Academic journal article The Journal of Social, Political, and Economic Studies

Economic Crime in Romania

Academic journal article The Journal of Social, Political, and Economic Studies

Economic Crime in Romania

Article excerpt

Economic Crime in Romania1

At this point, a Romanian company has far more incentives to activate in the shadow economy than it has to operate legally and legitimately. Economic crime is directly related to the lack of economic reforms, the slow peace of privatization, and the weak legal framework. Economic crime in Romania is characterized by the emergence of organized criminal gangs. There are connections within this community that have important impacts on money laundering, terrorist activities, and counterfeiting

Key Words: Romania, Economic Crime, corruption, illegal capital, tax evasion, money laundering, shadow companies, pyramid schemes, smuggling, phreaking, state ownership, privatization.

Economic crime is fostered by and reinforces the shadow economy. During the last decade the shadow economy in Romania has grown to alarming levels fuelled by inflows of illegal capital obtained through a wide variety of schemes and frauds.

Economic crime is directly related to the absence of economic reforms, the slow pace of privatization, and the weak legal framework. The criminals were able to exploit these weaknesses and use the illegal profits obtained in the process to further develop and sustain illegal activities. State corruption has played an important role in such development allowing criminals to often benefit from support and protection from high ranked government or local administration officials.

Illegal Capital

- Capital Obtained Through Illicit Means

After the fall of Communism in 1989, Romania was confronted with the difficult task of building a market economy on the ruins of a centralized economic system in which the capital was entirely owned by the State. In theory, this task was to be accomplished through economic reform and privatization initiated and supervised by the Government, within a clear and well-defined legal frame.

In the early 1990s, in Romania there were few local investors able to purchase the state owned assets and companies. The local investors simply lacked the necessary capital.

However, it did not take long until a number of people identified the lack of legal regulations in certain areas - such as banking, commerce, foreign trade, and so on - and started to exploit this vacuum for their own benefit.

For instance, the coexistence of an official (regulated) currency exchange rate on the inter-bank market with a "free market" currency exchange rate represented a golden goose for the speculators who used their personal connections in the state banking system in order to buy cheap dollars on the inter-bank market and then sell them at a premium price on the "free market". Although this kind of operation was illegal and specifically prohibited by law, speculators were able to do it by relying on the corruption of certain officials and on weak law enforcement. These illegal transactions took such a boost that they generated a monetary crisis, which couldn't be solved until the introduction in November 1991 of a single, unified, currency exchange rate whose value was since established by the forces of supply and demand.

The non-existence of a proper legal frame fuelled the explosion of pyramid schemes throughout the country between 1992-1993. Many people attracted by the mirage of earning easy profits took part in such schemes and lost their money while the initiators of these schemes, along with the corrupted officials who supported them, became extremely rich. When the scandal of pyramidal schemes morphed into a socio-economical crisis, the Parliament issued laws and regulations to forbid them. The initiators had to go to court but their trials stretched for years and in many cases they were found not guilty or had to pay little damages and compensations.

During the hot days of the Romanian Revolution millions of people contributed with money deposits to the so-called "Liberty Fund" This fund was hosted in a bank account that was supposed to be administered by the Government and used in order to support the victims of the Revolution. …

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