Executive Summary

Former Soviet republic Moldova has made some progress towards adopting the principles of a free-market democracy since gaining its independence in 1991, but still has significant shortcomings in its investment climate. Moldova regained relative stability in 2017 providing the new cabinet room for reform work to which it has formally committed. The government has to deal with the fallout from the massive bank fraud, reform the financial sector, and tackle pervasive corruption that has undermined trust in the state and political-economic institutions.

The major investment climate concerns in 2018 include political uncertainties related to the upcoming parliamentary elections, macroeconomic risks from delays in decisively cleansing the financial sector, and challenges of maintaining reform momentum.

In June 2014, Moldova signed an Association Agreement (AA) with the European Union (EU), including a Deep and Comprehensive Free Trade Agreement (DCFTA), committing the government to a course of reforms to bring its governmental, regulatory, and business practices in line with EU standards. Moldova hopes that implementation of the DCFTA will integrate it further into the European common market and create more opportunities for investment in Moldova as a bridge between Western and Eastern European markets. The Government approved an Action Plan for the implementation of AA/DCFTA in 2017-2019.

In 2017, Moldova continued the implementation of its IMF agreement with an economic reform program supported by a three-year loan arrangement of USD 180 million. The government has been generally on track with the IMF agreement, benefitting from three disbursements so far.

The investment climate is challenging and remains affected by corruption and inconsistent government policies. In 2017, the government focused on central public administration reform and chose to approach challenges to business activity with “window-dressing” measures like those of reducing the number of inspection agencies instead of addressing underlying systemic corruption. Negative ratings of the government’s efforts to curb corruption suggest that more must be done to reduce public sector graft and clean up political institutions so that it acts in the interests of citizens rather than in its own interests. Following public criticism and international objections, the government had to reconsider proposed legislation calling for redistribution of competences among inspections and law enforcement agencies in the business field and broad exoneration of criminal liability. The government did approve a new 2018-2020 action plan for a business regulatory framework reform to facilitate day-to-day business activity.

Although the many underdeveloped sectors offer opportunities, investors should proceed with caution. While a number of large foreign companies have taken advantage of tax breaks in the country’s free economic zones, foreign direct investment (FDI) remains low. Finance, automotive, light industry, agriculture, food processing, wine, and real estate have historically attracted foreign investment. The National Strategy for Investment Attraction and Export Promotion 2016-2020 identified seven priority sectors for investment and export promotion: agriculture and food, automotive, business services such as business process outsourcing (BPO), clothing and footwear, electronics, information and communication technologies (ICT), and machinery.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2017 122 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2017 44 of 190 http://www.doing
business.org/rankings
Global Innovation Index 2017 54 of 127 https://www.globalinnovation
index.org/analysis-indicator
United States (U.S.) FDI in partner country (M USD , stock positions) 2015 2.0 http://www.bea.gov/
international/factsheet/
World Bank GNI per capita 2015 2,230 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

Policies Toward Foreign Direct Investment

Moldova, one of the poorest countries in Europe, relies heavily on foreign trade and remittances from its workers abroad for its economic growth. Under Moldovan law, foreign companies enjoy national treatment in most respects. In principle, the government views FDI as vital for sustainable economic growth and poverty reduction. In the last year, the government has sought to attract more foreign investors into the country. However, the amount of FDI received is far below what Moldova needs to create jobs and promote economic growth.

Moldova enjoyed a period of increased FDI with eastward expansion of the EU into Romania on January 1, 2007. However, the 2008 global financial crisis significantly decreased FDI in Moldova, which has yet to return to pre-crisis levels. Remittances have also not regained their 2008 levels and have been falling further in recent years, reflecting slower growth in the region and the falling value of the Russian ruble (most remittances are from workers paid in Russian rubles.)

Moldova’s development path in recent years has been guided by agreements with the EU for reforms in trade policy and the judiciary. Following the expiration of a Moldova-EU Action Plan in 2008, Moldova negotiated its AA with the EU, which was signed in June 2014 and ratified on July 1, 2016. Moldova hopes the AA will bring closer political association and economic integration with the EU. The DCFTA, a component of the AA, provides for mutual elimination of customs duties on industrial and most agricultural products and for further liberalization of the services market. It also addresses other barriers to trade and reforms in economic governance, with the goal of strengthening transparency and competition and adopting EU product standards. Moldova hopes to eventually join the common EU market.

As a country with a small economy, Moldova hopes a liberalized trade and investment strategy will increase the export of its goods and services.

A member of the WTO (World Trade Organization) since 2001, Moldova has signed free trade agreements with countries of the former Soviet Union. In December 2006, Moldova joined the Central European Free Trade Agreement. In 2008, Moldova moved from the extended generalized system of preferences (GSP-plus) with the EU to Autonomous Trade Preferences (ATP), which expanded the duty-free access of Moldovan goods to EU markets. The EU is the country’s largest export destination, absorbing more than half of all Moldovan exports. The EU extended ATP to Moldova in 2008. In September 2014, the DCFTA supplanted the ATP regime.

Since September 2013, Moldova has faced a Russian ban on its alcoholic beverage exports. After signing of the AA and DCFTA by Moldova in 2014, Russia imposed additional trade bans seriously affecting Moldova’s exports of fruit, canned products, and fresh and processed meat.

The government has approved an activity program for 2016-2018 that centers on EU integration. The program also sets economic development, creation of well-paid jobs, elimination of corruption, and rule of law among key objectives. The government also approved an Action Plan for the implementation of the Moldova-EU AA and DCFTA for the period 2017-2019. The government has identified in its national development strategy “Moldova 2020” seven priority areas for development and reform: education, access to financing, road infrastructure, business regulation, energy efficiency, justice system, and social insurance. The government has made a formal commitment to accelerate the country’s development by making the economy more capital-intensive, sustainable, and knowledge-driven.

Limits on Foreign Control and Right to Private Ownership and Establishment

Under Moldovan law, foreign companies enjoy national treatment in most respects. The Law on Investment in Entrepreneurship prohibits discrimination against investments based on citizenship, domicile, residence, place of registration, place of activity, state of origin, or any other grounds. The law provides for equitable and level-field conditions for all investors and rules out discriminatory measures hindering management, operation, maintenance, utilization, acquisition, extension, or disposal of investments. Local companies and foreigners are to be treated equally with regard to licensing, approval, and procurement. Companies registered in questionable jurisdictions like Northern Cyprus, Kenya or Nigeria are prohibited from holding shares in commercial banks.

By statute, special forms of legal organizations and certain activities require a minimum of capital to be invested (e.g., MDL 20,000 (USD 1,200) for joint stock companies, MDL 15 million (USD 910,000) for insurance companies, and MDL 100 million (USD 6.1 million) for banks).

Moldovan law restricts the right to purchase agricultural and forest land to Moldovan citizens. Foreigners may become owners of such land only through inheritance and may only transfer the land to Moldovan citizens. In 2006, Parliament further restricted the right of sale and purchase of agricultural land to the state, Moldovan citizens, and legal entities without foreign capital. However, foreigners are permitted to buy all other forms of property in Moldova, including land plots under privatized enterprises and land designated for construction. There are reportedly Moldovan-registered companies with foreign capital known to own agricultural land by means of loopholes in the previous law. The only straightforward option available to foreigners who wish to use agricultural land in Moldova is to lease the land.

Other Investment Policy Reviews

The latest Investment Policy Review of Moldova was conducted the United Nations Conference on Trade and Development (UNCTAD) in 2013 and can be accessed here: http://unctad.org/en/Pages/DIAE/Investment percent20Policy percent20Reviews/Investment-Policy-Reviews.aspx .

Moldova was last subject to a trade policy review by the WTO published in October 2015 and can be accessed here: https://www.wto.org/english/tratop_e/tpr_e/tp423_e.htm .

Business Facilitation

The government has taken steps over the years to simplify and streamline the process of business registration and licensing, lower tax rates, strengthen tax administration and increase transparency.

Business registration is overseen by the Public Services Agency, created in 2017 as a result of the merger of the State Registration Chamber, Licensing Chamber, Land Registry, Civil Records Service, and the Center for State Information Resources “Registru”.

