hold government officials and others accountable for such crimes.

Many observers portray Moldova’s money laundering crisis regarding the greater East-West competition, with Russia behind the threats facing the struggling republic. While the truth is more complex, the fact remains that if Moldova were not facing such endemic corruption, the Kremlin would not be in a position to exploit these weaknesses.

In this context, the Democratic Party of Moldova has recently come under fire for approving a package of tax reforms that would seemingly address this problem. One component of the legislation, which the parliament passed in late July 2018, seeks to bring money from the shadow economy into the open by allowing individuals to voluntarily declare previously undeclared assets and pay a three-percent tax, thereby legalizing the holdings.

Prime Minister Pavel Filip supported the tax reform legislation, noting that it would help produce a fairer system for paying salaries, raise income for citizens, and facilitate economic growth. However, the opposition argued that the law, which allows for the legalization of previously undeclared assets, would essentially open the door for Moldova to become a money-laundering haven for criminals, thereby legitimizing proceeds of major financial crimes.

Consequently, the opposition denounced the proposals, condemning the “haste” with which the drafts were approved. The European Union weighed in to support the opposition, arguing that the tax amnesty was both hasty and non-transparent, and if implemented could result in a violation of Moldova’s obligations to the EU as part of the EU-Moldova Association Agreement that came into force in 2016. The World Bank also expressed concern that the law could undermine the Moldovan government’s commitment to fighting corruption.

A similar tax reform law was proposed in 2016 under the guise of capital liberalization and fiscal stimulation. These draft laws were withdrawn after substantial protests and condemnation from Moldovan NGOs and civil society.

Since Moldova faces a business environment that is one of the most challenging in the region, with a state weakened by pervasive government corruption, the introduction of the Magnitsky law indicates that challenges for democratic transition remain. Moldova, once seen as a shining example of reform, has stagnated and, in the eyes of many, taken significant steps backward in its attempt at reform.

A Europe whole, free, and at peace includes tiny Moldova. Moldovans are working to get back on the path toward European integration. They deserve U.S. attention and support. Pro-democratic forces in Moldova argue for adopting the Magnitsky legislation because corruption erodes the legitimacy of any government and diminishes confidence in economic stability and respect for the law.

Moldovan authorities now have the chance to prove they intend to fight this scourge by passing the Global Magnitsky legislation.

John Cappello, a former U.S. Air Force B-1B pilot and Air Force Attaché to the U.S. Embassies in Tel Aviv and Belgrade, is a senior fellow at the Foundation for Defense of Democracies focusing on military affairs.