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International Internet Magazine. Baltic States news & analytics Sunday, 18.03.2018, 23:26

Forbes: Why The U.S. Treasury Killed A Latvian Bank

Frances Coppola , Contributor, 28.02.2018.Print version
Latvia’s third largest lender, ABLV, is to be closed down. On February 24th, 2018, the European Central Bank announced that ABLV was “failing or likely to fail in accordance with the Single Resolution Mechanism Regulation.” It will be wound up under Latvian law, and its subsidiary ABLV Bank Luxembourg will be wound up under Luxembourg law.

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.

Here is original article:

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