Scandals Rock Latvian Financial Sector
The Baltic state of Latvia has been rocked by a series of scandals plaguing its financial sector, ranging from bribery charges against the country’s top banking official to accusations of money laundering, numbering in the tens of billions of dollars, by a leading Latvian private bank.
On Feb. 13, 2018, the Financial Crimes Enforcement Network (FinCEN) of the United States Department of the Treasury published a notice charging ABLV Bank — Latvia’s third largest bank — for “deficient practices,” including “institutionalized money laundering as a pillar of the bank’s business practices” and seeking “to obstruct enforcement of Latvian anti-money laundering and combating the financing of terrorism (AML/CFT) rules.”
FinCEN also revealed that ABLV Bank was carrying out financial transactions for “parties connected to UN-designated entities,” including some linked to North Korean efforts to procure or export ballistic missiles.
In the same notice, FinCEN initiated a legal process to ban ABLV Bank from participating in the financial sector of the United States, calling ABLV Bank a foreign institution “of primary concern.” The news triggered an investigation by the Latvian government into ABLV Bank’s dealings on Feb. 14, while Latvian government officials reaffirmed their commitment to United Nations sanctions on North Korea and continued their cooperation with the United States on this matter.
Days later, on Feb. 19, KNAB — Latvia’s anti-corruption agency — detained Ilmars Rimsevics, the governor of Latvia’s central bank. The head of KNAB announced on the same day that an investigation had been commenced on Feb. 15 regarding alleged bribe solicitation and acceptance by head of the Bank of Latvia.
KNAB acknowledged the existence of another complaint filed against “a senior Latvian official” by Norvik Banka alleging years of extortion and demands for Latvian banks to launder Russian money; however, KNAB stated its investigation in Rimsevics was unrelated to Norvik Banka’s complaint to an international arbitration body.
The Latvian government issued statements to reassure the nation and investors about the stability of the financial sector and about the economy after the arrest of Rimsevics. Latvia’s prime minister and finance minister suspended Rimsevics and called for him to resign as central bank chief. Rimsevics, however, held a press conference on Feb. 20 denying any wrongdoing and accusing “some Latvian commercial banks” of embarking on a smear campaign to “destroy Latvia’s reputation.”
Latvia’s financial sector, like its fellow Baltic neighbors, maintains close and deep ties with Russia. The Latvian Ministry of Defense issued a statement on Feb. 20 noting the series of events rocking the financial sector and suggested that the allegations against Rimsevics “may be part of a disinformation campaign aimed at damaging trust in the country and influencing October elections.”
The Ministry of Defense expected such an “externally organized widespread information operation” to continue, with its “structure and execution” being “identical to those observed in pre-election periods in the U.S., France and Germany.”
Russia’s Foreign Ministry declined to comment on the matter.
Rimsevics, apart from his role as Latvia’s central bank chief, is also a member of the Governing Council of the European Central Bank (ECB), the main decision-making body for the Eurozone’s central bank. Observers and commentators have pointed out that while Latvia’s membership in the Eurozone makes the ECB the chief supervisory agency for all member-states’ banks — including the Bank of Latvia and ABLV Bank — investigative measures were being pursued only by national authorities. ECB chief Mario Draghi addressed the European Parliament on Feb. 26 but declined to speak on the matter of Rimsevics or ABLV Bank.
The ECB announced on Feb. 24 that it would shut down ABLV Bank and its subsidiary based in Luxembourg after determining that the ABLV Bank and its subsidiary “was failing or likely to fail.” The ECB declined to bail out the bank as “it was not in the public interest” and notified depositors that eligible assets, protected up to 100,000 euros (123,185 US dollars), would be available for withdrawal in a Latvian fund.
The main owners of ABLV Bank, while denying accusations of wrongdoing, resolved to liquidate the bank on Feb. 26 to protect assets and clients. Latvia’s prime minister chaired an emergency meeting of the government on the same day to address any concerns about ABLV Bank’s failure and keep watch for any further fallout or financial contagion.
On the other hand, Rimsevics returned to work as governor of the Bank of Latvia and member of the ECB’s Governing Council, in defiance of a Latvian government that has openly called for his resignation. Latvian law guarantees the political independence of the Bank of Latvia, meaning that Rimsevics — who has not been formally charged with a crime — is legally immune to the pressure of the Latvian parliament and government.
The drama of Latvia’s financial sector raises issues regarding the limitations of ECB regulatory power; the massive amount of foreign capital — mainly from former Soviet states — present in Latvian financial institutions and the role of Russia in the larger geo-strategic confrontation between NATO and Moscow. It remains to be seen if these scandals will blossom into a full-fledged diplomatic row.