Regulator vows to root out 'phantom' bank clients

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Latvia's financial regulator, the Financial and Capital Market Commission (FKTK) has vowed to continue the battle against "phantom" clients in the country's boutique banking sector, often part of money-laundering schemes.

A report in the web portal of the official state gazette, Latvijas Vēstnesis, on November 16 quoted the head of the regulator, Pēters Putniņš saying "there is still a lot of work to clean up customer bases and to eliminate various bogus companies."

Speaking to a Saeima committee about efforts to step up the fight against money-laundering after Latvian banks were linked to numerous major international scams and scandals, Putniņš said: "I hope Latvia will not be diverted from its path of an orderly financial sector" and said considerable progress had been made over the last two years since he took over the reins of FKTK with particular attention paid to cracking down on money-laundering, which had previously won Latvia an unwanted reputation as a money-laundering hub where banks performed only cursory checks on clients and their identities and penalties for transgressions were trivial.

"We are putting in a lot of work, the banks are feeling heightened control and are also severely punished. Latvia has never before seen such controls as have been in place for the last two years. There has been a radical change in how we control each non-resident's account file, but we are not yet at the point where we can say we have reached the optimal position," Putniņš said.

Exposing "phantom" accounts and removing them from the banking system was one of the most important but also most difficult tasks facing FKTK, the regulator chief said.
Complex systems of transactions and offshore companies are often used to shield the true sources and destinations of money. 
He also pointed to considerable progress that has already been made to reduce the high share of non-resident deposits (NRDs) in the banking sector from more than 50% to around 40% today.
Non-resident deposits are worth around 8 billion euros while resident deposits are worth 12 billion. As recently as 2014, NRDs outweighed resident deposits by 11.5 billion euros to 10.7 billion.
However, Putniņš said more action was also needed by law enforcement agencies to bring cases to court, as FKTK could not clean up the sector alone.
"Co-operation exists but ... After each bigger scandal... things are not coming to court. There must be convictions. It is not abstract entities doing the laundering something - they are specific people who commit violations."
Putniņš added that he plans to discuss the issue with Prime Minister Māris Kučinskis. 


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