Corruption, Direct Speech, Financial Services, Latvia, USA

I love Latvia. I love its people, its beautiful countryside, its stunning architecture, and its timeless traditions. I have witnessed first-hand your work ethic and ingenuity. Now that the Centennial celebrations are coming to an end, and as the world marks International Anti-Corruption Day, I want to tell you – as your friend and as someone who wants to see Latvia succeed and prosper – Latvia can and must do better in its fight against corruption.

Corruption eats away at the core of society. It feeds upon the people’s indifference, while starving you of opportunity. It undermines your faith in government, as it makes you poorer. Corruption scares away investment and jobs – forcing so many of you to turn to Latvia’s enormous shadow economy, estimated to be about 22 percent of GDP. Through all of this, corruption wastes the potential of a generation as it drives your children to seek opportunity elsewhere.

Some of you might say the scale of corruption is much better than it was several years ago. And you’re right. But I know I’m not the only one to recognize this problem. According to a 2017 Eurostat survey, an astonishing 84 percent of Latvian respondents believed that corruption was widespread. Thirty-two percent said corruption was getting worse, while only 14 percent said corruption was improving. There are reports of serious corruption in almost every major aspect of society and government in Latvia: government procurement, healthcare, construction, EU-financed development projects, the insolvency and judicial systems, banking, political party financing, and transportation, to name a few.

Make no mistake – corruption in Latvia is not a victimless crime. Corruption has consequences. Major investors, both foreign and domestic, tell me that the costs of corruption here discourage them from making more investments in Latvia, causing the country to lose out on high-paying jobs that could bolster economic growth, keep Latvia’s bright and well-educated young people from moving abroad, and entice those who already left to return home with their families. Some business leaders say that if the situation doesn’t improve soon, they will pull their investments out of Latvia. We recently learned that a major investment in one of Latvia’s key strategic sectors fell apart at the last minute because of the foreign investors’ concerns over corruption.

The United States is not alone in sharing these concerns. In just the last year, the corrosive effects of corruption in Latvia’s banking sector have generated negative publicity about Latvia’s financial sector and investment climate. Despite efforts to spin this publicity, money laundering is not a victimless crime and it negatively affects communities, not just reputations. More must be done so investors do not view Latvia as being a haven for money laundering and illicit finance. Unless Latvia demonstrates significant and tangible progress before the Council of Europe’s next MONEYVAL assessment, corruption in the banking sector may contribute to Latvia being gray listed – a designation of countries with poor money-laundering controls. This would even further isolate Latvia from the international business and banking communities.

How does that affect you? It could mean you can’t use your credit card on holiday outside of the country, or you can’t find your favorite products in your stores, or that your businesses have trouble working with foreign partners. More broadly, money laundering makes Latvia vulnerable to malign external actors who aim to undermine Latvia’s independence and democratic principles by pursuing an agenda that threatens national resilience, undermines confidence in Latvia’s government and regulators, and weakens economic and security ties.

So what can Latvia do? First and foremost, Latvians themselves – and the political leaders they elect – must recognize the seriousness of the problem and take decisive action against corruption at all levels of Latvian society, business, and government. On a concrete level, that means (among other things):

• Reforming the judicial process: Two key factors reduce crime – the certainty that criminals will be caught, and the speed with which they are brought to justice. Well connected criminals in Latvia can stretch their trials out for years, while the citizens pay for it. Even if these criminals are convicted, they often receive reduced sentences because the trial took so long. This is not a deterrent. This does not deliver justice to the real victims of corruption – the Latvian people. Harsher penalties to individuals and companies send a clear message that corruption will not be tolerated in Latvia.
• Strengthening law enforcement and prosecutions: Law enforcement and prosecutors must work together more closely to identify, investigate, and bring wrongdoers to justice. Police and other investigators – including the State Revenue Service, bank examiners, and money-laundering investigators – need more resources, as well as better pay to attract and keep better employees.
• Eliminate money laundering in banking sector: Government officials, regulators, law enforcement, and prosecutors must also together take a strong stand against illicit money flowing through Latvia, including decisive action against entities engaged in these activities. To date, the penalties imposed against Latvia-based banks involved in money laundering scandals have been paltry. Money laundering directly threatens your financial security.
• Fully implementing and even strengthening whistleblower protections: The new whistleblower legislation is a great first step, but there are ways to further encourage whistleblowers to help uncover wrongdoing. For example, in the United States, the Federal False Claims Act actually encourages whistleblowers by offering a share of any money recovered from contractors trying to defraud the government.
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• Improving transparency and a vibrant media: A famous U.S. judge once said that, for curing social and political ills, “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.” Latvians must understand and have access to key government decision-making processes. To reduce corruption, the government should improve transparency in areas such as in government contracts, the use of EU-funded development projects, and in all state and municipal owned enterprises. An informed populace and independent media should easily understand who owns what, and why and how government decisions are reached. Investigative journalism should be welcomed, not villainized.
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• Showing results: More than anything, Latvia needs to show results. The Latvian people must demand zero tolerance for corruption, and the government must deliver in the form of fast, successful prosecutions and other decisive actions to root out corruption.
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The United States has provided and will continue to provide significant assistance and resources to help our Latvian friends and partners tackle these areas and to increase the capacity of its law enforcement and other agencies. No country is immune from corruption, and that is why it is so important to combat it at every turn. As with all things, though, the final responsibility and accountability must rest with the Latvian people and the Latvian government.