By law, registration should take five days for a standard procedure or four hours for an expedited procedure and is done in two stages. The first stage involves submission of an application and a set of documents, the range of which may vary depending on the legal form of the business (LLC, joint-stock company, sole proprietorship, etc.). At the second stage, the agency issues a registration certificate and a unique identification number for the business, conferring full legal capacity to the entity. In 2010, the government introduced the “one-stop-shop” principle, under which businesses are relieved of the requirement to register separately with fiscal, statistical, social security, or health insurance authorities. There are currently no procedures for online business registration.

Certain types of activity listed in the law on licensing entrepreneurial activity require businesses to be first licensed by public authorities. A business license may also be obtained through the online platform www.servicii.gov.md .

In March 2006, the Moldovan Parliament ratified the 1961 Hague Convention on Abolishing the Requirement for Legalization for Foreign Public Documents. Acceptance of U.S. apostilles applied on official documents simplifies the legalization of official documents issued in the U.S. that are required in the process of business registration.

Moldova has an investment promotion agency called Moldovan Investment and Export Promotion Organization (MIEPO) to assist prospective investors with information about business registration or industrial sectors, facilitate contact with relevant authorities, and organize study visits. MIEPO has an investment guide available on its website  www.miepo.md . In 2018, the Government passed a decision to set up a new Investment Agency that incorporates MIEPO and the Tourism Agency.

The government set up a special council for promoting investment projects of national importance to tackle red tape stifling the launch of large business investments.

Outward Investment

Moldova does not have an official policy or mechanism for promoting or incentivizing outward investment.

Moldova has signed bilateral investment protection and promotion agreements with 42 countries. In addition to the U.S., these include Albania, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, China, Croatia, the Czech Republic, Cyprus, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iran, Israel, Italy, Kuwait, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Montenegro, the Netherlands, Poland, Qatar, Romania, Russia, Slovakia, Slovenia, Spain, Switzerland, Tajikistan, Turkey, Ukraine, the United Kingdom (U.K.) and Uzbekistan.

Moldova has a bilateral treaty with the U.S. on the Encouragement and Reciprocal Protection of Investment. Moldova has not signed a separate bilateral taxation treaty with the U.S.; however, the U.S. Government applies the Convention on Matters of Taxation signed with the USSR on June 20, 1973, which also deals with avoidance of double taxation, to former Soviet republics, including Moldova.

Moldova has signed free trade agreements with 43 countries, among them member states of the Commonwealth of Independent States (CIS) and the Central European Free Trade Agreement (CEFTA). In 2008, Moldova moved from the extended generalized system of preferences (GSP-plus) with the EU to ATP, which expanded the duty-free access of Moldovan goods to EU markets. In September 2014, the DFCTA supplanted the ATP regime.

Transparency of the Regulatory System

Bureaucratic procedures are not always transparent, and red tape often makes processing registrations, ownership, etc. unnecessarily long, costly, and burdensome. Discretionary decisions by government officials provide room for abuse and corruption. While the government has adopted a number of laws to improve the business environment and reduce excessive state controls and regulation, effective implementation of these laws is often lacking. The inconsistent application of laws and regulations undermines fair competition and adds uncertainty for less politically-connected businesses, particularly small- and medium-sized businesses as well as new entrants.

The Moldovan government publishes significant laws in draft form for public comment. Draft laws are also available online on the website of the Moldovan Parliament. Business and trade associations provide other opportunities for comment. The working group of the State Commission for Regulation of Entrepreneurial Activity, which was established as a filter to eliminate excessive business regulations, meets to vet draft governmental regulations dealing with entrepreneurship. The working group’s meetings are open to interested businesses and the agenda is published online. Laws and regulations are published in the official gazette called Monitorul Oficial, while a database of laws and regulations is available online at lex.justice.md . The Economic Council under the Prime Minister is another platform for discussion of government-proposed business initiatives.

Moldova made a commitment to implement International Financial Reporting Standards (IFRS) in 2008. Since January 1, 2015, Moldova has been applying new national accounting standards based on IFRS and EU directives. Use of IFRS has been required by law for all public interest entities since 2011. Public interest entities are defined as financial entities, investment funds, insurance companies, private pension funds, and publicly listed entities.

The Foreign Investors Association (FIA) was established in 2004 with the support of the Organization for Economic Cooperation and Development (OECD). The FIA engages in a dialogue with the government on topics related to the investment climate and produces an annual publication of concerns and recommendations for the improvement of the investment climate. In 2006, the American Chamber of Commerce (AmCham) registered in Moldova, representing another voice for the business community. In 2011, a group of ten large EU investors founded the European Business Association (EBA.) The three largest foreign business associations – AmCham, FIA and EBA – handed the government a list of business constraints and recommendations to improve the investment climate.

Since 2008, the National Business Agenda supported by the U.S. Center for International Private Enterprise (CIPE) has organized 30 domestic business associations, putting forth an annual list of priorities in their dialogue with the authorities. These priorities deal with the general business environment and regulatory framework.

Since 2004, the government has been taking steps to reduce excessive government regulation of business activity. The government approved a 2018-2020 action plan to implement the strategy to reform the business regulatory framework for 2013-2020. The plan aims to further streamline the regulatory framework and administrative procedures.

All regulations and governmental decisions related to business activity have been published in a special business registry “Register of Regulations on Business Activity” in order to raise businessmen’s awareness of their rights, increase the transparency of business regulations and help fight corruption. The Law on Basic Principles Regulating Entrepreneurial Activity was passed in August 2007. The government has started applying a regulatory impact assessment (RIA) to draft laws bearing on business activity to enhance transparency in the drafting of laws and regulatory acts.

As part of a USAID-backed program, the Ministry of Economy reviewed the number of permits and authorizations issued to businesses as well as the number of authorities issuing such documents. As a result, the government approved a list of business permits and authorizations, and banned governmental agencies and inspections from issuing or requesting any form of documents not included in the list.

In 2012, parliament passed a law to introduce clear and uniform rules for the release of information and standardized documents through a “one-stop window.”

A law simplifying the system of inspectorates and various inspection bodies was adopted in 2017 to increase efficiency and reduce regulatory burden, however relevant secondary legislation aimed to guarantee its implementation is not yet in place. Through the reformation of inspection bodies, the government wants to reorganize the state inspection registry for better planning and monitoring of inspectors’ activity.

The World Bank’s Cost of Doing Business 2017 survey shows that the time spent by companies dealing with regulatory authorities saw no change in 2017 from the year before. Despite reported improvements, the survey notes that only 20 percent of business managers consider that the business climate really improved in 2017. While 57 percent of managers do not see any change, 23 percent believe it has worsened.

In 2016, the government made a decision to merge several agencies – the State Registry, Cadastral Office, the Licensing Chamber, State Registration Chamber and Civil Status Archive – into a Public Service Agency as a one-stop shop for business registration and licensing.

International Regulatory Considerations

European integration is a fundamental priority for Moldova’s current government. The AA including the DCFTA significantly strengthens Moldova’s political association and economic integration with the European Union. The AA/DCFTA has binding regulatory provisions committing Moldova to a reform agenda and to approximating domestic legislation to EU standards in a range of areas including corporate law, labor, consumer protection, competition and market surveillance, general product safety, tax, energy, customs duties, public procurement, etc. Under the DCFTA, Moldova will gradually abolish duties and quotas in mutual trade in goods and services, and will eliminate non-tariff barriers by adopting EU rules on health and safety standards, as well as intellectual property rights, among others. The agreement contains a timeframe for implementation of provisions with deadlines of up to ten years.

Moldova has been a member of the WTO since 2001 and, as such, is a signatory to the General Agreement on Trade in Services (GATS), the Agreement on Trade Related Investment Measures (TRIMs) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). These agreements contain major investment-related provisions, such as opening to the establishment of foreign service providers, prohibition of local-content, trade-balancing and domestic-sales requirements (TRIMs), and protection of intellectual property of investors (TRIPS). No major inconsistencies with WTO TRIMS have been reported.

