People used to say: a bank and a fly can be killed by a newspaper. The ABLV bank’s scandal started with the publication in a news agency, however, not a Latvian but an American one. See: Federal Register, the daily journal of the US Government, https://www.federalregister.gov/ 

The Associated Press published an article (13^th February, 2018), based on the multi-paged FinCEN report (Financial Crimes Enforcement Network, called FinCEN) of the US Treasury, fully devoted to the Latvian  ABLV Bank.

The Report can be seen at:

https://www.fincen.gov/sites/default/files/federal_register_notices/2018-02-16/2018-03214.pdf

FinCEN report mentioned Latvian banks some time before and for the same reason: they have been engaged in money laundering schemes and soliciting shell company activity that enables the bank and its non-resident customers (e.g. about 90 per cent of all clients in ABLV bank) to launder funds. Most of non-residents in ABLV are coming from high-risk shell companies and private citizens from Russia, Ukraine and Azerbaidzhan.

Present separate report on one of the largest Latvian commercial banks, ABLV contains FinCEN’s charges; these experts’ conclusions seem quite serious.

Box I: About ABLV Bank

The bank was established in 1993 and presently (according to data provided by the Association of Latvian Commercial Banks), ABLV is the second largest bank in Latvia by assets, with the equivalent of roughly $4.6 billion as of March 31, 2017.

ABLV is Latvia’s largest NRD bank by assets with the majority of ABLV’s customers being high-risk shell companies registered outside of Latvia.

Source: Federal Register (FR), February 2018, p. 6989.

Note: The Financial Crimes Enforcement Network of the US Treasure Department (FinCEN) proposed a special measure against ABLV Bank, AS as a „financial institution of primary money laundering concern”.

The Register mentions that 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. Besides, ABLV 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 (according to the US-AML/CFT rules). Source: Federal Register, p.6987.

The Register said that „criminal groups and corrupt officials may use elaborate offshore services to hide true beneficiaries or create fraudulent business transactions” (Ibid, p. 6987).

According to the Register, ABLV holds several subsidiary entities, including a subsidiary bank, ABLV Bank, Luxembourg, S.A., located in Luxembourg. The beneficial owners of ABLV are Ernests Bernis and Oleg Fils; Bernis holds 4.93% of shares in the bank directly, and 43.12% of shares indirectly via Cassandra Holding Company, SIA. Fils holds 43.13 % of shares in ABLV indirectly through SIA OF Holding.’’ Unspecified ‘‘other shareholders’’ own the remaining equity. (FR, p. 6988).

FinCEN assesses that ABLV is used to facilitate money laundering, illicit financial schemes and other illicit activity conducted by its customers and other illicit actors, including actors associated with transnational organized crime, e.g. North Korea’s procurement or export of ballistic missiles, sanctions evasion, and large-scale corruption. (Federal Register, pp. 6987-6988).

It has to be noted that in Latvia the information about the FinCEN report in the Register appeared on the evening of Friday 16^th. What a coincident: the same evening the Latvian Bureau for preventing and combating corruption (KNAB) conducted multi-hour searches both in the office of the Latvian Bank President, Ilmars Rimsevics and in his house (he was on a leisure tour in Spain).

However, already on 17^th of February, Mr. Rimsevics was detained and interrogated by the KNAB people; at the same time Mr. Maris Martinsons was detained, who was involved in “rapid credits” transactions. In two days of interrogations both were released by a caution sum of € 100 thousand which was paid for Mr. Rimsevic by Andris Kreislers, a businessman (however, Mr. Rimsevics is still not allowed to leave Latvia). A day before, on 15^th February, Mr. Maris Spruds, Trasta Banka insolvency administrator, was released with a half-million euros bail-out; he was under arrest since June 2017. Aren’t there too many coincidences?! 

On 19^th of February, KNAB confirmed that bribes of about € 100 thousand (again 100 thousand!) have been as a ground of allegations against Mr. Rimsevics; however, KNAB rejected his connection with ABLV’s scandal.

