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Are Your Pockets Bulging?

Ingus Berzins

We've lived under capitalism for the past 10 years. If we take a closer look at the list of top Balts with officially registered property in company stakes we may not actually find those people we all thought the richest.

Stealthy Riches

This summer, Estonian newspaper 'Aripaev' published a list of top shareholders in Estonia, according to the number of shares and the value of these registered under the names of people at the Central Depository. The BC decided to do an investigation of the same kind in Latvia and Lithuania.

We found out who owns the most shares in Baltic companies with high market values. We would like to warn our readers who aren't so familiar with the business environment and conditions in the Baltic States that these lists do not contain the names of the richest people in the Baltics.

The largest Estonian shareholder Marcel Vichmann was asked to characterise the top hundred richest shareholders of the current year. He laughed and said, 'If I have been at the top of the list for many years, then that means that the real top hundred is still to be revealed.' There are two main reasons for this situation.

First of all, a number of local 'magnates' own companies not quoted on the stock markets - they may be under the permanent control of a small group of shareholders.

A few Balts worth mentioning on this list are: for one, the most notable businessman in Estonian oil transit du Luukas; head of Parex Bank - the largest commercial bank in Latvia - Valery 0rgin; former Prime Minister of Latvia and actual owner of food concern Ave Lat Grupa Andris Skele.

Secondly, shares of public companies often belong to intermediate companies and not the actual owner. For instance, control of the largest stevedore company at the port of Klaipeda, KLASCO, is held by Vialogas, whereas control of the huge mineral fertiliser producer Achema belongs to the Viachema company. It's no secret that Lithuanian businessman Bronislovas Lubis controls both these companies.

The large companies quoted on all three stock markets of the Baltic States hide behind 'banking-shareholders' like the Bank of New York, Bank of Bermudas, Bankers Trust Company etc. These facts explain the scepticism of Mr Marcel Vichmann in terms of him actually being at the top of the list.

Lacking a Common Approach

The BC managed to gather information on the top shareholders of all three Baltic States. In spite of claims that that the stock exchange and organisations servicing the Baltic State stock markets are moving towards harmonisation, the BC discovered that security markets are more developed in Estonia than in Latvia and Lithuania.

In order to find out the owners of the most valuable portfolios in Estonia and Latvia, a journalist just has to turn to the Depository representatives. The Depository staff does the rest. They even multiply the number of shares of all registered shareholders by their stock market price and mark out the thickest wallets.

In Lithuania, the situation differs considerably. Firstly, no such services are offered at the Depository, and secondly, as opposed to Estonia and Latvia, more than a thousand companies are registered on the stock market, the shares of which most often have not been quoted for years. Therefore, it would not be correct to calculate the value of most portfolios, since there is no market price for them.

The BC decided to group Lithuanian shareholders simply according to the number of shares registered on the stock market by them.

In Latvia, a much larger number of public companies are regularly quoted on the stock market. Therefore, we can determine the value of the share portfolios. The problem is that if a company has not been quoted yet, then the nominal price of the share is taken at market price.

Some of the ten largest shareholders got on the list just for this reason, the companies owned by them would most probably be quoted at a much lower price than their nominal value.

Who is Elvis?

Whatever former chief lawyer for Hansapank Marcel Vichmann says, the Estonian list did not present any surprises: the top ten list contained quite a few well-known names. Two of the three founders of Hansapank - Indrek Neivelt, Juri Mois and Rain Lohmus - found themselves among the top ten.

Investment banker Rain Lohmus is still on the list thanks to the ownership of shares at the Saku brewery. The Mayor of Tallinn Juri Mois is the owner of both Uhispank and Hansapank shares.

The BC was actually a little shocked by the Latvian list. It turned out that almost none of the people more-or-less well known as being the country's wealthiest have invested their money directly in the shares of public limited companies. It might have happened both due to a lack of trust in the stock market of Latvia and also due to the well-practiced tendency of investing in shares through intermediates.

In result, a Mr Edvins Samulis is supposedly the richest shareholder of Latvia, who acquired the controlling stake of Lode, producer of building materials, in 1996.