As a WTO member, Moldova has to notify draft technical regulations to the WTO Committee on Technical Barriers to Trade. Also, in 2016 Moldova ratified the WTO Trade Facilitation Agreement and adopted a 2018-2020 Trade Facilitation Action Plan on November 30, 2017. The plan comprises 91 actions, with an estimated budget of over EUR 137.1 million and will be implemented by 14 government agencies in cooperation with the private sector under the guidance of the Economic Council under the Prime Minister, which acts as the National Trade Facilitation Committee. While an estimated 80 percent of measures focus on customs performance, the plan also provides for the setup of information points; discussion of relevant drafts with the business community and civil society; strengthening of the capacities of the National Food Safety Agency (ANSA) with integrated management information system for streamlining and standardizing the issuance of permissive documents; management of food safety registries; and supporting automated exchange of data with the European Union and Commonwealth of Independent States. It also involves expanding the capacities of the National Accreditation Center (MOLDAC) in new areas of accreditation, so that it can join the European Cooperation for Accreditation (EA) Multilateral Recognition Arrangement (MLA) and International Laboratory Accreditation Cooperation (ILAC) mutual recognition agreement (MRA). The action plan aims to eliminate border-crossing costs for companies engaged in foreign trade.

Also, the government announced a new draft of the Customs Code for public consultations, which merges existing separate laws on customs procedures and goods crossing national borders and approximates national customs rules to the EU Customs Code. In 2017, the government changed customs rules to align with the EU Authorized Economic Operator requirements and Approved Exporter conditions.

As a result of negotiations linked to Moldova’s accession to the WTO, modern commercial legislation was adopted in accordance with WTO rules. The main challenges to the business climate remain the lack of effective and equitable implementation of laws and regulations, and arbitrary, non-transparent decisions by government officials who may apply measures that put domestic producers at an advantage in relation to foreign competitors in certain areas. For example, an environmental tax is applied on bottles and other packaging of imported goods, while such a tax is not levied on bottles and packaging produced in Moldova. Additionally, the government may cite public security or general social welfare as reasons to intervene in the economy in contravention of its declared respect for market principles. There are reports of problems with customs valuation of goods.

Legal System and Judicial Independence

Moldova has a civil law legal system with codified laws that govern different aspects of life, including business, trade, and the economy. The country’s legal framework consists of its constitution, organic, and ordinary laws passed by the parliament and normative acts issued by the government and other public authorities. Moldovan courts are nominally independent from government and political interference, but suffer from low efficiency and lack of popular trust.

Starting in 2003, the court system has undergone several changes that eliminated economic courts, which were seen as fertile soil for corruption, and currently consists of lower courts (i.e. trial courts), four courts of appeal, and the Supreme Court of Justice.

Moldova is preparing a new justice reform strategy after extending the implementation period for a current reform strategy ending in 2016 due to delays during the implementation period. Parliament passed amendments in 2016 optimizing the country’s court system as part of the larger justice sector reforms, which reduces the number of trial courts in Moldova. All specialized courts such as the Commercial Circumscription Court and Military Court ceased their activities. Five trial courts from Chisinau were merged into one court – the Chisinau trial court, while the Chisinau court’s jurisdiction will also include adjudication of commercial disputes. In 2017, Moldova’s judiciary continued to implement the optimization of courts. According to the government’s initial plan the court optimization process will be implemented by 2027.

In 2016, two specialized independent prosecution offices were created. The Anti-Corruption Prosecution Office of Moldova is responsible for investigating and prosecuting corruption, bribery, and abuse of power by public officials. The Prosecutor’s Office on Combating Organized Crime and Special Cases investigates and prosecutes organized crime, including tax evasions, smuggling, intellectual property crimes, trafficking in persons, drugs, etc. In 2017, the Moldovan Prosecution Service continued the implementation of reforms under a new law on prosecution service passed in 2016. The Prosecutor General’s Office guided and led the drafting of new regulations for the specialized prosecution offices and regional ones. The Superior Council of Prosecutors organized competitions to appoint over 90 chief and deputy chief prosecutors in most of the prosecutors’ offices from Moldova.

The government has also reformed the public integrity system by creating the National Integrity Authority (NIA) – the successor to the National Integrity Commission. The new agency will be staffed with 46 investigators who will be in charge of checking public officials’ financial disclosures, properties and conflicts of interests. However, due to the lack of funding and burdensome administrative planning, the Agency has yet to start functioning.

Also, in 2016 parliament passed a new law on disclosure of assets and conflicts of interest by public officials. This law, long-awaited by Moldovan civil society, will broaden and improve the competencies of integrity-checking authorities to oversee public officials’ integrity. Parliament has also introduced new statutes in the Criminal Code criminalizing the misuse of international assistance funds. This statute will help identify and investigate any corruption or misuse of international donors’ assistance by Moldovan public officials in public acquisitions, technical assistance programs, and grants.

Laws and Regulations on Foreign Direct Investment

In addition to its international agreements, Moldovan laws affecting FDI include the Civil Code, the Law on Property, the Law on Investment in Entrepreneurship, the Law on Entrepreneurship and Enterprises, the Law on Joint Stock Companies, the Law on Small Business Support, the Law on Financial Institutions, the Law on Franchising, the Tax Code, the Customs Code, the Law on Licensing Certain Activities, and the Law on Insolvency.

The current Law on Investment in Entrepreneurship came into effect in 2004. It was designed to be compatible with European standards in its definitions of types of local and foreign investment. It provides guarantees of investors’ rights, non-application of expropriation or similar actions, and for payment of damages if investors’ rights are violated. The law permits FDI in all sectors of the economy, while certain activities require a business license.

Competition and Anti-Trust Laws

The government established a National Competition Agency in 2007. However, foreign investors accused the agency of abuse, lack of experience, and flawed antitrust legislation after they were singled-out for investigations. As a result, in 2012, Parliament passed a new law on competition that was consistent with EU practice and legislation. The National Competition Agency was subsequently renamed the Competition Council. The Competition Council oversees compliance with competition and state-aid provisions, and initiates examination of alleged violation of competition laws. The Competition Council may request cessation of action, prescribe behavioral or structural remedies, and apply fines. Questions remain about the independence of the council and its efficiency in dealing with obstacles to competition.

Expropriation and Compensation

The Law on Investment in Entrepreneurship states that investments cannot be subject to expropriation or to measures with a similar effect. However, an investment may be expropriated if the expropriation is done for purposes of public utility, is not discriminatory, and is done with just compensation. If a public authority violates an investor’s rights, the investor is entitled to compensation equivalent to the actual damages at the time of occurrence, including any lost profits. Compensation must be paid in the currency in which the original investment was made or in any other convertible currency.

The government has given no indication of intent to discriminate against U.S. investments, companies or representatives by expropriation, or of intent to expropriate property owned by citizens of other countries. No particular sectors are at greater risk of expropriation or similar actions in Moldova.

Since 2001, the government has cancelled several privatizations, citing the failure of investors to meet investment schedules or irregularities committed during privatization. While the government agreed to repay investors in such disputes, investors have had to apply to the European Court of Human Rights (ECHR) to enforce compensation payments. The government has been compliant with the ECHR rulings involving foreign businesses.

In the past, the limit on foreign ownership of agricultural land was reportedly used in lawsuits as an argument against foreign companies.

Dispute Settlement

ICSID Convention and New York Convention

In 2011, Moldova ratified the Convention on the International Center for the Settlement of Investment Disputes (ICSID – Washington Convention). The country also ratified the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Moldova is also a party to the Geneva European Convention on International Commercial Arbitration of April 21, 1961, and the Paris Agreement relating to the application of the European Convention on International Commercial Arbitration of December 17, 1962.

Investor-State Dispute Settlement

Moldova is signatory to a number of bilateral investment treaties (see chapter 3 above), including the U.S.-Moldovan Treaty Concerning the Encouragement and Reciprocal Protection of Investment, which make binding international arbitration of investment disputes.

Local courts recognize and enforce foreign arbitral awards against the government. There are no known cases when the Moldovan government denied voluntary payment under an arbitral award rendered against it.

The government has had a history of depriving investors, both national and foreign, of their businesses in various forms. Most of them sued the government at the European Court for Human Rights for violation of the right to fair trial and of the respect for property. A case currently pending at the International Center for the Settlement of Investment Disputes (ICSID) involves a dispute by a U.S. investor and local government authorities, which in 2011 terminated a farmland lease over U.S. investor’s alleged failure to fulfill contractual obligations of planting the fields. After Moldovan courts ruled against the U.S. investor’s claims of compensation, in 2016 the investor filed suit with ICSID under the US-Moldova bilateral investment treaty seeking USD 10 million in compensation for damages from Moldova.