At the same day Latvian Security Police opened criminal procedures concerning bribes’ extortion from the Norvik Bank’s main shareholder, Mr. Gregory Guselnikov. At the same time, Norvik Bank people filed a case in the international arbitrage against Latvian state’s action, in which it accused “a high ranking Latvian official” of extorting bribes from the bank and misusing its official public position.

Mr. Guselnikov and other bank’s shareholders in their claims to international arbitrage court asserted that the former insolvency administrator (Mr. Maris Spruds) and other “financial sector’s high-ranking official” regularly from 2015 extorted bribes at the exchange of Latvia’s Financial Capital and Market Commission’s loyal attitude to the bank. According to the Commission, non-resident banking services contribute between 0.8 and 1.5% to Latvia’s GDP. Non-resident deposits (NRDs) in Latvia are equal to roughly $13 billion.

Latvian NRD banking activity transiting the U.S. financial system is estimated in recent years to have reached billions of dollars annually.

Otherwise the extortionists threatened Norvik Bank with various sanctions. In his interview in Associated Press, Mr. Guselnikov even voiced the extortionist’s name, i.e. allegedly the bribes were extorted by a mediator Mr. Renars Kokins, though on behalf of Mr. Rimsevic. 

For the entire week the scandal has remained the hot issue in all Latvian media followed by press conferences in Latvia Central Bank, in Ministry of Finance, in Cabinet of Ministers and in numerous interviews with various Latvian ministers and bankers. Then appeared numerous statements, e.g. from the Prime Minister and the President of Latvia. The Minister of finances suggested to Mr. Rimsevic’s resignation, which the latter has rejected.

It has to be noticed that it is quite difficult to remove Mr. Rimsevics from his post before the end of his term; nobody can do that since he is a member of the Governing Council of the European Central Bank, ECB.

On 24^th of February, exactly a week after the first scandalous news were voiced, the ECB announced that the ABLV Bank’s closer shall be in accordance with the Latvian laws since the rescuing of the bank issues doesn’t concern society’s interests.

Among numerous commentators of the financial scandal, there were some who long ago knew about the inherent ills in the Latvian banking sector. Thus, Mr. Mark Galeotti, a researcher from the International Relations Institute in Prague, who specializes in the study of the organized criminality in Europe, in an interview with Associated Press, said that “he heard long before about Mr. Rimsevic’s possible participation in corrupt transactions; about these things people have been talking about in European banks’ community for several years”.

Apparently, there is no secret that criminal groups and corrupt officials may use elaborate offshore services to hide true beneficiaries or create fraudulent business transactions.

Box II:  Domestic and non-resident banking customers in Latvia

The US Federal Register mentioned that „while it lacks a legal framework that formally separates domestic banking business and non-resident banking, most Latvian banks conduct the majority of their business in either domestic retail/commercial banking or non-resident banking services, not both”.

The Register underrlines that non-resident banking in Latvia allows offshore companies, including shell companies, to hold accounts and transact through Latvian banks. Thus, „foreign actors” often transfer their capital via Latvia, frequently through complex and interconnected legal structures, to various banking locales in order to reduce scrutiny of transactions and lower the transactions’ risk rating.

Source: FR, February 2018, p. 6987.

Latvian Foreign Investors Council has made a statement about the negative consequences of the scandal concerning the national bank’s President and suspicions around the third in assets bank in the country about money laundering. The statement argues that this situation threatens both present and future investments’ climate in Latvia, and that the consequences of economic crimes are more serious than the simple financial losses: “crimes undermine the efficiency of government control, democratic values and moral social background”, the statement concluded.

Official Latvian Defense Ministry’s communication underlines that: “the Ministry focuses attention on the fact that in connection with the recent events in the banking sector and the detention of the Latvian Central Bank President, Mr. Ilmars Rimsevics, there is a high probability that a large-scale information operation being organized from outside Latvia, which in its structure and implementation is identical to those, which we had observed in the pre-election time in the USA, France and Germany”.

A very plausible hint on the “outside enemy” looks very much “Latvian-way”, doesn’t it?! 