Second place is held by Vitauts Breicis, who privatised one of the largest wood processing companies in Latvia. A famous former hockey player, Helmuts Balderis, holds third place. He owns a considerable amount of shares at the Riga Sports Palace (Rigas sporta pils). These companies are not as large as, for example, Estonian banks. In addition, after the crisis on the stock market, their shares quoted way under nominal value.

Considering these results, Latvian shareholders seem quite modest compared to their Lithuanian and Estonian colleagues.

In Lithuania, first place is held by Danas Tvarijonavicius, the owner of 41% of Lifosa, producer of mineral fertilisers. The nominal value of shares owned by him exceeds 22 million US dollars.

Compared to other Baltic States, Lithuania stands out as having many foreign investors among the largest shareholders. Two of them are even listed among the top three. They are Swiss resident ydin Giz, who owns 14% of the shares at an electronic equipment producer - Ekranas, and Ole Gunnar Sevlaag, who controls 32% of a building material factory Akmenes cementas.

Riga-Vilnius-Tallin

10 largest shareholders of publicly traded companies of Estonia

 

Name, Surname

Company

Value, million USD

1.

Marcel Vichmann

Hansapank

12.0

2.

"iina >is

Hansapank

6.2

3.

">>mas Sildmae

Hansapank

5.9

4.

">>mas nnus

Merko Ehitus

5.7

5.

Aive eerits

Hansapank, Saku

4.9

6.

Toni ">>mik

Merko Ehitus

3.4

7.

Rain Lohmus

Saku, Hansapank

2.7

8.

Dmitry Koval

Uhispank

1.9*

9.

Heirs of Rein Kaarepere

Hansapank

1.8

10.

Juri Mois

Hansapank, Uhispank

1.6*

1 USD =  16.2

Source: Central Depository of Estonia and the 'Aripaev', July 2000.

* After the announcement made by Skandinaviska Enskilda Banken on the purchase of Uhispank shares from other shareholders at the end of August, the value of the D.Koval and J.Mois portfolios has increased by about 40%.

10 largest shareholders of publicly traded companies of Latvia

 

Name, Surname

Company

Value,
million USD

1.

Edvins Samulis

Lode, Struzanu kudra

1.2

2.

Vitauts Breicis

Strencu MRS

0.731

3.

Helmuts Balderis

Rigas sporta pils

0.721

4.

Eriks Eisaks

Nordeka, Latvijas gaze

0.607*

5.

Modris Ozolins

Tukuma galas parstrades sabiedriba

0.588

6.

Aldis Zandbergs

Tukuma galas parstrades sabiedriba

0.588

7.

Ilgvars Kalnins

Tukuma galas parstrades sabiedriba

0.588

8.

Imants Kalnins

Kaija

0.471

9.

Janis Baklans

Energoautomatika

0.415

10.

Stanislava Kromane

Elijas projekts

0.353

1 USD = LVL 0.6

Source: Central Depository of Latvia and The Baltic Course.

* After the rapid increase in share prices of Latvijas Gaze at the end of August and September, the value of the portfolio of E.Eisaks has increased.

10 largest shareholders of publicly traded companies of Lithuania

 

Name, Surname

Company

Value,
million USD

1.

Danas Tvarijonavicius

Lifosa

22.7

2.

ydin Giz

Ekranas

5.3

3.

Ole Gunnar S5vlaag

Akmenes Cementas

3.8

4.

Jonas K0rciauskas

Audejas

2.6

5.

Antanas Trumpa

Rokiko Sris

2.5

6.

Zilvinas 0rcinkevicus

Vilniaus Douna, Vilniuas Prekybe

2.1

7.

Nikolos St0m0tiadis

Ukio Bankas

1.8

8.

Vladas umavicus

Vilniaus Douna, Vilniuas Prekybe

1.4

9.

Stanislava nuziene

Akmenes Cementas

1.1

10.

Edmundas >ntvila

Akmenes Cementas

1.1

1 USD = LTL 4

Source: Lithuanian National Security Market and The Baltic Course, August 2000.

 

Seeping Russian Capital

Olga Pavuk, Aivars Pastalnieks

For about a year and a half, the Bank of Russia has maintained a list of 'states and territories where offshore zones are located, Latvia is listed among them.