International Commercial Arbitration and Foreign Courts

Private parties may choose alternative dispute resolution mechanisms instead of going to courts. Moldovan law provides the options of mediation and arbitration. The arbitration legislation is modeled after UNCITRAL rules. There are a number of arbitration bodies available in Moldova, among them the most popular is the arbitration court of the Moldovan Chamber of Commerce and Industry. The American Chamber of Commerce in Moldova (AmCham Moldova) has recently set up the Chisinau Court of International Commercial Arbitration (CACIC) under its aegis.

Moldova is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Domestic courts recognize and enforce foreign arbitral awards.

Recognition and enforcement of foreign judgments are regulated by a complex framework of documents, including the Code for Civil Procedures, international conventions and bilateral treaties. Therefore, depending on the nationality of the court, Moldovan courts may apply different legal norms in examining the enforcement of foreign judgments. However, as a rule, foreign judgments are enforceable in Moldova on a reciprocity basis.

Moldova’s court system generally enjoys a low level of public trust and is perceived to be vulnerable to acts of corruption, while court processes lack transparency. The overall expectation in court hearings involving representatives of public authorities, including economic entities, is that final court rulings will be in favor of state representatives.

Bankruptcy Regulations

In terms of resolving insolvency, the World Bank ranks Moldova 65th out of 190 economies in the 2018 Doing Business survey. Moldova scores below the regional average and trails EU members in Central and Eastern Europe. According to the survey, it takes creditors on average 2.8 years to recover their credit. The country has changed its insolvency law to grant priority to secured creditors and to ease insolvency proceedings by introducing new restructuring mechanisms, reducing opportunities for appeals, adding moratorium provisions, establishing strict statutory periods in the proceedings and enhancing the role of insolvency administrators. The law has also introduced expedited insolvency proceedings.

The country has two credit bureaus: Biroul de Credit, set up by commercial banks, and Infodebit Credit Report, founded by private shareholders.

Investment Incentives

Investment incentives are applicable on all Moldovan-registered businesses irrespective of the country of origin of the investment. Certain incentives apply only in specially-designated areas such as free economic zones and industrial parks (see below: Foreign Trade Zones/Free Ports/Trade Facilitation). Until 2020, Moldovan legislation will allow employees of information technology (IT) companies to benefit from incentives on personal income tax and social security contributions. Also, starting January 1, 2017 a new law sets a single tax for residents of IT parks, calculated as the maximum between 7 percent from sales and 30 percent from the national average forecasted salary multiplied by the number of employees. There is also a range of tax incentives applicable if businesses meet certain requirements. Among those incentives are the following: value-added tax (VAT) and customs exemptions on long-term assets included in share capital; deferment of VAT liabilities on imports of materials used in manufacturing export-bound products; and lower social contributions and VAT rates for agricultural businesses.

Foreign Trade Zones/Free Ports/Trade Facilitation

At present, seven free economic zones (FEZs), one international free port – Giurgiulesti – and one international free airport – Marculesti – are registered in Moldova. According to Moldovan law, job creation, attraction of foreign and domestic investments, and export-oriented production are the main goals of such zones. The Law on Free Economic Zones regulates FEZ activity. Foreigners have the same investment opportunities as local entities. FEZ commercial entities enjoy the following advantages: 25 percent exemption from income tax; 50 percent exemption from tax on income from exports; for investments of more than USD 1 million, a three-year exemption from tax on income resulting from exports; and for investments of more than USD 5 million, a five-year exemption from tax on income from exports; zero VAT; exemption from excises; and protection of residents against any new changes in the law for 10 years. Furthermore, residents investing at least USD 200 million in the FEZ are protected against new changes in the law for the entire period of operation in the FEZ, but such protection cannot extend beyond 20 years.

The government also passed a law creating nine industrial parks in 2008 with the goal of attracting investments in industrial projects. Businesses operating in those parks do not receive any special tax treatment, but typically have access to ready-to-use production facilities, offices and lower office rent fees for 25-30 years. Typically, these are idle premises of former large scale industrial enterprises.

Similar to the FEZs, the Giurgiulesti Free International Port, Moldova’s only port accessible to sea-going vessels, was established in 2005 for 25 years. Commercial residents of the port enjoy the following advantages: 25 percent exemption from income tax for the first 10 years following the first year when taxable income is reported; 50 percent exemption from tax on income for the remaining years; exemption from VAT and excises on imports and exports outside Moldova’s customs territory; zero VAT on imports from Moldova; and protection of commercial residents against any changes in the law until February 17, 2030.

The Marculesti International Free Airport, a former military air base, was established in 2008 as a free enterprise zone for a 25-year period to develop cargo air transport. Airport management is also interested in turning Marculesti into a regional hub for low-cost passenger airlines

Performance and Data Localization Requirements

All incentives are applied uniformly to both domestic and foreign investors. The Law on Investment in Entrepreneurship, in effect since 2004, does not protect new investors from legislative changes.

No formal requirements exist for investors to purchase from local sources or to export a certain percentage of their output.

No limitations exist on access to foreign exchange in relation to a company’s exports. There are no special requirements that nationals own shares of a company. Both joint ventures and wholly foreign-owned companies may be established in Moldova.

While not an official policy, in sectors of the economy that require large investments, experienced management, and technical expertise such as energy or telecommunications, the government has showed preference for experienced foreign investors over local investors. In other sectors, foreign and local investors formally receive equal treatment.

The government does not impose “offset” requirements on procurements. Moldovan law allows investments in any area of the country in any sector, provided that national security interests, anti-monopoly legislation, environmental protection, public health, and public order are respected.

Enforcement procedures for performance requirements to enjoy tax incentives are described in the Tax Code and related governmental decisions and instructions. Foreign investors are required to disclose the same information as local ones. Moldova has no discriminatory visa, residence, or work-permit requirements inhibiting foreign investors’ mobility in Moldova. The government has established a one-stop shop for foreigners applying for Moldovan residence and work permits in a bid to streamline a complicated procedure.

Moldova has a liberal commercial regime with more than 100 countries. According to the Tax Code, Moldovan exports are exempt from VAT. Although there are no formal import price controls, there are reports that Moldovan Customs Service may make arbitrary price assessments on certain types of imported goods for taxation purposes.

Post is not aware of any reports of forced data localization or special requirements targeting foreign IT providers. The Ministry of Information Technology and Communication is responsible for developing strategies and policies on electronic communication, while the National Regulatory Agency for Electronic Communications and Information Technology (ANRCETI) has functions of regulations and oversight.

Real Property

Moldova has laws that formally protect all property rights. A system for recording property titles and mortgages is in place. There is a national cadastral office, which registers all ownership titles in the real estate registry. However, the mortgage market is still underdeveloped.

In the World Bank’s Doing Business 2018 report Moldova ranked 20th among 190 economies on the ease of registering property.

The judicial sector remains weak and does not always fully guarantee the rights of citizens and foreign investors. Instances of judicial malfeasance in recent years have involved dubious proceedings in lower courts that resulted in illegal dispossessions of local and foreign investors of shares in Moldovan financial institutions.

Intellectual Property Rights

Despite efforts to improve intellectual property protection and establish relevant executive structures in the government, Moldova does not fully enforce its IPR laws due to conflicts of interest, lack of resources, and a low level of awareness and training among law enforcement agencies. The concept of IPR is largely unrecognized by the local population. The country has an agency for the protection of copyrights, the State Agency on Intellectual Property (AGEPI), which continues to work on improving the legal framework and adjusting it to EU norms, increasing public awareness, and building capacity in law enforcement. Following Moldova’s adoption of AA/DCFTA with the EU in June 2014, AGEPI participated in implementation of the IPR chapter of the agreement with the objective of ensuring a level of protection for intellectual property rights in Moldova similar to that in the EU, including effective enforcement.

Moldova is party to the majority international treaties in IPR field, including the WTO/TRIPs and 23 WIPO agreements, a list of which, including other international and regional agreements and IPR conventions, is available at http://www.agepi.gov.md/en/legislation/international.php .

Along with other public institutions, AGEPI works on fulfilling Moldova’s IPR obligations as provided by the 2017-2019 National Action Plan for the implementation of the AA. In 2015, Moldova adopted the second Action Plan on the implementation of the National Strategy on Intellectual Property through 2020 for IPR enforcement. While some progress is being reported, there are still issues with Geographical Indications (GIs) that remain to be addressed.

