One fine, two warnings issued over Baltic International Bank breaches

The Supervision Committee of Latvijas Banka (LB), the country's financial regulator, said April 5 it had decided to impose a fine of 31,731 euros on Viktors Bolbats, former Chair of the Board of Baltic International Bank, which had its operations suspended more than a year ago.

In addition, LB said it had issued warnings – but no fines – to Edgars Voļskis, Member of the Board, and Anda Saukāne, Member of the Board responsible for monitoring the field of the prevention of money laundering and terrorism and proliferation financing (ML/TPF).

As previously reported by LSM, on 12 December 2022, the Financial and Capital Market Commission (FCMC, which has since been rolled into the structure of the central bank) decided to suspend the operation of Baltic International Bank SE. Then on 10 March 2023, the European Central Bank revoked the credit institution's license.

Based on the judgement passed by the Court of Economic Affairs on 24 January 2024, Baltic International Bank SE was declared insolvent.

"Latvijas Banka supervises the liquidation and insolvency proceedings against Baltic International Bank SE, and despite the suspension of the credit institution's operation, the facts established in the liquidation proceedings confirm the violations of laws and regulations identified during the inspections performed by the FCMC in the field of prudential supervision and prevention of ML/TPF and the failure of the members of the credit institution's Board to comply with laws and regulations; moreover, the Chair of the Board should have realised that his actions violated the requirements set out in laws and regulations," said the central bank in explaining what the bank officials did wrong.

"When assessing the Board's responsibility, Latvijas Banka has concluded that the nature of the identified violations suggests that the Board members engaged in various actions that violated the requirements of the credit institution's internal control system and the laws and regulations governing the field of the prevention of ML/TPF, thus negatively affecting the credit institution and the reputation of the entire credit institution sector of Latvia," said the central bank.

"While managing the credit institution's overall operation, each Board member, especially the Chair of the Board, was obliged to assess the compliance of the credit institution's decisions with the requirements set out in the internal and external laws and regulations and contest them, if necessary.

"In addition to the above, the Board of the credit institution has failed to act as a decent and careful manager in the field of lending and investments by taking excessive risks and failing to ensure sufficient risk management, including acting outside its risk strategy and mandate, resulting in the need to build additional provisions and thus significantly affecting the credit institution's capital ratios and financial position," it added.

"Latvijas Banka possesses information that Viktors Bolbats acted contrary to the principles of good governance and took decisions related to the credit institution's operations that seriously violated laws and regulations, subjecting the credit institution to substantial financial, reputational, ML/TPF and sanctions risks. In turn, Anda Saukāne in her capacity as Member of the Board responsible for the field of the prevention of ML/TPF failed to ensure sufficient measures for managing these risks."

"Given the identified violations in the management of lending and investments, Latvijas Banka assessed the responsibility of all Board members who should have ensured an appropriate and consistent risk culture at the credit institution. On the basis of its findings, Latvijas Banka imposed a fine on Viktors Bolbats and issued a warning to Anda Saukāne and Edgars Voļskis."

"In the view of Latvijas Banka, such violations in the financial sector are intolerable and punishable. Thus, despite the fact that the credit institution no longer operates in the Latvian financial market, Latvijas Banka deems it necessary to impose sanctions on the former Board members in line with the severity of their violations," the central bank said.

Nevertheless, there are likely to be some who would argue that one fine and two warnings represent fairly lenient treatment for violating anti money-laundering regulations and "negatively affecting... the entire credit institution sector of Latvia" which has spent the last decade trying to clean up its international image, especially given BIB's previous form in this regard.

Back in 2019, the regulator fined BIB 1.6 million euros for "deficiencies in the Bank's internal control system". Before that, in 2016, another million-euro fine was slapped on the same bank for infringements of anti-money laundering regulations.

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