A year ago, the Central Bank of Belarus followed the Russian example and announced Latvia an offshore zone. In addition, the President of Russia has even ordered that the situation with banks in Latvia be cleared up once and for all. The Baltic Course decided to enquire about the reasons for these decisions and to find out what exactly the eastern neighbours are afraid of.

Leaking Capital

According to the Bank of Russia, two or three years ago, about 2-3 billion dollars leaked from Russia every month. A year ago, this amount was about 1.5 billion dollars. In the first quarter of 2000, the outflow of capital again increased to 6.2 billion dollars.

It should be noted that the chairman of the Bank of Russia Viktor Geraschenko separates outflow of capital from legal capital export. The Bank of Russia tries to prevent the outflow by setting of a number of restrictions.

The Blacklist

UN data states that money laundering amounts to USD 600 billion a year around the world. In order to combat the legalisation of illegally-acquired funds, the Financial Action Task Force on Money Laundering (FATF) was established by G-7 countries in 1989. The task force's annual report, released in June 2000, featured for the first time a list of 15 countries, including Russia and a row of Caribbean countries declared as malicious wrongdoers. Governments of the counties included on the list were advised to strengthen control over international financial transactions in their credit institutions, and carry out detailed inspection into suspicious financial operations.

It became known that the President of Russia Mr Vladimir Putin issued a written order to clear up the situation on Latvian banks accused of illegal capital export from Russia last spring. We may assume that such an order could have been issued from bending under pressure from the EU, strictly against accession of states listed as offshore zones.

Even though the dollar is closely pegged to the Russian rouble or vice versa, the Bank of Russia is considering the possibility of declaring the Euro as its basic reserve currency, taking into consideration that Russia and the European economic union grow closer.

In his interview with the BC in October 1998, the Director of the Department of State Supervision for the Bank of Russia, Mr Aleksey Simanovsky admitted to the possibility that the Baltics (including Latvia) are considered by Russian bankers as unofficial (not legalised) offshores.

According to Mr Simanovsky, certain activities of some Baltic banks have resulted in the banning of their activities in Russia. As a delegate at the yearly EBRD meeting in Riga, Mr Simanovsky confirmed the BC on the unchanged position of the Bank of Russia on the issue.

However, there is no legal basis for including Latvia and other Baltic States in the list of offshore zones. What's more, there are no restricting measures taken regarding the business relationships between Russian and Latvian banks, except for stricter financial and tax control and problems with opening new Latvian accounts in Russian banks: the Bank of Russia does not recommend its banks to do so.

However, working with existing accounts is not forbidden. So even with the drawbacks in Russian legislation, the amount of illegal capital export is not decreasing and even seems to be doing quite the opposite.

What exactly is the matter? What makes Moscow, Belarus and Ukraine bankers angry?

On Their Own Turf

The Mass Media has repeatedly provided information on persons from Latvian banks being detained in their Moscow offices and in the offices of their foreign colleagues (Russians, Belarussians, Ukrainians and others) for being involved in money laundering - exchanging roubles to dollars. Such cases have even occurred on the territory of the Latvian Embassy in Moscow, in the Talava hotel, where many representatives of Latvian companies and banks often stay.

According to the information provided by representatives of the Bank of Latvia, in the mid 90s, official branches of 2 Latvian banks - Parex Bank and Deutsche Lettische Bank (later - Hansabank) were registered at the same address as the Embassy building (No 3 Chapligina street).

However, according to the Moscow law-enforcement agencies, roubles may be exchanged to foreign currency on the territory of Latvia for several years now, an account can be opened in one of the Latvian banks, and the converted money transferred there. Official papers and other documents of Latvian banks are used for the above transactions.

Sometimes the Economic Police and other authorities in Moscow visit the 'branches' located outside the Embassy. For example, in March 1997, the Economic Police accused the Aizkraukles banka office in Moscow of illegal activity.

By March 1997, charges were brought against Aizkraukles banka and Parex Bank for illegal activity in St. Petersburg. Parex Bank also faced problems in Moscow (in 1998, the bank terminated its activity in Russia). In 1998, couriers of Land banka were detained in the office of one of their foreign branches. 238 000 dollars, official bank order-forms and requisites were confiscated at the time.

Some persons have also been detained for acting in the name of banks that had already ceased to exist, for instance, like Latvijas Attistibas un rekonstrukcijas banka (REKObanka).