For consolidating the institutional capacities of intellectual property system, a law regulating the activity of the State Agency on Intellectual Property (AGEPI) was approved in July 2014. Continuous efforts are made to improve the access and quality of IPR services. AGEPI made the IPR data base publicly available online and free of charge on its webpage (www.db.agepi.md) and launched an online filing application system, with over 40 percent of national IPR applications reported to be filed online.

The time required to obtain IPR protection in Moldova varies depending upon the type of protection sought. For a copyright it takes 15-30 days, patent for plants 1.5-3 years, short-term patent for invention 7-8 months, patent for invention 17-18 months, geographical indications, appellations of origin, or traditional specialties guaranteed 10-12 months, industrial design 10-12 months, and trademark 10-12 months.

Moldova has specific laws dealing with trade secrets, while the criminal code prohibits unauthorized disclosure of trade secrets.

Moldovan authorities, including Customs, Ministry of Interior and General Prosecutor’s Office, keep track of statistics related to IPR violations, but such reports are not readily available online and are updated only at the end of the year.

Moldova is not listed in USTR’s Special 301 report; nor is it listed in the notorious market report.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at www.wipo.int/directory/en.

Capital Markets and Portfolio Investment

Moldova’s securities market is underdeveloped. Official National Bank of Moldova (NBM) statistics include data on portfolio investments, yet there is a lack of sufficient open-source information to fully reflect the trends and relevance of this form of investment in Moldova. NBM data shows that most portfolio investments target banks, while the National Statistics Bureau does not differentiate between FDI and portfolio investments of less than 10 percent in the equity of a company. The National Commission for Financial Markets (NCFM) is currently looking into ways to bolster capital markets with the support of independent experts.

Laws, governmental decisions, NBM regulations, and Stock Exchange regulations provide the framework for capital markets and portfolio investment in Moldova. The government began regulatory reform in this area in 2007 with the goal of progressing the weak non-bank financial market. In particular, since 2008 only two bodies – the NBM and the National Commission for Financial Markets – regulate financial and capital markets.

Credit is allocated on market terms with banks being the only reliable source of business financing. The government regulates credit policy via the NBM, auctions through commercial banks, mandatory reserves, credit secured through collateral, open market operations, and T-bill auctions on the primary market. Foreign investors may obtain credit on the local market. Local commercial banks provide mostly short-term, high-interest loans and require large amounts of collateral, reflecting the country’s perceived high economic risk. Progress in lending activity suffered a sharp reversal in 2015 in the wake of the late-2014 banking crisis, triggered by a massive bank fraud, which severely weakened the banking system. Extreme monetary tightening by the NBM in the wake of large currency emissions connected to the resulting bank bailouts led to prohibitively high interest rates. As a result, in early 2016, yields on one-year government bonds shot up to 25 percent, with commercial rates following close. In 2017, the situation has been improving with average interest rates on bank loans hovering around 10 percent.

Several large banks were affected by ownership scandals and hostile takeovers that damaged their reputation. Three banks at the center of the scandal were liquidated in October 2015. The banking sector has not yet fully recovered from the fallout of the large banking fraud of 2014, while the Government committed to enhance regulation in the financial and banking sectors.

Large investments can rarely be financed through a single bank and require a bank consortium. Recent years have seen growth in leasing and micro-financing, leading to calls for clear regulation of the non-bank financial sector. As a result, Parliament passed a new law on non-bank financial sector, which enters into effect on July 1, 2018. Raiffeisen Leasing remains the only international leasing company to have opened a representative office in Moldova.

The private sector’s access to credit instruments is difficult because of the insufficiency of long-term funding and extremely high interest rates. Financing through local private investment funds is virtually non-existent. A few U.S. investment funds have been active on the Moldovan market, notably NCH Advisors, Western NIS Enterprise Fund, and Emerging Europe Growth Fund, the latter two managed by Horizon Capital equity fund managers.

Furthermore, according to the World Bank and IMF, a lack of ownership transparency, and poor record on the rule of law represent significant challenges to a potential investor. Weaknesses in the share registry system have contributed to “raider attacks” over the past few years when securities were fraudulently transferred from their rightful owners to others.

Acting as an independent regulatory agency, the National Commission for Financial Markets (NCFM) supervises the securities market, insurance sector and non-bank financing. The NCFM adopted a Corporate Governance Code and passed new regulations intended to simplify the issuance of corporate securities and to increase the transparency of transactions on the Moldovan Stock Exchange. In 2011, the government adopted a new strategy for the development of the non-bank financial sector through 2014 that focused on adopting European standards in financial market regulation and supervision. Amendments were passed in 2011 to the law on joint-stock companies to strengthen minority shareholder rights and to improve disclosure obligations for transactions involving conflicts of interest. A capital markets law adopting European Union regulations came into effect in 2013. It was designed to expose capital markets to foreign investors, to strengthen NCFM’s powers as an independent regulator, and to set higher capital requirements on market participants. Following several takeover scandals in recent years, the government has passed amendments to strengthen the integrity of shareholder rights. A new single central depository is being established under the supervision of NBM. The government is also currently considering a new 2018-2022 strategy for the development of the non-bank financial sector aimed at bolstering capital markets combined with prudential monitoring.

Money and Banking System

According to official statistics, Moldovan banks are the main source of business financing. Non-bank financing, albeit growing, still plays a minor role. Bank assets account for about 55 percent of GDP. Banks are also the largest financier of the Moldovan economy with loans amounting to about MDL 34 billion (USD 2.1 billion), well above the amount provided by microfinance or leasing companies of MDL 5.5 billion (USD 305 million).

The banking system has two tiers: the NBM and 11 commercial banks. The NBM regulates the commercial banking sector and reports to parliament. Foreign bank branches have to register in Moldova and operate under the local banking legislation. Moldova has five foreign banks; among them Societe Generale’s Mobiasbanca, Erste Bank’s BCR and most recently Victoriabank, acquired by Romania’s Banca Transilvania, are the most well-known.

Foreign investors’ share in Moldovan banks’ capital is approximately 81 percent, according to NBM. Yet, questions remain as to the legitimate bank owners who are represented as foreign investors in official statistics. A crisis at three Moldovan banks, two of them being among the country’s top five, in late 2014 called into question the soundness of the banking system, which has yet to recover from the fallout. The banking crisis has had an impact on the whole banking system, causing some foreign banks to call off their correspondent relationships with Moldovan banks. As a result, the banking sector has been facing problems with a high level of non-performing loans and declining lending activity. Since 2015, significant efforts have been made to reform the banking sector and restore trust. Moldova has been following an IMF program focused on the financial sector since late 2016.

Over recent decades, there was a lack of transparency on ultimate beneficial ownership, large exposures to some clients, significant related-party lending in banks’ portfolios, and resulting high non-performing loans. This contributed to a small number of individuals concentrating control over most of the banking assets. Both regulating bodies, the NCFM and NBM, were seen as having weak enforcement powers, at times undercut by questionable court rulings. In response, the Moldovan parliament adopted legislation that would strengthen the independence of decision making at the two regulating bodies. In order to strengthen the weak system of tracking shares and shareholders, authorities also put in place a law to set up a central share depository with the help of international financial institutions.

NBM has been conducting a reform in the banking sector to identify a transparent shareholder structure in order to attract new fit and proper investors, assess bank managements, spot transactions with related parties and identify non-performing loans in timely manner. A new law on banks activity based on Basel III principles came into effect on January 1, 2018. The application of the law will bring banking regulations in line with those of the EU and will be phased in between 2018 and 2020 to give time to banks to adjust. Also, NBM required banks to increase their credit loss provisioning and take urgent action to reinforce internal risk management as well as procedures on related-party financing.

As of December 31, 2017, total bank assets were MDL 79.5billion (USD 4.3 billion), according to NBM. Moldova’s three largest commercial banks account for around 65 percent of the total bank assets, as follows: Moldova Agroindbank: MDL 22.2 billion (USD 1.2 billion); Moldindconbank: MDL 15.2 billion (USD 819.5 million); and Victoriabank: MDL 14.5 billion (USD 783.7 million). In a bid to prevent another bank crisis, the NBM instituted the procedure of special monitoring of these top three banks over concerns about the transparency of bank shareholders.

