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Programme: Latvian banks desperate to prove they can survive without risky clients

Pēters Putniņš/flickr.co/Finance Ministry
«The amount of money high risk clients annually sent through Latvia is likely measured in hundreds of billions of euros. Even before the ABLV Bank collapse Latvian banks had ended up in international isolation – no one used them for dollar transactions,» Nekā personīga explains Latvia’s financial situation.


«Now banks have created new business plans in an attempt to prove they can survive and earn money without risky clients,» the programme explains.


Finance and Capital Market Commission’s chairman Pēters Putniņš affirms: «The transaction business as a business model no longer exists in Latvia – that’s a fact. This means banks have to search for new opportunities. The major changes that have occurred apply for volumes and methods our banks had employed in the past. I specifically mentioned transaction business in USD as an especially risky direction because we know USD is a preferred currency in countries located to the east of Latvia.»


USD transactions have dropped from more than 300 billion a year to a couple of billions in the past several years. Deutsche Bank was the last bank that provided Latvian banks with USD transactions. This bank left the local market in 2017. Scandinavian banks continued transactions with USD through parent companies. Citadele bank managed to reach an agreement with Citibank. Banks servicing non-residents were forced to search for partners in eastern countries, the programme explains.


NP also reminds that the global fight against money laundering increased after Russia annexed the Crimean Peninsula: «Sanctions were imposed against Russian companies, politicians and oligarchs close to the ruling power in the country. This measure was actively supported by Latvia. However, unlike North Korea or Iran, Russian business is very closely integrated in the west, making it impossible to isolate – representatives of US Department of Treasury said as much at the US Senate this year. USA aims to close off roads used to hide and move Russian money by closely monitoring the UK, Cyprus and Latvia.»


«Latvia’s finance sector, already mired in scandal, will face serious challenges this year. It is necessary to fulfill Moneyval recommendations to prevent many problems in the industry. It is necessary to ensure ABLV Bank’s self-liquidation helps reveal all the suspicious money. Latvia needs to protect itself in the international court of arbitration from serious accusations in the finance sector. Banks oriented towards the east have to prove that they are able to work and earn money without high-risk clients,» NP explains Latvia’s homework.


«Latvian banks turn over around one billion US dollars per quarter, annual amount reaches four billion. We had a period when USD turnover in Latvia was in tens of billions, even hundred billions in booming seasons,» says Putniņš.


Finance Minister Dana Reizniece-Ozola explains further: «Some years ago there was an estimate that approximately 1% of all global transactions in USD went through Latvia, which is a rather small country. It is a very large share.»


«Last year’s shocks in the industry caused players blame each other. However, it is unlikely banks servicing non-residents will be able to continue turning over hundreds of billions,» the programme notes.


Putniņš comments the situation the following way: «We should avoid automatically mixing turnover with suspicious money. We need control and monitoring mechanisms that would help resolve the problem, but ones that are not as extensive. How would you propose checking those billions – look through every single transaction? This is simply not realistic.»


ABLV shareholders blame Bank of Latvia governor Ilmārs Rimšēvičs for all their troubles. US Department for Treasury’s FinCEN report on serious violations in ABLV Bank was published only a couple of days after Rimšēvičs was detained by Corruption Prevention and Combating Bureau. Now he has been presented with charges – bribery. Now businessman Māris Martinsons has become a suspect, as well, NP reminds.


«ABLV Bank’s management claimed FinCEN report was based on misleading facts mentioned by the Bank of Latvia governor, because the bank had rejected his proposed lobbyists. KNAB has determined as much,» NP adds.


The programme also stresses that Moneyval’s report published in August 2018 mentions many recommendations on sorting the industry, as well as warnings. If the situation does not improve rapidly, Latvia will be added to the global money laundering and terrorism financing risks grey list. Currently the only European country on this list is Serbia.


Reizniece-Ozola says: «We have made rapid steps towards fixing the problems that have existed in the finance industry for twenty years.»


She continues: «Currently in the new Saeima we see that many deputies still have a sentiment towards servicing foreign clients in spite of money origin risks and even support this method. I would say this is a very slippery road.»


NP notes that several of the changes have come to force: the Control Service is an institution controlled by the government – it is supervised by the interior affairs minister. The service has new management, more resources and bigger challenges, such as in finance supervision. It is also necessary to accomplish better investigation and more convicting rulings, as well as train state officials and improve IT systems. It is also necessary to liquidate ABLV Bank and check the origin of the money stored in the bank.

BNN

07-01-2019
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