Latvian "bad apples" ABLV Bank and Norvik Banka used bribes to dodge regulatory penalties for non-compliance with the sanction regime against North Korea

Latvijas Banka Governor Asked USD 100,000 Bribe from Russian Banker

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Latvia is facing a serious political crisis following the detention of Ilmars Rimsevics, the longtime Governor of Latvijas Banka (the country’s central bank – editor’s note) and a member of the Governing Council of the European Central Bank (ECB), who was arrested on Saturday, February 17. The Latvian government and the Parliament’s National Security Committee are holding emergency meetings on Monday.

The media in Latvia link the investigation to Norvik Banka’s last December request for an international arbitration “as a result of unfair, arbitrary, improperly motivated and unreasonable regulatory treatment accorded to the Bank by the Latvian authorities”. Meanwhile, the latter are denying, for now, a direct link between the arrest and the sanctions against ABLV Bank, announced only days ago by the U.S. Treasury Department, banning the bank from opening or maintaining of a correspondent account in the United States, which ends its ability to transact in U.S. dollars.

Auditors blackmail a Russian banker

It all began on Friday, February 16, when the office and the home of the head of the Latvian banking regulator were searched. Ilmars Rimsevics, himself, was summoned on Saturday, February 17, at the Corruption Prevention and Combating Bureau, KNAB.

It emerged later that the investigation had been launched on a tipoff by Russian-born and UK-based banker Grigory Guselnikov who is the majority shareholder of Norvik Banka since 2014. His bank has sued Latvia at the International Centre for the Settlement of International Investment Disputes (ICSID), accusing a senior bank officer in blackmail by asking bribes in 2016 and 2017. The official had threatened sanctions by Latvijas Banka on whose management he had informal influence.

On Monday, at a press conference, the head of the KNAB, Jekabs Straume, said, cited by Reuters, that “(Rimsevics’ arrest)… is about demanding a bribe of no less than 100,000 euros.” Ironically, Rimsevics is about to be released on a bail in the same amount as the bribe he had demanded – EUR 100,000. Norvik Banka argues in its claim that the influential insolvency administrator Maris Spruds had been also involved in the bribing efforts, but preferred to act in the shadow. Spruds was arrested in June 2017 and charged with extortion and money laundering but was released on Friday on record bail of EUR 500,000.

Norvik Banka, one of the oldest commercial banks in Latvia, has already been mentioned in connection with laundering Kim Jong Un’s money, the same accusations that were made last week against its rival ABLV. Last July, Norvik Banka was fined EUR 1.3 million for incomplete due diligence and monitoring of the non-resident banking transactions which, according to the regulator, had resulted in the circumvention of the international sanctions against North Korea.  Because of that, in January 2018, the bank hired former NATO Secretary-General Anders Fogh Rasmussen as Deputy Head of its Council with the sole purpose of improving its image on the international financial market.

The Scandal and the “bad apple” ABLV

However, this case was not the only one to lead to large-scale scrutiny by anti-corruption officials in Latvia. The detention of the country’s banking regulator’s boss confirmed the fears that he is among the involved “officials” that had been helping local “bad apple banks” to avoid problems with the authorities.

The scrutiny is also about the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) notice against ABLV Bank SA. According to the web portal Delfi, the KNAB has launched a probe to verify the FinCEN statement that until 2017, the management of ABLV Bank “had been using bribes to influence officials in Latvia to prevent legal measures and reduce threats to its high-risk activities…”

As Bivol wrote last week, citing FinCEN, ABLV Bank has “facilitated transactions for corrupt politically exposed persons and has funneled billions of dollars in public corruption”, “has institutionalized money laundering as a pillar of the bank’s business practices” and has helped illicit activities in North Korea, Russia, Ukraine and Azerbaijan. ” (See more in US Treasury Department Bans Latvian ABLV Bank ). Thus, FinCEN’s notice, which Bivol cites in detail, led only two days later to a serious political crisis in Riga, where the opposition is seeking answers from the ruling coalition between the Union of Greens and Farmers and the Unity party.