In autumn 1999, the press informed about the detaining of employees at Russian Mosprom bank in Moscow, which was 'supposedly' related to Latvian Trasta Komercbanka. The women detained operated worked in the Latvian embassy hotel.

As a rule, such detaining or arrests followed decisions made by the Prosecution Office on lack of evidence and the cases were closed.

According to Mr Sergey Parhomenko, member of the board of the Taxpayers Association in Russia, less than 10 cases have been registered in Russia within the last 10 years, when a person was detained at the moment of performing the illegal exchange of currency.

The BC has found information that a representative of the Land banka 'worked' in the Embassy hotel, even after the Bank of Latvia had annulled his licence. In addition, the President of the Latvian Commercial Bank Association Mr Teodors Tverijons informed the BC that a legal entity of a similar name used to rent several premises in the Embassy hotel two years ago. It is strange that the Embassy of Latvia refused to see all these activities. The scandals most often ended quietly. We may thus assume that the situation was convenient for both Latvian and the Russian parties.

In our opinion, one of the possible explanations is as follows: the Advisor for Economic Issues and his services in the embassy of Latvia in Russia are financed by the Latvian Commercial Bank Association, i.e., the members of this Association. This was confirmed by Mr Teodors Tverijons.

The Latvian Development Agency also takes part in this kind of 'sponsorship'. There is nothing illegal here, though. Other countries also allow public institutions finance the activity of certain embassy services. Mr Tverijons explained that the Association takes part in the financing, upon the request of the Ministry of Interior of the Republic of Latvia. The Agreement provides that the economic attach shall work both for the Embassy and the 'sponsors' and prepares information for them, various reports etc.

Mr Tverijons assured us that at the moment, no Latvian bank performs any of the above illegal activities on the territory of the Embassy. However, he did not exclude the possibility that someone may still be doing it under various bank names and false documents.

Secret Accounts

Question: Why are Russian law-enforcement agencies turning away from the situation? Who uses these services in Russia?

The answer is easy. Excessive taxes, the indirect peg of the Russian rouble to the dollar, various restrictions for withdrawing money from accounts and currency transactions all force Russians to search for other ways of laundering their roubles. Attracting Baltic banks is often carried out through the privatisation of enterprises and by signing false contracts between Russian companies and offshore companies belonging to Russian organisations or citizens of Russia.

About two years ago, so-called false import contracts became popular, i.e., before importing goods, payments were transferred abroad. The goods, however, never crossed the Russian border and the company that transferred the money, disappeared.

The worst thing for the Russians is that budget money flows away from Russia in forms of bribes to officials of medium and higher rank, the same political elite that lobbies the making of 'right' legislative and normative acts, and of course, also to the law-enforcement agencies.

Such channels are used for 'helping the creative intelligentsia' that helps the 'promotion' of various campaigns.

It is less unpleasant, when business people do this. Their money is used for the development of the economy, even if it is a 'grey-scale' economy.

Only one offshore zone in Russia - Centr mezhdunorodnovo biznesa Ingushetiy - was presented at the Shorex 2000 international conference-exhibition in Riga last June. This zone operates in compliance with Russian Federal law. The key principles of operation are as follows:

Registration of a company in the territory of the above zone is allowed only to companies that are non-residents of the Russian Federation. These companies then get various exemptions, including full exemption from all taxes of the Russian Federation, but they are not allowed to perform economic activity there.

However, there are enough territories in Russia that have tax exemptions awarded by local authorities with other characteristics of offshore zones, except for one: the local administration allows residents of the mentioned territory register Russian companies there.

According to Mr Sergey Parhomenko, member of the Board of the Taxpayers Association of the Russian Federation, there's a war over terminating the activity of such companies and over the establishment of new enterprises in the entire territory of Russia. Offshore registration is most often used in the Altai and Tschelabynsk regions and in Kalmikya.

In the Tschelabynsk and Elyste regions alone, 350 criminal cases are still open. The essence of the conflicts over the past two years lies in the following: companies registering activities at a specific place, must be registered as taxpayers at the same place. Companies that have been registered in outer regions, often operate in Moscow, without paying taxes at to either of the two places.

