Page 32 - bne_Magazine_July_2018

32 I Central Europe bne July 2018
The US Treasury accused Latvia’s third-largest bank, ABLV, of “institutionalised money laundering” and North Korea sanctions breaches.
ALACO DISPATCHES:
Can Latvia clean up its troubled banking sector?
pean 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, 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 criticised Lat- via’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 pro- vide 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 violating 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 “institution- alised money laundering” and North Korea sanctions breaches, which led to its collapse. ABLV denied any wrongdo- ing. The banking sector was subject to further scrutiny just days later when in a separate development the longtime gov- ernor of the Latvian Central Bank, Ilmars Rimsevics, was accused of demanding bribes. He denied the allegations and suggested to the Financial Times that they had been orchestrated by banks
Yigal Chazan of Alaco
Under heavy US scrutiny over alleged shortcomings in its anti-money laundering regime, Latvia is attempting to improve trans- parency 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
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supervisory oversight of member state institutions – essentially monitoring their financial stability – but does not have powers to investigate money laun- dering, 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 busi- nessmen from Russia and other former Soviet states as a conduit to funnel dirty money via shell companies to the Euro-