On Sunday, these reports were also confirmed by Latvian Finance Minister Dana Reizniece-Ozola, who held an extraordinary meeting with Latvijas Banka to address the U.S. Treasury’s sanctions against ABLV. We have asked the United States to provide information to our prosecutors and anti-corruption office, so they can take precise and fast actions,” she said.

One member of Latvijas Banka’s Council, Edvards Kusners, said on Sunday that the regulator is providing emergency assistance to ABLV as several financial institutions had refused to work with the Bank due to reputational risk.

Although the two wealthiest Latvians, Oleg Fil, and Ernest Bernis, majority shareholders in ABLV Bank, announced through their press office that the Bank is “is currently contemplating possibilities to make FinCEN reconsider its proposals” and “shall make every care to rebut the released allegations”, pre-trial proceedings were launched in Riga.

in 2016, an OCCRP investigation led to regulators in Riga and Kiev taking steps to rein in the use of Baltic banks (Latvian ABLV and Estonian bank Versobank) to launder the proceeds of corruption. It emerged then that a group of four Seychelles firms founded in July 2014 moved dirty money out of Ukraine to ABLV and Versobank.

According to the OCCRP’s investigation, “a large part of the funds flowing through these offshores was payment to foreign suppliers, often Chinese companies, selling goods to Ukrainian importers. The off-the-books payments were apparently made after importers declared the goods to Ukrainian customs at a fraction of their real value”. According to Ukrainian media, Sergei Kurchenko, the oligarch of the family of former Ukrainian President Viktor Yanukovych, had used the same scheme to channel money out of the country prior to 2014.

Transfers to offshore companies with accounts in the Riga-based bank were also featured in the “Azerbaijani Laundromat” OCCRP investigation, exposing a billion-dollar slush fund used by President Ilham Aliyev’s family to pay foreign officials and consultants to polish the regime’s image. In a series of its own investigations into the “Bulgarian Connection” in the “Azerbaijani Laundromat”, Bivol established the involvement of former Bulgarian UNESCO Director-General Irina Bokova and her husband Kalin Mitrev, who is an official representative of the government in Sofia to the European Bank for Reconstruction and Development EBRD) and has been paid slush fund money through Azerbaijani shell-companies.

The scandal with the Governor of Latvijas Banka is the next one in the last two years to involve high-ranking regulator officials from the financial and banking sector of the country.

In 2016, the Latvian Financial Market and Capital Commission initiated an inspection in ABLV and Pasta Banka. Kristaps Zakulis, who then headed Latvia’s financial regulator handed in his resignation amid mounting criticism that he had failed to deal with money laundering. The media in Latvia explained that the decision to resign was related to the investigation of several national banks involved the Moldovan “Theft of the Century”.

The corruption scandal in Latvia threatens to bring down the international credit rating of the Baltic state. For this reason, the leader of the Unity party and Economy Minister in the coalition government, Arvils Aseradens has urged the central bank governor, who has been at Latvijas Banka helm since 2001, to step down “at least for the period during which the investigation will be conducted”.

Finance Minister Dana Reizniece-Ozola has agreed with her colleague and has also asked the governor to step down. “We have heard the allegations of corruption in the financial sector which are serious and impact the reputation of the financial sector,” she said on Sunday

Latvian Prime Minister Maris Kucinskis (from the Union of Greens and Farmers) announced that the KNAB had applied the status of being detained to Ilmars Rimsevics, stressing that neither he nor other officials have reason to interfere with the work of the anti-corruption watchdog, which, according to him, is acting professionally.

Kucinskis pointed out that the government has full confidence in the KNAB and is ready to provide all the necessary support without allowing any interference in its work.

The Prime Minister vowed he and the finance minister will carefully monitor Latvijas Banka so that it can continue fulfilling its duties fully and diligently. According to him, there were no fears that anything is threatening the financial system of Latvia.

The Baltic state was among the most rapidly developing economies in the European Union and the Eurozone in 2016 and 2017, with an average 4% – 5% GDP growth.

Author Nikolay Marchenko, editor Atanas Tchobanov




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