A matter of national security

Since the restoration of independence 25 years ago an unusually large banking sector for a country of 2 million has developed in Latvia. Thirteen of 17 banks work mostly with non-residents. They own over half of all funds deposited in the banks. It’s a risky, but very profitable business for their owners (two of the three biggest banks in Latvia in recent years are ABLV and Rietumu banka that cater to a non-resident clientele).

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Historical connections, knowledge of the Russian language, understanding of the Russian mentality, and willingness to engage in risky and fraudulent dealings have attracted clients mostly from ex-USSR countries, 80% of the non-resident bank clients come from CIS countries.

U.S. attention to the Latvian banking sector has always been present in diplomatic talks, but its relevance started to grow after Russian backed aggression in Ukraine, when the assets of Russian and Ukrainian officials subject to sanctions were being chased around the world, diplomatic sources with detailed knowledge of the situation revealed to Re:Baltica.

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“Latvia presents itself as a financial centre, but Americans say: each financial centre dealing with international transfers in dollars must invest adequate resources in banking control. It’s not just a matter of business, it’s a matter of national security,” says Andris Razāns, the ambassador of Latvia to the U.S.

Kristaps Zakulis, the head of the bank regulator, was summoned to the highest level security meeting – the National Security Council, chaired by the President – twice in a short period of time, in September and December 2015. Nothing similar had happened before. The guests and agenda of the council meetings are classified, so no official information can be obtained on the subjects discussed.

Before Christmas Zakulis was criticized in the parliament committee overseeing the regulator. Suddenly faults were found in the work of the FCMC, additional staff members were promised (to bring the total to eight), and regular reports to MPs were demanded. Talk of replacing Zakulis was only silenced for a while by the collapse of the government.

“Laws are always in the centre of attention, because they are obvious and allow actions to be manifested. But if there is not enough enforcement, it doesn’t matter how strict the regulation is,”

says Mark Galeotti, professor at New York University, who together with his colleague Andrew Bowen analyzedthe money laundering situation in Latvia a few years ago.

In November 2015 Galeotti spoke of the relations of the West and Russia in the annual Riga security conference. He urged people to take a look at the laundering of money illegally obtained in the countries of the CIS from a national security perspective, and ask: which side is Latvia on?

 

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The Baltic Center for Investigative Journalism (Re:Baltica) is a non-profit organization that produces investigative journalism in the public interest