Banks, Crisis, Direct Speech, Latvia, USA
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Saturday, 27.04.2024, 02:14
Forbes: Why The U.S. Treasury Killed A Latvian Bank
The ECB said that ABLV’s liquidity position had deteriorated
to the point where it had insufficient funds to meet “stressed outflows.” In
plain English, ABLV experienced a bank run which drained it of money. The ECB
didn't want to give it any more funds, because to do so would simply encourage
more deposit flight - and in this bank’s case, there are good reasons not to
allow deposits to run. So it closed it down.
The bank run was triggered by the U.S. Treasury. On February
13, 2018, the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a notice accusing ABLV of money laundering. ABLV was
promptly denied U.S. dollar funding. Simultaneously, depositors rushed to
remove their money. Less than a week later, to prevent the bank’s disorderly
collapse, the Latvian regulator and the ECB froze all payments in and out of
ABLV. But a frozen bank is a useless bank, and there have been too many cases
where European banks have been kept on ice for years on end while regulators
and local authorities dither about what to do with them. This time, to their
credit, regulators did not mess around. They authorised ABLV’s execution less
than a week after imposing the moratorium.
But ABLV would have died anyway. Even had there not been a
bank run, the bank would not have survived the action that the U.S. Treasury
proposed to take against it.
FinCEN’s notice says that it intends “to prohibit the
opening or maintaining of a correspondent account in the United States for, or
on behalf of, ABLV Bank, AS.” This is
the fifth and most severe of the “special measures” provided for under Section
113 of the Patriot Act. It can only be imposed with the agreement of the
Secretary of State, the Attorney General, and the Chairman of the Board of
Governors of the Federal Reserve System, and after very careful consideration
of the consequences for the United States.
Since the U.S. dollar dominates international transactions,
banning U.S. correspondent banking relationships with ABLV amounts to shutting
it out of the global financial network. This is why ABLV was denied U.S. dollar
funding after the notice was issued. Even though the notice was only in draft,
other banks wouldn’t want to take the risk of funding ABLV with a prohibition
order hanging over it.
A bank that was mainly domestically focused might survive such
a measure, but then such a bank would not be very likely to be accused of U.S.
money laundering. It is the very fact that ABLV was facilitating extensive
international U.S. dollar transactions that made the U.S. Treasury suspect it
of money laundering.
Or rather, it is the nature of those transactions. FinCen’s
accusations are extremely serious:
FinCEN has reasonable grounds to believe that ABLV
executives, shareholders, and employees have institutionalized money laundering
as a pillar of the bank’s business practices…..ABLV management permits the bank
and its employees to orchestrate and engage in money laundering schemes;
solicits the high risk shell company activity that enables the bank and its
customers to launder funds; maintains inadequate controls over high-risk shell
company accounts; and seeks to obstruct enforcement of Latvian anti-money
laundering and combating the financing of terrorism (AML/CFT) rules in order to
protect these business practices. In addition, illicit financial activity at the
bank has included transactions for parties connected to U.S. and UN-designated
entities, some of which are involved in North Korea’s procurement or export of
ballistic missiles.
FinCEN's accusation hangs on the fact that ABLV has – or had
– very high levels of non-resident deposits (NRD) and an extremely large and
very risky non-resident customer base. FinCEN says that ninety percent of its
customers are “high-risk per ABLV’s own risk rating methodology” and are
“primarily high-risk shell companies registered in secrecy jurisdictions”. And
it alleges that some of these shell companies are connected to “U.S. and
UN-designated entities” – which is code for sanctioned individuals and
companies. The allegations are specific and damning. Here, for example, FinCEN
names ABLV as the recipient bank in the Moldovan bank heist of 2014:
In 2014, ABLV was involved in the theft of over $1 billion
in assets from three Moldovan banks, BC
Unibank S.A., Banca Sociala S.A., and
Banca de Economii S.A., in which criminals took over the three Moldovan
banks using a non-transparent ownership structure, partly financed by loans
from offshore entities banking at ABLV. Separately, ABLV previously developed a
scheme to assist customers in circumventing foreign currency controls, in which
the bank disguised illegal currency trades as international trade transactions
using fraudulent documentation and shell company accounts.
And here it links ABLV to a Ukrainian oligarch sanctioned by
the U.S. for asset-stripping:
In addition, ABLV has facilitated public corruption through
the provision of shell company accounts for corrupt CIS-based politically
exposed persons (PEPs) and other corrupt actors. Through 2014, for example,
Ukrainian tycoon Serhiy Kurchenko
funneled billions of dollars through his ABLV shell company accounts.
Treasury’s Office of Foreign Assets Control (OFAC) designated Kurchenko in
2015, finding that he was responsible for, complicit in, or had engaged in,
directly or 12 indirectly, the misappropriation of state assets of Ukraine or
of an economically significant entity in Ukraine. ABLV maintained at least nine
shell company accounts linked to Kurchenko.
Most damning of all, FinCEN alleges that the bank not only
facilitated transactions for North Korean sanctioned entities, it lied about
it (my emphasis):
ABLV’s business practice of banking high-risk shell
companies without appropriate risk mitigation policies and procedures has also
caused the bank to facilitate transactions for parties connected to U.S.- and
UN-designated Democratic People’s Republic of Korea (DPRK or North Korea)
entities. These designated entities include Foreign
Trade Bank (FTB), Koryo Bank, Koryo Credit Development Bank, Korea Mining and
Development Trading Corporation (KOMID), and Ocean Maritime Management Company (OMM), some of which are
involved in North Korea’s procurement or export of ballistic missiles. ABLV
facilitated transactions related to North Korea after the bank’s summer 2017
announcement of a North Korea “No Tolerance” policy.
ABLV, therefore, was not just doing money laundering, it was
systematically breaking sanctions all over the world. No wonder FinCEN wanted
to throw the book at it.
This explains why the ECB imposed a moratorium on payments.
If FinCEN is right, then a high proportion of ABLV’s NRDs were of dubious provenance,
to say the least. Those were the deposits that ran the moment FinCEN made its
announcement. ABLV could not possibly be provided with “emergency liquidity
assistance” (ELA), since that would be tantamount to the ECB facilitating the
movement of money suspected of being laundered. The only question is why it
took the ECB six days to impose the moratorium. A lot of money can run out of a
bank in that time. Arguably, given the seriousness of FinCEN’s allegations,
regulators should have closed it sooner. I suppose they needed confirmation of
the special measure. But preventing the flight of those deposits would have
been a very good thing.
The involvement of Latvian banks in international money
laundering networks has been an open secret for years. Belatedly, regulators on
both sides of the Atlantic are now acting to shut down these networks and
eliminate criminal banks. Trasta
Komercbanka, the Latvian bank at the heart of the “Russian laundromat,” was closed down in 2016 for failing to
comply with money laundering regulations. Now ABLV has been closed down
too. It may not be the last.