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Corruption in public sector remains a major problem in Latvia

Money laundering activities and grey economy are in decline in Latvia. However, corruption in the country’s public sector and smuggling activities remain serious problems for the national economy, as noted in the report on unaudited economy, corruption in the public sector and money laundering activities in Latvia published by Latvian Chamber for Commerce and Industry on Tuesday, 12 December.

«This and other available studies show that grey economy declines in the country at a rate of 1% a year. Current estimates suggest its volume is around 20-23% of GDP. According to research performed by Prof. Šneiders, the observed trend is that grey economy’s presence is the highest in Central and Eastern Europe, and the lowest in Western Europe, USA, Canada, Australia and Japan. As the main reasons for why it is not possible to fight off grey economy, experts mention factors like residents’ dissatisfaction with their country’s tax policy and legal system, distrust of the government and state-provided services, and insufficient support for businessmen,» authors of the study say.

Different data compiled in the study shows that corruption in the public sector is considered a major problem in Latvia. For example, data from the Grey Economy Index shows that that the ‘standard rate’ for bribes in Latvia to ‘settle things’ reaches close to 6.5% of the main deal’s amount. Another study shows that 16% of interviewed businessmen with experience dealing with litigation have had run-ins with corruption in their career. When interpreting results, it is important to keep in mind that the main studies in relation of the volume of corruption in Latvia’s public sector is based on opinions or perception of corruption by residents or their groups, such as businessmen.

Data from Transparency International shows that Latvian residents believe corruption is one of the three main problems in the country that is not provided with enough attention from officials. Considering that the general trust in the government in Latvia is low, it can potentially affect the assessment of corruption volume in the public sector.

«It can be summarized from the study that the fight against illegal alcohol and cigarettes remains a serious problem. One of the reasons is Latvia’s geographical location – shared border with Russia and Belarus, where those goods are sold for much cheaper. The State Revenue Service, illegal drugs trade also remains a serious problem. Available data also shows that considerable efforts and resources are put into combating smuggling activities. Compared with other regions, illegal drugs trade in Latvia is not considered a major problem,» LCCI explains.

Also, study representatives say that combating of money laundering activities remains a serious problem for Latvia and a challenge for nearly all countries.

«Although the situation was more critical in the past, the latest AML 2017 index shows that Latvia has made considerable progress in relation to reducing the volume of laundered money in recent years. This progress benefited from recommendations provided by international organizations, including European Council’s Moneyval, as well as introduction of the newest EU directives. Latvia’s joining of Organisation for Economic Co-operation and Development also played a major role,» authors of the study say.

LCCI Chairman Jānis Endziņš notes that looking at latest study results, it becomes clear that it is necessary to tackle turnover of illegal goods, because this is the segment that forms a large portion of the grey economy. «I also invite officials to do everything they can to increase trust for the public sector, reduce the risk of money laundering activities and public corruption risks. This is why cooperation between the finance industry and supervisory institutions should become tighter to make Latvia an example of good practice for other countries.»

Dr. Arnis Sauka of Stockholm School of Economics in Riga also admits that accomplishments in combating money laundering processes are worth praise. Nevertheless, Sauke mentions the challenges revealed by the recent study: «Although grey economy’s reduction in different areas and its sources, including smuggling, laundering of illegally obtained funds and other financial crimes remains the main focus for law enforcement authorities, policy-makers must not stop at what they have already accomplished.»

The expert notes that the level of grey economy remains high in Latvia and its reduction rate is slow, especially considering the positive developments with the country’s economic development. «Without support from the European Union, we will not last long against smuggling – it is a problem for both Latvia and the entirety of the EU. We already face new challenges, including ones introduced by digitization to the business environment and for society. This requires new analytical approaches and solutions to help reduce grey economy, smuggling and money laundering activities.»


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