Romanian authorities busted last week a crime ring comprising of bank directors, notaries, assessors and businesspeople, which took out illegal loans using a pyramid scheme that lead to a fraud of EUR 85 million, in a second blow for the banking system, after a EUR 22 million fraud was unveiled last month.
Adrian Martis and Andrei Nanu, heads of two branches of BRD in Bucharest, were arrested. Prosecutors said the bankers were the coordinators of the criminal network. They determined a couple of subordinates to breach the law and banking regulation on the granting and extension of loans, according to a prosecutors’ report seen by Mediafax newswire.
The loans were granted to 34 companies that used land and guarantees from the loan guarantee fund for SMEs (FNGCIMM) to overvalue their guarantees. These companies were funded for three years from these sources and the BRD bankers fully coordinated the process starting from the selection of the firms to the approval of risk procedures.
Prosecutors said that one member of loan approval committee at BRD, which acted as “advisor” of the BRD president, only partially informed him about the illegal loan that was to be granted.
The bankers obtained illegal money from two sources. They got their own share from the crime ring members that withdrew the cash after successive transfers in the accounts of some companies to make these transactions untraceable. The bankers also received bonuses from BRD for reporting high lending levels.
The bankers were in close relationship with Vasile Crestin – a Romanian millionaire that indirectly controlled the companies that got loans. At this point, the ring used Claudia Peter – a customer counselor, to make the company documents hard to track in the bank.
Crestin controlled people that made sure the business plans and guarantees of the companies were overvalued. These people also looked for assets and people that could act as legal representatives of the firms, according to the prosecutors.
Martis and Nanu told the crime ring that the real estate guarantees for the loans had to be overvalued, although market prices plummeted as a result of the financial crisis. The ring identified some land owners willing to sell and took them to notaries close to crime group, making sure the contract included a clause that allowed the buyers to further use the land to take out loans.
The ring used assessors to grow the value of the land. For instance, one plot of land bough for EUR 150,000 was valued by such an expert at EUR 5.3 million and used as a guarantee for a EUR 2.9 million loan. In order to make sure the fraud was not obvious and avoid provisioning once these loans became non-performing, the bankers imposed a EUR 3 million threshold on loans obtained by the ring.
BRD-Groupe Societe Generale, the second lender in Romania by assets, said it had discovered several illegal financing schemes through its internal control department. The lender filed a penal complaint and said it would cooperate with authorities. BRD said it strengthened its control systems and sanctioned and even fired employees that breached procedures. The French lender provisioned its loss which doesn’t impact its stability.
Volksbank is another bank that was exposed to the fraud. It filed a complaint to authorities and started foreclosure procedures to recover a EUR 8 million loss.
Eleven persons were arrested in the case over the week-end, including the BRD directors and Claudia Peter. On Monday, the Court of Appeal issued arrest warrants for Crestin and other two people.