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Opinion
June 15, 2018 www.intellinews.com I Page 22
ALACO DISPATCHES:
Can Latvia clean up its troubled banking sector?
Yigal Chazan of Alaco
Under heavy US scrutiny over alleged shortcom- ings in its anti-money laundering regime, Latvia is attempting to improve transparency within the country’s offshore banking sector — yet for some the troubles facing the Baltic state also call for
a more robust Europe-wide, corruption fighting regulator.
A recent financial scandal in Latvia has raised questions about the efficacy of the eurozone banking regulator, the European Central Bank, which has supervisory oversight of member state institutions — essentially monitoring their finan- cial stability — but does not have powers to in- vestigate money laundering, a task that is left to individual authorities.
Some of Latvia’s dozen or so non-resident banks, which cater for foreign clients, have long been suspected of being used by corrupt officials and businessmen from Russia and other former Soviet states as a conduit to funnel dirty money via shell companies to the European Union and beyond. More recently, there have also been concerns that Russian funds allegedly used to finance political interference in the affairs of other countries may have passed through the Latvian banking system.
Latvia, which joined the eurozone in 2014, has had a mixed record on probing illicit flows into its non-resident banks, in part because of the opacity of some of these institutions, which have sought to promote Swiss-style banking secrecy,
The US Treasury accused Latvia’s third-largest bank, ABLV, of “institutionalised money laundering” and North Korea sanctions breaches.
and because of the rapid growth of the sector that has left domestic regulators lagging behind. Just a year after joining the eurozone, the OECD criti- cised Latvia’s capacity to tackle financial crime.
The US is an important military ally for Latvia in the Baltic region, but the operations of some Latvian banks have been ringing alarm bells in Washington for some time, as they potentially provide Russians and others targeted by US sanctions, including North Korea, with a way
of moving their assets around the international financial system.
Following a probe by America’s Federal Bureau of Investigation, Latvia’s banking watchdog last July fined two local banks more than $3mn for violat- ing sanctions against North Korea. Three other banks had earlier been fined lesser sums for similar offences. Latvia’s crackdown did little to salve US concerns, though. American diplomats were reportedly unimpressed with the size of the penalties and the alleged links to Pyongyang, at a time when US relations with the Hermit Kingdom were deteriorating.
Matters came to a head in February when the
US Treasury accused Latvia’s third-largest bank, ABLV, of “institutionalised money laundering” and North Korea sanctions breaches, which led to its collapse. ABLV denied any wrongdoing. The bank- ing sector was subject to further scrutiny just days later when in a separate development the longtime governor of the Latvian Central Bank,