Moldovan legislation does not have a definition for hostile takeovers. There have been instances of what are coined as “raider attacks” in the banking sector, in which individuals illegally acquired shares through corrupt application of the law.

Local authorities have not announced any intentions to implement blockchain technologies in banking transactions. In 2017, the NBM warned domestic investors of the highly speculative nature of virtual currencies and their use as means of payment. Authorities in the breakaway region of Transnistria recently passed a law encouraging the use of blockchain technologies for mining cryptocurrencies in specially created economic zones.

Foreign Exchange and Remittances

Foreign Exchange Policies

Moldova accepted Article VIII of the IMF Charter in 1995, which required liberalization of foreign exchange operations. There are no restrictions on the conversion or transfer of funds associated with foreign investment in Moldova. After the payment of taxes, foreign investors are permitted to repatriate residual funds. Residual fund transfers are not subject to any other duties or taxes, and do not require special permission. The country’s central bank uses a floating exchange rate regime and intervenes only to smooth sharp fluctuations.

After a tumultuous period of inflation and devaluation of the 1990s, the local currency has entered a period of relative stability punctuated by periods of volatility and depreciation due to domestic and foreign economic shocks.

Between late 2014 and early 2016, the national currency, the leu (plural lei), depreciated due to economic and political difficulties along with Russian bans on Moldovan food exports and falling remittances from Russia, which impacted Moldova’s balance of payments. A massive banking fraud and a subsequent bailout program further undermined the leu, which depreciated by 36 percent. Since 2016, the National Bank has been pursuing a tight monetary policy that helped stabilize the currency in the aftermath of the bank bailout and has led to a strengthening of the leu, which appreciated by 16.8 percent by the end of 2017, according to NBM data.

Remittance Policies

No significant delays in the remittances of investment returns have been reported, while domestic commercial banks have accounts in leading multinational banks. Foreign investors have the right to repatriate their earnings.

The Moldovan leu is the only accepted legal tender in the retail and service sectors in Moldova. The foreign exchange regulation of the NBM allows foreigners and residents to use foreign currencies in some current and capital transactions on the territory of Moldova. Generally, there are no difficulties associated with the exchange of foreign or local currency in Moldova.

Sovereign Wealth Funds

Post is not aware of any sovereign wealth fund run by the government of Moldova.

Since gaining independence in 1992, Moldova privatized most state-owned enterprises, and most sectors of the economy are almost entirely in private hands. However, the government still controls fully or partially some enterprises. The major government-owned enterprises are two northern electrical distribution companies, the Chisinau heating companies, fixed-line telephone operator Moldtelecom, state airline Air Moldova, the country’s largest tobacco company, and the state railway company. The government keeps a registry of state-owned assets, which is available on the website of the Public Property Agency: http://www.app.gov.md/ro/advanced-page-type/registrul-patrimoniului-public .

State-owned enterprises (SOE) are governed by the law on stock companies and the law on state enterprises as well as a number of governmental decisions. SOEs have boards of directors usually made up of representatives of the line ministry, the Ministry of Economy and Infrastructure and the Ministry of Finance. As a rule, SOEs report to the respective ministries, with those registered as joint stock companies being required to make their financial reports public. Moldova does not incorporate references to the OECD Guidelines on Corporate Governance for SOEs in its normative acts.

Moldovan legislation does not formally discriminate between SOEs and private-run businesses. By law, governmental authorities must provide a level legal and economic playing field to all enterprises.

The Law on Entrepreneurship and Enterprises has a list of activities restricted solely to SOEs, which includes, among others, human and animal medical research, manufacture of orders and medals, postal services (except express mail), sale and production of combat equipment and weapons, minting and real estate registration.

There are reports of SOEs having an advantage over privately-run businesses in Moldova. Either from government representatives sitting on their boards or from their dominant positions in their industry, SOEs are generally seen as being better positioned to influence decision-makers than their private sector competitors, and use this perceived competitive advantage to prevent open competition in their individual sectors.

Privatization Program

Moldova launched the first of several waves of privatization in 1994. In 2007, Parliament passed a new law governing management and privatization of state-owned assets. Two major privatizations in 2013 – of the then-largest bank, Banca de Economii, and the 49-year concession of the Chisinau Airport – subsequently proved highly controversial. Privatization efforts in 2014 and 2015 emphasized public-private partnerships as means for companies to gain access to state-owned resources in infrastructure-related projects. In 2017, the government held three big rounds of privatization for state assets selling its stake in 16 companies, including the Glass Container Company and Floare Carpet.

Moldova conducts privatizations through open tenders organized at the stock exchange that are open to any interested investor. The government may also use open outcry auctions for some properties, the so-called investment or commercial tenders to sell entire companies to those who take on investment commitments or to the highest bidders as well as public-private partnerships for infrastructure related projects. The government publishes privatization announcements on the website of the Public Property Agency (www.app.gov.md ) and in the official journal Monitorul Oficial. Some investors complained in the past that privatizations are unfair and lack transparency.

While Moldovan legislation deals with issues pertaining to environment, workers’ rights, social fairness or governance, there is little awareness of the concept of responsible business conduct. The country’s corporate culture and private sector are still at an early stage of development and still seeking to define the nature of interactions between private business and the authorities and the public at large. There is no governmental policy to encourage enterprises to follow OECD Guidelines for Multinational Enterprises.

Foreign companies operating in Moldova are gradually introducing the concept of corporate social responsibility as an aspect of responsible business conduct. However, the Soviet-era notion of a paternalistic government responsible for maintaining the social welfare for all citizens remains quite widespread. AmCham Moldova has set a leading example, with its corporate members engaging in a forestation project, in the rehabilitation of medical facilities, and in Christmas collection projects for orphanages.

While Moldova is taking steps to adopt European and international standards to combat corruption and organized crime, corruption remains a major problem. The wider Moldovan society also has a general perception of prevalent corruption among high level officials.

The government developed and enacted a series of laws designed to address legislative gaps such as the Law on Preventing and Combating Corruption, the Law on Conflict of Interests and the Law on the Code of Conduct for Public Servants. The Criminal Code criminalizes public corruption through two specific statutes – passive and active corruption. These statutes apply only to corruption actions and bribery committed by public officials. In 2016, Moldova started the reform of the prosecution system and created two specialized prosecution agencies – The Anticorruption Prosecution Office and the Prosecution Office for Combating Organized Crime and Special Cases. In 2017, the new prosecution agencies prosecuted a series of high-profile bribery and corruption cases and tax evasion cases. However, these offices faced multiple challenges such as the lack of budgets, personnel and high workload. Therefore, these specialized prosecution agencies are yet to prove their full effectiveness in combating corruption and organized crime, including in a non-discriminatory manner.

In 2016, parliament passed in the first reading the Law on the National Integrity Authority and the Law on Disclosure of Assets and Conflict of Interest by public officials. According to the first draft law, the National Integrity Center is to replace the National Integrity Commission. The new agency will be staffed with 45 integrity inspectors and have the power to apply fines on delinquent officials. The director and deputy director would be hired in a competitive process. The second draft law provides for clearer procedures and mechanisms for disclosing assets, properties, and conflicts of interest by Moldovan public officials. In 2017, National Integrity Council, a board type entity empowered with the procedure of appointment of the NIA’s director and deputy director did not advance in launching the new agency. Throughout 2017, the Council drafted regulations for NIA’s functioning, appointment of director and deputy directors and job descriptions for integrity inspectors. However, the civil society organizations (CSOs) criticized the Council’s activities as being slow and non-transparent. In September 2017, 9 CSOs sent a public appeal to the Integrity Council requesting transparency in the process of reviewing the dossiers of the candidates running for NIA’s management positions. After almost a year of deadlock and several failed attempts, the NIA director was selected and appointed in late December 2017.

A 2012 law reorganized the Center for Combating Economic Crimes and Corruption (CCECC) into the National Anticorruption Center (NAC). The NAC focuses solely on investigating public corruption and bribery crimes, and is subordinated to the parliament (CCECC was under the executive branch). Moldovan judges, who had previously enjoyed full immunity from corruption investigations, can now be prosecuted for crimes of corruption without a prior sanction from their highest self-governing body, the Superior Council of Magistrates, which nevertheless keeps its powers to approve any search or arrest warrant against a judge.