A good example here may be one of the villages in the Arkhangelsk region, Tschitinsk, with only a population of about 50 people. Their only source of income is in fact the registration of such enterprises operating elsewhere.

Big Bucks

But illegal and even legal money laundry via Latvian and other Baltic banks is only one reason why capital is escaping Russia. Another reason for listing Latvia among offshore zones is, in our opinion, related to the servicing of accounts in Russian banks of companies registered in territories with tax exemptions.

Almost all the people interviewed by the BC admitted that a large number of transactions with non-resident accounts are related to providing money transfers for off-shores. The non-residents place about half of their deposits on the accounts of Latvian banks, thus providing a significant part of their revenue. Banks are somehow unwilling to disclose exact figures in relation to their business with non-residents.

Some four or five years ago, banks kept reporting immense success in the east. A number of Latvian, Lithuanian and some Estonian banks openly spoke of their close ties with the Russian market. Some banks like Aizkraukles banka profited as dealers, while 90% pf their clients were non-residents. Saules banka and Rietumu banka, for example, used to be the largest soft currency converters. According to the Chairman of the Board of the Paritate Bank Mr Viktors Siperkovskis, 90% of the total revenue of the bank in 1995 was gained from currency transactions.

No wonder the Bank of Russia and banks in Belarus and Ukraine become irritated by Latvian banks advertising with slogans like 'We're closer than Switzerland' or 'Open an Account without Opening Your Identity'.

Survival by Financial Transit

Some of the most active employees of eastern banks disappeared from the Baltic region after the Russian crises. On the whole, the branch survived and recovered comparatively fast. 20 Latvian banks having suffered more than their neighbours and survived could almost completely restore their ownership capital in 1999 and cover about 13 % of the losses in 1998. This year, development of the sector continues. In many respects, this was only possible thanks to a special field of activity - financial transit. The number of non-residents did not fall; it has even increased. As Marketing Manager of Aizkraukles banka, Irina Lando informed the BC that, for example, the number of non-residents in this bank has grown to more than twice.

In general, banks have been reluctant to share information on the number of non-residents they have. Only the Baltic International Bank has publicly declared (on the Internet) that 95 % of its 500 clients are non-residents.

There is a bank in Lithuania, which directed its activities to the East right after the Russian crisis. Chairman of the Board at Ukio bankas Liutauras Varanavicius told the BC that, today, the former Kaunas bank receives 30-40 % of its total revenue from servicing trade operations like the purchase of goods from Russia and the CIS and their sale to the West. According to Liutauras Varanavicius, Lithuanian customers working through Latvia are very much in demanded today.

Virtual Banking

In the first years of independence, foreigners deposited their funds in Latvian banks because of the liberal financial legislation, whereas today, the level of banking services in Latvia, Lithuania and Estonia does not only compete with western service levels, but is even better in some aspects.

One of the areas in which Baltic banks leave western counterparts behind is the use of different remote access systems for their client accounts, including 'Internet banking'.

On the one hand, the speedy introduction of new banking technologies is promoted by new developments in the sector itself. Swedish banks, having become part of the structure of the main Baltic banks, consider the Baltics a region for development of know-how. Introduction of internet-technologies is taking place more intensively the new financial markets.

On the other hand, the large number of non-residents among clients, including offshore companies, the owners of which lead a rather mobile business life, supports fast advances for software on the banking market.

Again, almost everyone interviewed by the BC confirmed that the 'Bank to Customer' and 'Internet - Banking' programmes are widely used in mutual business between offshore companies and banks. Mr Liutauras Varanavicius admitted frankly that 'all the Mafia tends to use Internet-banking with an increasing frequency, as the level of bank supervision does not allow to control virtual transactions'.

Requirements for opening an offshore company account and a numbered account in banks differ. In banks like Aizkraukles banka, a non-resident will receive a full account package within two working days. The number of customers using the Internet-banking grows by 5 % every month, says Irina Lando. In banks like the Paritatate Bank and Rietumu banka, the requirements for opening accounts are more demanding. However, new customers both from the East, and the West are welcome in any of these banks, where they will be served in the Russian language and where they can receive assistance in converting any exotic currency into western currencies. Payment transactions will be performed as soon as possible - on a 'day to day' basis.

