Baltic States – CIS, Banks, Financial Services, Latvia, Legislation, USA

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According to the NGO, Hermitage Capital Management (Hermitage), which is former employer of Russian lawyer Sergei Magnitsky, on June 21 sent a complaint to the Latvian law enforcement institutions, calling to investigate money laundering in ABLV Bank. The application is a response to the permission of the Finance and Capital Market Commission to ABLV Bank to implement its voluntary liquidation plan because there is a risk to lose evidence in this process.

Hermitage has turned to the Latvian Office for Prevention of Laundering of Proceeds Derived from Criminal Activity (also called the Control Service) and the Prosecutor General’s Office, asking to investigate the case of laundering more than USD 100 million and identify the ABLV Bank employees involved in the case. The is related with the 230-million-US-dollar tax fraud scheme uncovered by Magnitsky ten years ago.

According to Hermitage, in the time period between 2008 until 2013, ABLV Bank employees allowed for the laundering of USD 19 million in the interest of Dmitry Klyuev and Andrei Pavlov (who were sanctioned by the US Treasury for their central role in the Magnitsky affair) and USD 102.3 million in total illicit transfers through ABLV Bank accounts connected to the USD 230 million fraud.

Delna said that ABLV officials knowingly allowed for the creation of shell company accounts with no traceable and legitimate economic activity. Additionally, they allowed transactions of several millions of dollars with similar counterparties in other countries despite clear money laundering signals – for example, contradictory and insufficient descriptions for the purpose of payments with no apparent business rationale. All the entities involved are thought to be part of a transnational money laundering network handling proceeds in connection to the USD 230 million fraud, which also used banks in Moldova, Cyprus, Lithuania and Estonia. According to Hermitage, such a scale of illicit activity would not have been possible without the knowledge of ABLV’s senior management.

"Delna calls for comprehensive and thorough investigation of money laundering which threatens the integrity of Latvian financial system and has clear public interest. If the law enforcement institutions are willing to act in the interest of the investigation, they should freeze the assets and secure all available evidence, including electronic databases, electronic banking, electronic messaging and correspondence of ABLV Bank and its former and current employees. Liquidation management, bank employees and shareholders should be notified of their legal obligation to preserve and not conceal evidence, and of their possible criminal liability in acting otherwise," the NGO said in its statement.

Delna also noted that many of the accounts in ABLV Bank also appeared to be administered fraudulently. They featured the use of common mass registration addresses and of common murky nominees, or they included layers of nominees to conceal the true controllers of the accounts – a factor which is likely to complicate the investigation. These nominees included several Latvian nationals, already flagged in the investigations following Sergei Magnitsky’s death in 2009.

ABLV Bank’s spokesman Janis Bunte told LETA that the bank’s voluntary liquidation will take place under strict supervision of the Finance and Capital Market Commission (FKTK) and in the presence of independent experts. "Thus, claims that any evidence might be lost in the voluntary liquidation process are ungrounded," he said.

He said that the task of the liquidation committee is to carry out due diligence of creditors and cooperate with all local and international organizations to renew the bank’s reputation. During the liquidation process the bank will follow provisions of the Law on the Prevention of Money Laundering and Terrorism Financing and other applicable regulatory enactments.

The bank representative said that already in 2013 when media reported on relation of several Latvian banks with the so-called Magnitsky case, FKTK carried out a probe in ABLV Bank and did not find any violations in this respect.

Nevertheless, the bank’s liquidation committee is ready to cooperate with the respective state institutions and provide all necessary information to ensure comprehensive investigation of the case to disperse any doubts, said Bunte.

As reported, the Finance and Capital Market Commission has approved the ABLV Bank' plan for voluntary liquidation and also the four liquidators proposed by the bank.

The Latvian financial regulator, the Finance and Capital Market Commission, acting on the instructions from the European Central Bank (ECB), ordered ABLV Bank to stop all payments as of February 19, 2018, following a report by the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury about ABLV Bank's involvement in international money laundering schemes and corruption.

The lawyers of ABLV Bank have urged FinCEN to recall its proposal, saying that the accusations against the bank were exaggerated and FinCEN had not provided evidence supporting the allegations of money laundering and bribery.

On February 26 the shareholders of ABLV Bank made a decision to start a voluntary liquidation process for maximum protection of the interests of its clients and creditors.

On May 3 ABLV Bank and its largest shareholders filed a complaint with the EU Court of Justice against the European Central Bank (ECB) and the Single Resolution Board (SRB) about several possible violations, including abuse of power, failure to observe proportionality and equal treatment, etc. The complaint lists a range of serious objections to the manner of how the decision about the bank being failing or likely to fail was taken.

Russian lawyer Sergei Magnitsky died in a Russian prison in 2009 after uncovering a 230-million-US-dollar tax fraud scheme. Magnitsky's supporters blame Russia's authorities for the lawyer's death, saying that he was unjustly imprisoned and did not receive proper medical care for 358 days until his death. The Kremlin denies the allegations.

He said that the task of the liquidation committee is to carry out due diligence of creditors and cooperate with all local and international organizations to renew the bank’s reputation. During the liquidation process the bank will follow provisions of the Law on the Prevention of Money Laundering and Terrorism Financing and other applicable regulatory enactments.

The bank representative said that already in 2013 when media reported on relation of several Latvian banks with the so-called Magnitsky case, FKTK carried out a probe in ABLV Bank and did not find any violations in this respect. Nevertheless, the bank’s liquidation committee is ready to cooperate with the respective state institutions and provide all necessary information to ensure comprehensive investigation of the case to disperse any doubts, said Bunte.