On June 30, 2017, Moldova published its National Integrity and Anticorruption Strategy for 2017-2020. The Strategy was drafted and passed through participatory mechanisms and inclusive public consultations. Following an evaluation by Transparency International in 2014, this strategy is structured upon the integrity pillars approach. It aims at strengthening the integrity climate among civil servants at all levels, but also at including the civil society organizations (CSOs) through alternative monitoring reports and promoting integrity standards in the private sector. The document also addresses the complexity of the corruption phenomenon in an innovative manner, by employing the assistance of sector-based experts to evaluate specific integrity problems encountered by different vulnerable domains of the public administration.

Moldova’s Criminal Code includes articles on public and private sector corruption, combating economic crimes, criminal responsibility of public officials, active and passive corruption and trade of influence, which put the legislation further in line with international, anti-bribery standards by criminalizing the act of promising, offering or giving a bribe to a public official. Anti-corruption laws extend culpability to family members; however due to the presumption of legally acquired assets provided for by the Moldovan Constitution, the effective presumption is that of a legal acquirement. The statute of illicit enrichment that was introduced in 2013 is yet to be used effectively by law enforcement in cases of public officials. In 2017, the Anticorruption Prosecution Office has started an illicit enrichment case against a notorious judge involved in construction of private apartments.

Moldovan laws require private companies to establish internal codes of conduct that prohibit corruption and corrupt behavior. The Moldovan Criminal Code criminalizes separately corruption and bribery in the private sector.

In 2016, Parliament passed two new statutes to the Criminal Code criminalizing the misuse of international assistance funds. This statute will help identify and prosecute any misuse of international donors’ assistance by Moldovan public officials in public acquisitions, technical assistance programs, and grants areas.

In November 2012, as part of the Justice Sector Reform Action Plan, the Ministry of Justice drafted a series of amendments in the anti-corruption area. This package of anti-corruption amendments include: new legislation on integrity testing of justice sector officials, the introduction of extended confiscation and illicit enrichment statutes in the Moldovan Criminal Code as per the United Nations Convention against Corruption (UNCAC). The new Criminal Code statutes and new laws on integrity testing of public officials and disciplinary liability law for judges were passed in late 2013.

In summer of 2014, four Moldovan deputies representing the communist faction filed a petition with the Moldovan Constitutional Court asking it to rule on the constitutionality of the Law on Integrity testing. As a safeguard, the Constitutional Court has officially requested an amicus curie from the Venice Commission – the Council of Europe institution responsible for reviewing constitutional matters of its member states. Among other comments, the Venice Commission has stated that the integrity testing law raises concerns in respect of a number of important rule of law and fair trial principles. These include the presumption of innocence; the right to an effective and efficient defense, including the right to full disclosure of and full access to the evidence; the examination of witnesses; the legal requirements for the use of undercover agents, including the consequential non-admittance of evidence gathered by agents provocateurs who are themselves committing an offence; the principles of foreseeability and of narrow interpretation of statutory offences; the principle of proportionality between offences and sanctions and finally, the right to an effective appeal to an independent court of law. In 2015, the Constitutional Court delivered its judgment. Its reasoning mirrored the findings and recommendations provided by the Venice Commission. In an attempt to address all the concerns, the NAC drafted a series of amendments to the Law on Integrity testing. In 2016, the amendments were accepted by parliament and passed. Parliament also passed a law in 2016 providing for a gradual increase of prosecutors’ salaries in the framework of the prosecutorial reform.

The country has laws regulating the conflict of interests in awarding contracts and the overall government procurement process; however laws are not effectively enforced. For instance, in 2016, anti-corruption prosecutors initiated five criminal cases dealing with public officials involved in procurements for the public health and education.

In 2017, the Anticorruption Prosecution Office prosecuted two ministers, 19 judges, four prosecutors, 36 law enforcement and 24 customs officials for corruption, bribery and abuse of powers-related crimes.

Despite the established anti-corruption framework, the number of cases involving prosecution of corruption did not meet international expectations (given corruption perceptions), and enforcement of existing legislation is widely deemed insufficient. The dismissal, in April 2013, of the government on corruption allegations worsened the Moldovan society’s perception of corruption. After dropping to 103rd place in 2014, Moldova’s ranking in the 2015 Transparency International Corruption Perception Index remained unchanged, while the country’s score dropped to 33 out of 100 from 35 a year earlier. In the 2016 Transparency International Corruption Perception Index, Moldova scored 30 points and ranked 123rd.

In the 2017 Transparency International Corruption Perception Index, Moldova scored 31st and was ranked 123rd, along with Azerbaijan and Kazakhstan.

The Freedom House Moldova “Nations in Transit Report” 2018 revealed that the government focused more on improving the legal framework and less on implementing it. The anti-corruption initiatives undertaken during the year did not contribute to tackling endemic corruption as no initiative directly targeted the de-politicization of public institutions and regulatory agencies. The public competitions organized in 2017 were mostly nontransparent and based on controversial regulations or political loyalty to, or membership of, the ruling political group, rather than on the grounds of merit. Also, the investigation into the “billion-dollar theft” in Moldova’s banking sector has failed to recover the stolen sum. According to official data, by mid-2017 around EUR 50 million (USD 59.5 million) has been returned. However, this revenue was obtained mainly from taxes, credits, and the three banks selling assets. According to experts, there is no guarantee that the remaining funds will be recovered.

According to the Heritage Foundation’s Index of Economic Freedom (IEF), in 2017 Moldova’s economic freedom score was 58.4, making its economy the 105th. Its overall score has increased by 0.4 point, with improvements in property rights and judicial effectiveness outweighing declines in government integrity and trade freedom. Regionally, Moldova is ranked 40th among 44 countries in Europe, and its overall score is below regional and world averages. With regard to the rule of law area, the IEF indicated that the judicial sector remained weak and did not always fully guarantee the rights of citizens and foreign investors.

A Transparency International Global Corruption Barometer (GCB) survey published in 2017 shows that 84 percent of Moldovans think that the government is doing poorly in fighting corruption. Globally, Moldova is among the top countries where people perceive public authorities to be most corrupt. Almost seven in 10 people say that people working in public sector institutions (the president’s office, parliament, central government, tax inspection, police, the judiciary and local government) are highly corrupt. Almost 50 percent of Moldovans said they had to pay bribes over the past 12 months when coming in contact with public authorities. The latest GCB survey concludes that Moldova needs genuine and urgent measures to address the issue of corruption. Negative ratings of the government’s efforts to curb corruption suggest that more must be done to reduce public sector graft and clean up political institutions so that it acts in the interests of citizens rather than in its own.

Opinion surveys conducted by reputable pollsters like the International Republican Institute (IRI) consistently show that over 95 percent of Moldovans see corruption as a big problem for the country. Moldovans name the top corrupt institutions as follows: 1) parliament; 2) public servants, including the police; 3) the judiciary; 4) top government officials; 5) political parties and their leaders.

Post has received many reports from foreign investors of serious problems with corruption and bribery. For example, when a foreign investor discovered that he had underpaid his taxes and wished to remedy the situation, the tax inspector assigned to the company attempted to extort money. The tax service later lauded the investor for his self-reporting and negotiated a reduced payment.

Post has also received reports of “informal” hostile takeovers of profitable businesses. In these cases, business owners were approached by politically-connected individuals who wished to acquire parts of the businesses. When business owners refused, they were pressured to close.

In 2007, Moldova ratified the United Nations Convention against Corruption, subsequently adopting amendments to its domestic anti-corruption legislation.

Moldova is not a signatory of the OECD Convention on Combating Bribery. However, Moldova is part of two regional anti-corruption initiatives: the Stability Pact Anti-Corruption Initiative for South East Europe (SPAI) and the Group of States against Corruption (GRECO) of the Council of Europe. Moldova cooperates closely with the OECD through SPAI and with GRECO, especially on country evaluations. In 1999, Moldova signed the Council of Europe’s Criminal Law Convention on Corruption and Civil Law Convention on Corruption. Moldova ratified both conventions in 2003.