Trendy Offshore Dealers

The BC has observed a new phenomenon in Latvia - the servicing of offshore accounts with the help of intermediaries from outside. Such dealers work at home in front of their computers and transfer your money from one offshore account to another. Thus, a number of well-known Latvian exporters of timber, furniture and foodstuffs are able to bypass the tax laws. We would like to stress that they do not violate these laws, but merely bypass the loops. One may become a client of such a dealer only upon specific recommendation. The Latvian legislation, compared to legislation of western countries, does not forbid such activity. Therefore, it is not illegal.

Another novelty has been detected by the BC on the web-site of Latvian VEF bank, also actively operating in the markets of the CIS. When we clicked a banner with the interesting offer of 'Order cash currency through the Internet', a new system popped up presented by RosBiznessConsulting. In real time mode, we were requested to place orders for the purchase or sale of currency through the Internet 'confidentially, either once or on a regular basis, and at the most favourable rate in the place most convenient for the customer'.

Riga - Tallinn -- Vilnius

 

Enforcing the law

One of the goals of Baltic organisations established for preventing the legalisation of illegally-acquired funds is to keep Latvia, Lithuania and Estonia from entering the "blacklist" of the Russian FATF (Financial Action Task Force on Money Laundering).

Valdas Grendalis, acting Chief Commissioner at the Lithuanian Tax Police Department on Money Laundering, told BC that in the past two years, five criminal cases had been opened on suspicion of money laundering. However, none of these have been reviewed at the courts yet. Bank accounts holding more than USD 30 million have been arrested.

In the first eight months of this year, 95 cases were turned over to regional departments for further investigation, 10 criminal cases were opened for contraband, forging financial documents, evading taxes, and others.

According to Viesturs Burkans, head of the Latvian State Control responsible for preventing the legalisation of illegally acquired funds, investigation into 59 cases was underway by mid-August. In 14 cases the deals exceeded USD 1 million, and a few of these deals even exceeded USD 4 million. The schemes for these deals are still being probed. 10 criminal cases were opened for various financial violations.

In Estonia, the Information Bureau on Money Laundering is only just acquiring strength. As BC was told by Aivar Paul, deputy head of the bureau, investigation into five cases has reached the final stage, in the meantime, a number of tax evasion cases have also been uncovered. One criminal case was filed. He declined to disclose of concrete figures, however.

Baltic tracks in Russia

The first blow that Russia delivered Baltic banks concerning money laundering happened in the summer of 1997, when St Petersburg tax inspectors launched investigations into transactions through correspondent accounts in Baltic banks. The move was then justified by a criminal case against a Sergei Shevtsov who had transferred considerable sums of money abroad through Baltic banks without paying taxes. Claims totalling tens of millions of dollars were filed against Baltic banks, arrested accounts in at least 14 banks were reported. However, after the court verdict on the actions of tax inspectors involved, organisers of the push admitted that they had been too hasty - and all the cases were closed.

The second celebrated case was the arrest of Latvian resident Alexei Ushakov in Moscow - a former shareholder and council member for Trasta komercbanka. Local investigators called this a first - there had been no such outstanding cases until then. Ushakov was accused of taking several tens of millions of dollars out of Russia through Cassaf Bank, registered in Nauru. Ushakov was also charged with illegal banking operations and organised crime. During a search at the Cassaf Bank head office, more than a million dollars in cash was found.

It should be reminded that Cassaf Bank, organised with the help of Ushakov, has already been spotted in Latvia before, concerning the "missing three million affair": the bank was one of links in a chain that made Latvenergo money disappear out of Latvia.

Two others were detained in connection to Ushakov's case - Agnis Liepins and Agris Freifalts. After the arrest of Ushakov, the two, as was discovered later, registered Cometa Bank in Nauru, that was to serve the purpose of exporting cash from Russia.

The Moscow investigators discovered that having reached the offshore bank, the money was then transferred to Latvia's Trasta komercbank0. Thus, more arrests may still follow. Evidence also points to Vilnis Vitolins who is said to be another founder of Cassaf Bank.

