Money laundering at Latvian banks

February 21, 2018 3 minute read

First came FinCEN – Money laundering at Latvian banks

Something fishy is unfolding in Latvia’s banking sector. It all started last week when FinCen proposed sanctions on the country’s third largest lender, ABLV. The sanctions, which have subsequently been confirmed, will make it impossible for the bank to operate or open correspondent bank accounts in the US, effectively barring it from the US market. The punishment is so high because FinCEN claims that the bank ‚Äúinstitutionalized‚ÄĚ money laundering, allowing clients to flaunt the breaking of AML rules and breach UN sanctions on North Korea. All of which the bank denies. ¬†

The sanctioning of ALVB is newsworthy within itself, but the plot thickens. Over the weekend the head of the country’s central bank and prominent European Central Bank member, Illmars Rimsevics was detained by the country’s anti-corruption agency for bribery and money laundering. Then on Monday, the European Central Bank itself, stopped accepting payments from the bank. It is possible that the two events are not connected and as of yet no evidence suggests that they are. However, they both add to the growing list of recent money laundering scandals to engulf the country. As this current scandal unfolds, expect more to come…

Ignore at your peril Рthe evils of state capture  

Last Wednesday, Jacob Zuma, South Africa‚Äôs defiant leader finally resigned. After years of economic mismanagement and alleged corruption the South African people should feel relieved. Unfortunately, it will take a long time to repair the damage caused by his financial crimes and no more so than from ‚Äėstate capture‚Äô. State capture refers to corruption that is so systematic that private interests significantly impact a state‚Äôs decisions. In the case of South Africa, the ex-President‚Äôs close associates, the Gupta brothers, bought influence and government work for decades.

State capture may be a less well-known form of economic crime but as it directly undermines democracy, it is one of the most important to be aware of. Businesses involving themselves with those who commit state capture risk exposing themselves to extreme money laundering and corruption risk. Look no further than the now defunct Bell Pottinger, which went into administration last year after being unable to ride out its links to the Gupta brothers. HSBC has also suffered significant reputational damage after banking the brothers for many years. It is crucial that firms think twice before banking those committing state capture, not only for their reputations, but because it is the right thing to do.

FATF Week – ‚ÄčPakistan ‚Äčbreathes a sigh of (temporary) relief¬†

Over 700 delegates ‚Äčare meeting‚Äč this week in Paris for the annual FATF Week. They ‚Äčare discussing‚Äč everything from FinTech to proliferation finance‚Äč. But high on the agenda yesterday was the question of whether to add Pakistan‚Äč back onto FATF’s gray list. Last week, the US tabled a motion to put it back on the list after Pakistan‚Äôs recent attempts to clean up terrorism and terrorist financing were deemed unsatisfactory. The vote trigger‚Äčed fear for many businesses in Pakistan, as being placed on the list (which it was on from 2009-2015) would damage the country‚Äôs reputation¬†as well as making it more difficult for foreign companies to invest ‚Äčin ‚Äčand do business with Pakistan.

So how did Pakistan stay off the list? Well, firstly it‚Äôs not strictly out of the woods yet, it has allegedly been given a three month reprieve to further clean up its act before the Asia Pacific Group releases a report on its progress, which if negative could still trigger a vote. In a¬† tweet,¬†the Pakistani Foreign Minister signalled his relief and thanked ‚ÄúPakistan’s friends‚ÄĚ, most likely China, for breaking the consensus on the vote. We will now have to wait until June to see how close these friends are.