Tensions in media are increasing; some commentators blamed the disgraced bank despite its significant contribution to Latvian economy, e.g. tax revenues in 2016 were about € 22 million; as well as bank's philanthropy, e.g. charity event in honor of the 10^thABLV Charitable Foundation anniversary collected more than €1 million. However, it should be noted that in case of liquidation, more than 800 employees of the bank will be fired and unemployment benefits would rest on the state budget and the taxpayers. Others may say that the evil will always be punished and that the era of non-resident banks is now ending in Latvia. In heated debates, analysts talk a lot about the possible losses of depositors (in case of liquidation the state will return €100 thousand to bank's customers). However, no one mentions the minority shareholders who invested in the bank's capital their millions, which can be lost irrevocably.

Anyway, informed people have known about the Damocles' sword hanging over ABLV Bank, already two years ago at least. Discussions in the financial sphere around the ABLV in Latvia have been conducted since 2016, when American auditing companies initiated massive reviews of Latvian banks, suspected in money laundering, and by the way, the above mentioned FinCEN report on ABLV Bank is mostly based on the information of those years. Some Latvian banks had to pay penalties then. The largest amount of €3 million the Finance and Capital Market Commission imposed on ABLV.

Many knew and kept their mouth shut about corruption in the country's highest banking and financial institutions, obviously following the postulate that "silence is the sound of money talking". Backstage insinuations and allusions to corruption in the Latvian Central Bank and the financial regulator have been soaring in the air for decades; ever since Einars Repshe headed the Central Bank with Mr. Rimsevics as its vice-president.

The first person to release a genie from a bottle turned out to be the hero of the day - Mr. Guselnikov, the banker. Many know him since he had appeared on Russian popular TV show "What, Where and When?" He holds a British passport and most of the time resides in London. He is connected with Riga through the Norvik Bank, where he is the majority shareholder. The journalist of the Associated Press, who has been investigating the ABLV's activities of for several months, turned to him (accidentally?). He showed Guselnikov a picture dated 2010, where he identified Rimsevich as it turned out, in the company of Mr. Dmitry Pilshchikov, a powerful person in the Russian arms market (and the head of the Russian Institute of Information Technology at that time). Rimsevich admitted the picture's authenticity...

Meanwhile, attempts were being made to convince citizens that the case of ABLV has nothing to do with the president of the Latvian Central Bank. Being asked in an radio interview on February 22 why, under constant pressure and extortion of money for several years, he started speaking openly only now, Mr. Guselnikov replied that he has filed an application for extortion both to the International Court in August 2017, and to the Latvian Security Police in December 2017, though without mentioning Mr. Rimsevics by name.

If one revises and analyzes all the articles and comments of the past week, it becomes obvious that the FinCEN, ABLV & Rimsevics jigsaw puzzle can be put together. Though, it is unclear so far whether Latvian anti-corruption bureau (KNAB) has evidence (direct or indirect) of extortion from the head of the Central Bank. Obviously, they will not talk about this in the interests of the investigation.

It remains unclear, why the Associated Press is carrying out the investigation of the activities of the Latvian ABLV. Judging from the fact that publication of the FinCEN report and the article in the news agency occurred at the same day, it may be that FinCEN itself has leaked the information to the press.

The question is - for what purpose? If the reason is the purity of transactions in the financial world and an order in the investment market, then the goal is noble. In case the "US big brother" is helping to develop fragile Latvian economy and combating one of the global threats, i.e. corruption; then such goal is noble.

At the same time, international and local researchers for many years have been revealing a significant role of Latvian informal "shadow" economy indicating connections between criminal elements and public authorities. However, it was for the first time that so far hidden shadow economy's foundations (as corruption in the circles of power) have been so strongly shaken… At least, one cannot recall a single major corruption case in Latvia, which completely finished with the punishment of criminals involved. All that suggests only one conclusion: there are quite strong connections between criminal and power structures in the country.

It is unlikely that we would know in whose interest these media exposures were delivered. Will Americans help us break the chains of corruption? It is a big question; and even one more: what would be the consequences for Latvia - awful or catastrophic?

One thing is clear: after long years of "delicate silence", the "dirty laundry" has been revealed to public. It is obvious that ABLV's case will occupy a "privileged place" in a series of deafening banking scandals of last decades in Latvia. However, as it seems, the world will not collapse, even in a single country; but will it be better after this, we hope it will!