The Russian press reported that law enforcement authorities also suspected other commercial banks in Latvia of having taken part in the money-laundering affair. Russian investigators show their greatest interest towards who actually withdrew the money from the bank accounts, and where the money has gone since - to which offshore companies and/or Latvian companies. Apparently the case allows Russia to believe on the political level that there are even more banks in Latvia involved in the laundering of Russian money, and thus put Latvia on Russia's "blacklist".

Investigators did turn out to be wrong in one aspect at least - the case of Ushakov did not become one of the most celebrated cases in Russia. It was overshadowed by the case of high-ranking officials acting as accessories in organising the leak of several tens of millions of dollars through theBank of New York .

Why are Latvian banks so attractive to Russian and CIS countries and why are they ranked as off-shores?

Viktors Siperkovskis, Acting Chairman of the Board, Paritate Bank (Latvia)

Because such a decision is routine practice for today's management of the central bank of Russia, well familiar with administrative means of bank regulation. The problem with the Russian management is that the 'state machinery' today is not capable of establishing control over the money flow of its citizens.

Latvian banks do not violate the legislation of the neighbouring state by opening accounts for the companies registered in offshore zones, if they do it strictly in compliance with the requirements of Latvian legislation, requiring compulsory identification of account-holders.

The banking system of Latvia is not able to and should not act as a policeman for Russia. This is a problem for Russia. Legally, Latvia is not an offshore. These are simply political games.

Alexander Kalinovsky, Vice-president, Rietumu Banka (Latvia).

In our opinion, the situation is unfair, and we can only assume that such state of affairs have political reasons.

Certain hope for a change in the situation is maintained by the fact that Russia is actively negotiating its membership to the World Trade Organisation. If the Russian Federation becomes a member of the WTO, Russian exporters will have the possibility of access the world's most attractive markets. However, to put this into practice, Russia should conclude agreements with all WTO member states, including Latvia. These agreements ensure non-discriminatory conditions for all WTO member states. The fact that Russia has listed Latvia among off-shores should be taken into consideration here.

Elena Lebedeva, Chief of Department on Supervision of Credit Institutions, the Bank of Latvia.

The main reason is the very democratic policies related to investing financial resources. In Latvia, there are no limitations on the transfer of money resources, there are no currency exchange regulations in comparison to the regulations in Russia. Obviously, they seem to dislike it. It is really easy to be a customer of a Latvian bank.

The situation is not threatening, if the Latvian bank keeps money on its accounts in a Russian bank. The problem for Russian banks starts when a bank that has accounts in a Latvian bank is obliged to have a one hundred per-cent accumulation.

So far, there haven't been any changes in the activities of Latvian banks. Assets keep growing.

Aleksandrs Kvasovs, Vice-president, Parex Bank (Latvia)

Listing Latvia as an offshore zone is only a political step for Russia. There are no economic grounds for the move. If we consider the current legislation in Latvia, it can by no means be viewed as an offshore zone. From the point of view in the way Latvia implements its laws, it even leaves Russia well behind.

Oskars Gulans, President, LATEKObanka, (Latvia)

I think, it is important to note that the decision on listing Latvia among off-shores was made at the beginning of 1999. This was a period when relations between Russia and Latvia were complicated. The decision was more political than economic.If the claims were related to the size of banks, I could somehow understand it, even though the legislation related to banking in Latvia fully complies with EU requirements. The service level of Latvian banks not only surpasses that of the Russians, but even the service level of western banks.

Zilvinas Ceponis, Director of the Central Division, Bankas Snoras (Lithuania)

Most of the original offshore companies of Russian origin worked in the Baltic region. The so-called 'Gentlemen's combination' meant having an offshore in America but accounts in a Latvian or Lithuanian bank.

Some such clients later opened accounts and established companies in the West, still remaining Baltic clients. Originally, our bank also made most of its profits from such clients. Baltic banks are not used for the storage of large amounts of money, but for transit.

Liutauras Varanavicius, Chairman of the Board, Ukio Bank (Lithuania)

The problem of the central bank of Lithuania is that we look at it more strictly. Thus, Lithuania gets less money. However, it prevents us from being reproached for money laundering activities.

The Bank of Latvia and its president Mr Repse prefer the right policy, but this will change.

On the one hand, money laundering is destined to cease in the future, on the other hand, business will also be settled in a more civilised manner.


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