Latvia 'continued scene of money laundering efforts'

Latvia continues to be a favored destination for criminals from the former Soviet Union to try to launder money and get it into the European Union's banking system, a report just made public suggests.

The authors of the report, titled: Latvia and Money Laundering are Andrew Bowen, a researcher at the political risk consultancy Wikistrat and well-known academic Mark Galeotti, Professor of Global Affairs at New York University.

While the report acknowledges that "great attention has been placed on [Latvia's] efforts to reform its regulatory and oversight capabilities," it also says that backing up these good intentions with real enforcement is sometimes lacking:

While there has been significant improvement in the regulatory capabilities of authorities, Latvia continues to be a locale for the laundering of capital from Eurasia and that without continued institutional improvement the situation is unlikely to change"

The report lists Latvian banks' connections to numerous notorious deals including $63 million that passed through Latvian banks in connection with the massive fraud since known as the 'Magnitsky Affair' and which resulted in the death of Russian lawyer Sergei Magnitsky; another case involving weapon shipments to Syria; and yet another facilitating the corrupt purchase of oil rigs by Ukraine for $150 million more than they were worth using shell companies.

"There are certainly grounds to suspect that Latvia is still reluctant to openly commit itself to combating the abuse of its banks to move and launder criminal profits," the report says.

"Despite the presence of internationally acceptable standards of anti-money laundering institutions, though, Latvia continues to see significant instances of money laundering and the exploitation of its financial systems by illicit financial flows."

Bowen and Galeotti also draw attention to the dangers posed by Latvia's controversial residency-for-cash scheme, supporters of which want to see re-introduced in looser form than it currently exists.

"Alleged crime figures and former Bank of Moscow president Andrei Borodin, who is wanted by Moscow in connection with a $443 million money laundering scheme, are just some of the examples of the people who have had residency permits revoked by Latvian authorities," the report says, also citing the example of family members of fugitive Kazakh banker Mukhtar Ablyazov, found living in Italy on a Latvian residency permit.

The fact that 98% of applicants to the residency permit scheme are approved raises questions about how effectively it is policed, the authors contend, while "elites from Eurasia want to ensure that their holdings can be secure, and legally protected, away from the prying eyes of their home countries and rivals," which makes Latvia an attractive destination for their investments.

Latvia complies with the EU’s Third Anti-Money Laundering directive and has improved its regulatory framework but "has been either unwilling or unable in many instances to take action against revealed instances of money laundering and financial malfeasance."

"Here Latvia’s record is less impressive, as corruption and weak penalties combine to undermine the formal compliance regime. For example, when it comes to sanctioning banks, the inability of the [financial regulator] to levy large fines compared to the vast amounts of capital transiting banks contributes to the limited utility of the threat of sanction."

Since 2006, the regulator has imposed the maximum penalty - a fine of €140,000 - just six times, and each time has refused to name the bank in question.

The report concludes with a warning that Latvia's entry to the Eurozone in 2014 may result in backsliding on efforts to clean up the system. colleagues may feel uneasy:

"Whether the authorities are able to increase their enforcement or start to revert to lax oversight and enforcement will dictate their position among the nations of the Eurozone."

Also Tuesday, financial newswire Bloomberg published a report quoting Valerijs Belokons, chairman of Baltic International Bank, saying he feared for the country's financial reputation owing to the perception - false in his view - that it is a money-laundering hub.

The report also said that the Latvian embassy in the UK was among dozens of embassies worldwide that had its account with HSBC bank shut down last year as part of a US-led crackdown on money laundering.

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