Resources to Report Corruption

Bogdan Zumbreanu
Director
National Anti-Corruption Center
Bul. Stefan cel Mare si Sfant 168, Chisinau MD2004, Moldova
Tel. +373 22-257 257 (secretariat)/800-55555 (hotline)/22-257 333 (special line)
secretariat@cna.md

Lilia Carasciuc
Executive Director
Transparency International Moldova
Strada 31August 1989 nr. 98, of.205, Chisinau MD2004, Moldova
Tel. +373-22 203-484(office)/800-10 000 (hotline)
office@transparency.md

Post has received no reports over the past ten years of politically-motivated damage to business projects or installations in Moldova. In 2015 and early 2016, the political scene witnessed a public outcry amid perceptions of a corrupt political class that failed to prevent, if not potentially condone or support, a massive bank fraud resulting in the disappearance of nearly 15 percent of GDP from the country’s then-three largest banks. Round-the-clock anti-government protests culminated in January 2016 in clashes with riot police when protesters tried to prevent parliament from voting in a new government. The clashes were limited and did not turn into full-blown violence or cause extensive damage that would affect businesses in any way and the government remained in power.

Separatists control the Transnistrian region of Moldova, located between the Nistru River and the eastern border with Ukraine. Although a brief armed conflict took place in 1991-1992, both sides signed a ceasefire in July 1992, which has generally been observed. Local authorities in Transnistria maintain a separate monetary unit, the Transnistrian ruble (approximately 16.10 rubles per U.S. dollar), and a separate customs system. Despite the political separation, economic cooperation takes place in various sectors. The government has implemented measures requiring businesses in Transnistria to register with Moldovan authorities (see Expropriation and Compensation). The Organization for Security and Cooperation in Europe (OSCE), with Russia, and Ukraine acting as guarantors/mediators and the U.S. and EU as observers, continues to support negotiations between Moldova and the separatist region Transnistria (known as the “5+2” format). Throughout the years, negotiations have been piecemeal, with talks stalling in 2006 and formally resuming in late November 2011. An important achievement of the talks in the past few years has been the resumption of rail freight traffic through Transnistria and the opening of a bridge across the Nistru River in 2017. However, progress on other issues has been limited.

For years, Moldova prided itself on its skilled labor force, including numerous workers with specialized and technical skills. However, with economic turmoil, many skilled workers left Moldova for better paying jobs in other countries. This led to shortages of skilled workers in Moldova. There are imbalances in the labor market arising from a general lack of workers with vocational training that employers need on one hand, and lack of job opportunities for academically educated people on the other. Labor shortages are reported in manufacturing and engineering, while language (Moldovans are usually bilingual in Russian and Romanian) and IT skills are thought to be in ample supply. However, low birth rates and an aging population represent a challenge to Moldova’s labor pool.

Official unemployment was 4.1 percent in 2017, which is misleading given the low labor participation rate of 42.2 percent, owing to large numbers of Moldovans migrating abroad that reduces the number of job seekers at home, and to informal work. Youth unemployment is more than double the national average at 11.8 percent. Employment in Moldova is largely based on agriculture, low productivity sectors and crafts. Approximately one-third of the working population is employed in the informal economy. Around one-fifth of the labor force works abroad (around 800,000).

Moldova’s Constitution guarantees the right to establish or join a trade union. Trade unions have influence in the large and mostly SOEs and have historically negotiated for strong labor relations, minimum wage and basic worker rights. Unions can also negotiate collective labor agreements in various industries. Unions are less active and effective in small private companies. Moldova is a signatory to numerous conventions on the protection of workers’ rights. The country has moved toward adopting international standards in labor laws and regulations. In recent years, changes were made to labor legislation in favor of employers, somewhat reducing the unions’ influence on hiring and firing personnel. Nevertheless, labor legislation is stringent on dealing with severance pay or maternity leave – regulations that some foreign investors view as impediments to labor flexibility and placing heavy burden on employers.

The government is drafting a new Labor Code to incorporate EU directives in the field with the hope to make the legislative framework better equipped for modernization of the labor market, skills development, and vocational education training reform.

The Moldovan General Federation of Trade Unions has been a member of the International Labour Organization (ILO) since 1992, and has been affiliated with the International Confederation of Free Unions (ICFU) since 1997. The federation split into two separate unions in 2000, but merged in 2007, forming the National Trade Union Confederation (CNSM). After attempts of the previous communist-led government to interfere in the activity of unions, the CNSM was isolated from the international trade unions movement. With a change in government in 2009 and the election of new trade union leaders, CNSM was given membership in the International Trade Union Confederation in 2010.

In 1992, the Moldovan and U.S. governments signed an investment incentive agreement that exempts Overseas Private Investment Corporation (OPIC) from Moldovan taxes on loan interest and fees. OPIC became active in Moldova in September 1997, providing political-risk insurance to a U.S. company investing in an agribusiness. Since then, OPIC has provided a number of financial and insurance products to U.S. businesses operating in Moldova in such fields as agribusiness, telecommunications, banking, consulting, transportation logistics, and mortgage financing.

The U.S. Export-Import Bank (Ex-Im) provides U.S. companies investing in Moldova short- and medium-term financing in the private sector under its insurance, loan, and guarantee programs. In 2000, Ex-Im and Moldova signed the Framework Guarantee Agreement setting the terms for it to issue sovereign guarantees to facilitate Ex-Im financing of U.S. exports to Moldova. Also in 2000, Ex-Im and Moldova signed the Project Incentive Agreement that enabled the Ex-Im to finance U.S. exports for creditworthy private sector projects in Moldova on a non-sovereign risk basis which required host-government support such as permit and license approvals. Under the agreement, repayment of Ex-Im financing is based on the capture of financed projects’ revenue streams in special escrow accounts held in banks approved by Ex-Im.

In 2002, Ex-Im signed a memorandum of cooperation with the Black Sea Trade and Development Bank. Under the memorandum, Ex-Im’s financing can be used to support exports of U.S. goods and services to any country located in the Black Sea region, including Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey, and Ukraine. The agreement enables the Black Sea Trade Development Bank to act as a guarantor of specific transactions and also provides for parallel financing arrangements.

Moldova is eligible for U.S. Trade and Development Agency (USTDA) funding for feasibility studies, orientation visits, specialized training grants, business workshops, and other forms of technical assistance with U.S. export potential.

Institutions such as the European Bank for Reconstruction and Development and the World Bank are very active in Moldova in both the private and public sectors, offering various financial tools for both insurance and credit. Moldova is a member of the Multilateral Investment Guarantee Agency (MIGA) and a member of the World Bank group. MIGA promotes FDI into developing countries by insuring investors against political risk, advising governments on attracting investment, sharing information through online investment information services and mediating disputes between investors and governments. Moldova is also eligible for project and trade financing from the Black Sea Trade and Development Bank. The country also benefits from loans extended by the EU’s European Investment Bank and the Council of Europe Development Bank.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source* USG or international Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD ) 2017 USD 8,130 2016 USD 6,750 www.worldbank.org/en/country 
FDI Host Country Statistical Source* USG or international Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country (M USD , stock positions) 2017 USD 73.9 2016 USD 3.0 BEA data available at http://bea.gov/international/direct_
investment_multinational_
companies_comprehensive_data.htm
 
Host country’s FDI in the U.S. (M USD , stock positions) N/A 2016 N/A BEA data available at
http://bea.gov/international/direct_
investment_multinational_
companies_comprehensive_data.htm
 
Total inbound stock of FDI as % host GDP 2017 45.5 N/A N/A

*National Bureau of Statistics and National Bank of Moldova are the primary source of the information. The FDI figure is preliminary.

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 2,611 100% Total Outward N/A N/A
Russian Federation 716 27.4% N/A
Netherlands 354 13.6%
Spain 239 9.2%
Cyprus 226 8.7%
France 219 8.4%
“0” reflects amounts rounded to +/- USD 500,000.

* Note: IMF statistics from 2016

Table 4: Sources of Portfolio Investment

No data available.

Note: Moldova does not submit data for the IMF’s Coordinated Portfolio Investment Survey (CPIS). However, according to the National Bank of Moldova, total portfolio investment in 2017 amounted to USD 104.67 million. A breakdown by country for all portfolio investments is not available, but among the top five sources of investment in the banking sector were Ukraine, Russia, the U.K., Cyprus and Liechtenstein.

U.S. Embassy Chisinau, Moldova
Str. Alexei Mateevici 103,
Chisinau MD 2009, Moldova
Main switchboard +373 (22) 40 83 00
Fax: +373 (22) 23 30 74/40 84 10
chisinaucommerce@state.gov

2018 Investment Climate Statements: Moldova
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