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keen to oust him after he tried to make the banking sector more transparent. In the aftermath of the ABLV affair, the Latvian authorities came under pressure to do more to clean up the
jurisdictions such as Cyprus and Mal- ta. While the ECB serves as a regulator of eurozone banks, it has no investiga- tive powers, which are entrusted to member states.
In the interview, he said Europol seizes just 1% of criminal assets in Europe annually and that Europe was losing the fight against dirty money because it has used national solutions to tackle an international problem.
The EU is alert to the need for action. Although to date there appears to
have been little progress on the issue
of a Europe-wide, corruption fighting regulator, the adoption of a more coor- dinated approach to tackling money laundering across the bloc is in the offing. In May member states and the European parliament agreed a number of measures to control illicit cash flows, including better information sharing between European financial intelligence units, independent agencies that probe suspicious transactions.
“A recent financial scandal in Latvia has raised questions about the efficacy of the eurozone banking regulator”
country’s financial system. Progress has been made, but the process could be hindered by parliamentary representa- tives of the country’s 500,000 ethnic Russians, a quarter of the population, who are not persuaded of the need for further reforms. Some are concerned these would harm what they see as Lat- via’s role as an economic link between Russia and the West.
Yet last month legislation prohibit-
ing Latvian-registered banks from doing business with shell companies, unless they can prove they are legiti- mate businesses, came into force. The Riga authorities also aim substantially to reduce the proportion of foreign deposits in the banking system – cur- rently over a third of the total – while non-resident banks have been told that they must review their business model. “Either they have to change their busi- ness methods or fold,” warned Latvia’s Finance Minister Dana Reizniece-Ozola.
The new head of Latvia’s anti-money laundering agency, Ilze Znotina, has said she wants local banks to improve the quality of information on suspect transactions they send to the author- ity. Yet the agency also needs to up its game. A Reuters report said that 85 money laundering investigations were launched last year despite Latvian banks filing nearly 18,000 suspicious transactions.
Whether Latvia can do enough to reassure its American ally is difficult
to judge. But the focus on Latvia has also raised questions about the ECB’s level of oversight, particularly because there have been similar financial crime concerns about other small European
Critics of the ECB argue that the bank or another supra-national body needs to be probing money laundering suspi- cions across the bloc, given that some member states may lack the political will to prioritise investigations or be short of the necessary resources. Resis- tance to external intervention, however,
“US Treasury accused Latvia’s third-largest bank, ABLV, of “institutionalised money laundering””
could come from domestic regulators who might regard it as an erosion of national sovereignty.
Nevertheless, the case for a more robust response to the problem is strong.
Rob Wainwright, the outgoing head of Europol, told the online news maga- zine Politico in April that professional money launderers are running billions of criminal profits through the banking system with a 99% success rate, despite banks spending $20bn on compliance.
Wider cooperation is certainly needed to combat money laundering, but with the effectiveness of some regulators under the spotlight the big question is whether more intelligence will deliver tougher enforcement.
Yigal Chazan is an associate at Alaco. Alaco Dispatches is the business intel- ligence consultancy’s take on events and developments shaping the CIS region.
Find more Central Europe content at www.bne.eu/central-europe
Selected headlines from past month:
· Czech Social Dems say "yes" to coalition government with Ano, but hurdles remain · Hungary’s biggest opposition party Jobbik faces financial and leadership crisis
· Hungarian PM warns of crisis emerging in eurozone
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