The third largest Latvian bank, ABVL, has been heavily sanctioned by the regulators in Washington DC due to its involvement in money laundering and other illicit activities connected to Russia, Azerbaijan, Moldova and Ukraine. On Tuesday, February 13, the U.S. Treasury Department issued a finding and notice pursuant to the USA Patriot Act, and specifically Section 311.

As the official website of the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), states, the bank “has institutionalized money laundering as a pillar of the bank’s business practices” while “ABLV’s management permits the bank and its employees to orchestrate money laundering schemes”. According to FinCEN, the ABVL  illegal activity is linked to North Korea’s weapons program and corruption connected to Azerbaijan, Russia and Ukraine.  “ABLV has facilitated transactions for corrupt politically exposed persons and has funneled billions of dollars in public corruption.”

Payments for Kim Jong Un’s ballistic missiles

The regulator is “ seeking to prohibit the opening or maintaining of a correspondent account in the United States for, or on behalf of, ABLV Bank”. FinCEN also suspect the bank of “transactions for parties connected to UN-designated entities, some of which are involved in North Korea’s procurement or export of ballistic missiles”

These are operations with the Foreign Trade Bank of Korea, Koryo Bank, and the Korea Mining and Development Trading Corporation.

“Deficient practices at banks foster a wide array of illicit conduct, including activity linked to North Korea’s weapons program and corruption connected to Russia and Ukraine.  FinCEN is committed to protecting the U.S. financial system from these types of risks,” said Steven T. Mnuchin, Secretary of the Treasury.

“Inadequate bank control practices encourage a wide range of illegal actions” such as “North Korea’s weapons program and corruption in Russia and Ukraine.”

The media in the USA believe that the Latvian bank will no longer use the US currency in its operations, as the sanction is “effectively ending its ability to transact in U.S. dollars,” the Bloomberg agency said.

The bank is involved in a billion dollars drain from Moldova

The Bank was established in 1993 as “Aizkraukles banka”, and renamed ABVL only in 2011. In 2014, ABLV was involved in illegally channeling over USD 1 billion from three Moldovan banks – BC Unibank SA, Banca Sociala SA and Banca de Economii S.A., which provoked a political crisis in Chisinau and became known as the “Theft of the Century”.

To clarify the scale of the scam – the GDP of the Republic of Moldova then was only about USD 8 billion. The Riga-based Bank was explicitly mentioned by the U.S. independent auditor Kroll in its report on the “Theft of the Century” for providing its accounts for lending to individuals and legal entities from Moldova that were used to purchase the shares of UniBank Banca Socială.

According to the report, the scammers had taken control of the three banks through an opaque ownership structure (mainly composed of Russian citizens – Bivol’s note), funded including with loans from offshore structures, serviced by ABLV.

Then, the Latvian Financial Market and Capital Commission initiated an inspection in ABLV and Pasta Banka. In 2016, 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”.

Bank of former USSR dictators

Bivol, as a media outlet representing Bulgaria in the Organized Crime and Corruption Reporting Project (OCCRP), recalls that 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.

Wealthies Latvians vow to appeal

The majority shareholders in the Latvian bank are Oleg Fil, Ernest Bernis and Nika Berne. They also hold directly or through strawmen and shell companies over 85% of ABLV’s initial capital. For years, the leading business magazine in Latvia, Kapitāls, has been ranking Fil and Bernis at the top of the list of the country’s richest citizens – in 2014, their wealth was estimated at EUR 299 million and EUR 296 million, respectively. Last year alone, they earned EUR 64 million each. By the end of 2016, the Bank’s assets reached EUR 3.8 billion with EUR 79.3 million in annual profit.

A check by Bivol in the Bank‘s website shows that ABLV’s only subsidiary is in Luxembourg. However, the representations of the ABLV subsidiary, ABLV Consulting Services, are located mainly in the former Soviet Union – Russia, Ukraine, Belarus, Kazakhstan, Azerbaijan and Uzbekistan. ABLV Consulting Services also has two offshore branches – in Cyprus and Hong Kong.

The Latvian bank reacted to the U.S. sanctions with an official press release in English, Latvian and Russian on its main page. It is signed by Artūrs Eglītis, ABLV Group Communications Leader. According to him, FinCEN had used “false information” and its “report leaves out significant information on the bank’s efforts in the field of money laundering and terrorism financing prevention in the last years”.

The Latvian bank “emphasizes that the prepared report is merely a proposal of the Department, to which objections may be submitted in writing within 60 days”, adding that it “is currently contemplating possibilities to make FinCEN reconsider its proposals” and “shall make every care to rebut the released allegations”

“Over the last years, ABLV Bank has put forth tremendous effort in order to improve its internal control system in general and specifically in money laundering and terrorism financing prevention, and sanctions risk management,” the release stresses.

It further adds that “over the last two years, the Bank has carried out several independent inspections in the field of preventing money laundering and terrorism financing inter alia closely cooperating the U.S. consultants Navigant Consulting and K2 Intelligence. The recommendations of both consultants have been fully implemented”.

However, without waiting for the “two years of reform” in partnership with “U.S. consultants” press release, FinCEN refuted the bank of the Latvian oligarchs, reminding in a 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”.

Nikolay Marchenko

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