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International Internet Magazine. Baltic States news & analytics Thursday, 28.03.2024, 22:49

Watchdog disappointed with the state of Latvian banks' internal control systems

BC, Riga, 27.06.2017.Print version
The state of Latvian banks’ internal control systems has proved disappointing in previous years, Peteris Putnins, chairman of the Financial and Capital Market Commission (FCMC), told journalists today as he commented the fining of three Latvian banks for their involvement in circumventing sanctions against North Korea.

“The Latvian banks have not been involved in circumventing the sanctions directly, which could be seen as a good thing. At the same time, we are deeply disappointed and dissatisfied with the state in which the banks’ internal control systems have been in previous years, because even cases where banks are used or indirectly end up in a sanctions-circumventing scheme are unacceptable,” said Putnins.


The head of the banking watchdog also said that the fines that have been imposed on the three Latvian banks for their role in the scheme are relatively small, noting that this is the “legal side of the case. What matters is not the amount of money but the fact that we manage to detect these things, that we can investigate such cases and reach a result and decision quickly. That all these three banks have accepted an agreement means that they acknowledge the situation, which to a certain extent is a result of our efforts, because nobody would confess voluntarily, but at the same time we see the banks’ willingness to correct the situation,” said Putnins.


Asked if the fact that two of these banks have been penalized for violating anti-money laundering and counter terrorist financing (AML/CTF) regulations already in the past suggests of systemic oversight issues in these banks, Putnins said that this might be the case to a certain degree, adding that this is what causes the watchdog’s discontent.

“The commission is gradually running out of patience. So, regardless of the form of the penalty, it should not let the banks slip into a lull, as one, two, three, four cases can lead us to the conclusion that the banks actually do not manage their risks, and then tougher decisions might follow. The banks therefore have to draw conclusions also from the decisions taken by the commission in a not so distant past,” said Putnins.


“History always catches up with our banks. Somehow, they just cannot recover and start a new life, as their history sticks with them,” Putnins said.


As reported, the Finance and Capital Market Commission has slapped fines totaling EUR 641,514 on three Latvian banks - Regionala Investiciju Banka, Baltikums Bank and Privatbank - for non-compliance with the anti-money laundering and counter terrorist financing (AML/CTF) regulations.


The Latvian financial watchdog said that in collaboration with the Federal Bureau of Investigation’s (FBI) Counterproliferation Center it had identified three Latvian banks which had not complied with the provisions of the AML/CTF regulatory framework.


"Violations relate to customer due diligence, including also transaction monitoring and obtaining insufficient information about the beneficiaries indicated by the customers and transactions performed. In the period from 2009 to 2015, on several occasions several customers of those banks, making use of off-shore companies and complicated chain transactions, transferred the funds from their bank accounts, to circumvent international sanctions requirements imposed against North Korea. Cross-border cooperation in detecting such weaknesses indicates that, being aware of the risks associated with the development of Latvia as a growing regional financial center, the national supervisory authorities have ensured managing and mitigating above risks both in the AML/CTF and international sanctions areas," the watchdog said.


The three banks are cooperating with the watchdog and have admitted the identified weaknesses. The Finance and Capital Market Commission has entered into administrative agreements with the three banks that most effectively enable the banks to ensure taking immediate measures, to timely identify transactions that led to the circumventing of international sanctions and to act in line with the procedures defined in laws and regulations. Conditions of the agreements stipulate that the banks pay the monetary fine in the total amount of EUR 641,514 into the national budget within one month.


Regionala Investiciju Banka will have to pay a fine of EUR 570,364 and issue reprimands to its officials responsible for compliance with the AML/CTF regulations. The bank has also been ordered to assess its AML/CTF internal control system and take the necessary measures to improve its functioning and effectiveness. The bank has undertaken to invest around EUR 2.8 mln in the improvement of its internal control system in 2017 and 2018.

Baltikums Bank and Privatbank each have been fined EUR 35,575 and told to draw up action plans that would be enable them to identify transactions that are aimed at circumventing or breaching of the international sanctions in the future.


In recent years the Finance and Capital Market Commission has already penalized several Latvian banks for non-compliance with the AML/CTF regulations.







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