Money laundering accusations in Latvia cast doubt on ECB credibility

A general view of the Latvia central bank building in Riga, Latvia, 18 February 2018. Latvian central bank Governor Ilmars Rimsevics was detained by the Corruption Prevention and Combating Bureau (KNAB) due to the ongoing investigation into allegations of corruption. [EPA-EFE/VALDA KALNINA]

The governor of the Latvian central bank, suspended by the Parliament, continues to face extraordinary accusations. The Commission has promised to set up a working group by the summer to tackle money laundering. reports.

A 200-kg safe was found empty in a wood not far from Riga, the Latvian capital, and intrigued the local police. According to the local news agency LETA, it was found empty after being stolen from the central bank governor Ilmars Rimsevics’ house in March. Just after Rimsevics spent 48 hours in police custody after being accused of corruption.

Latvia's chief banker arrested by anti-corruption officials

Anti-corruption authorities in Latvia have arrested the governor of the country’s central bank, Ilmars Rimsevics, the government said Sunday, while assuring there is “no sign of danger” to the financial system.

Bribes and a safe

This has aroused suspicion about the governor. In this country bordering Russia, some see this as another episode in a well-organised plot to undermine the credibility of the European Central Bank, and therefore Europe, in the run-up to Latvia’s parliamentary elections in October.

Non-resident holdings in Latvia still accounted for almost 40% of total assets held by Latvian banks last winter, i.e around €10.5 billion, most of it from Russia.

A member of the very select Executive Board of the European Central Bank, Rimsevics stated that the safe contained only family photos. Not the €100,000 a Russian banker accuses him of having asked for. And Europe’s leading bankers in Frankfurt have shown solid support – according to LETA they have filed an appeal at the CJEU against Ilmars Rimsevics’ suspension from his position as governor, a position decided by Latvian MPs.

Money laundering practices of some banks, a major challenge for the eurozone, lie at the root of this predicament. Last February, the American administration released a notice via the Financial Crime Enforcement Network (FinCEN), which classified the Latvian bank ABLV as a money laundering specialist.

“ABLV executives, shareholders and employees have institutionalised money laundering as a pillar of their business practices,” said the organisation, before listing grounds for serious concern, alleging that the bank was involved in money laundering practices concerning North Korea’s arms activities, contributed to the theft of assets in Moldovan banks and covered up corruption in Ukraine.

Enough to cause embarrassment for the governors of the ECB, responsible for the supervision of the bank. This also triggered an immediate capital flight at the ABLV bank.

In response, the ECB quickly suspended ABLV payments, freezing mainly Russian assets. This did not go down well in Latvia, and the same can be said for the statement made by the Latvian Central Bank governor, who said that no institution, not even his own, could deal with ABLV, following FinCEN’s statements.

The incident involving the safe, which the police say has no connection to ABLV, discredits the ECB a little more in the eyes of Latvians, although they don’t necessarily see it as manipulation, according to a Latvian source.

Latvian defence ministry says corruption claims may be disinformation campaign

Corruption allegations that led to the suspension of Latvia’s central bank governor yesterday (20 February) may be part of a disinformation campaign aimed at damaging trust in the country and influencing October elections, its Defence Ministry said.

ABLV shareholders are also taking legal action. The Luxembourg courts found in their favour in March, by prohibiting the liquidation of the Luxembourg branch of the Latvian bank. They have also lodged a case with the European Court of Justice, claiming that the ECB and the Single Resolution Mechanism have exceeded their powers on this issue.

Embarrassment in Brussels

The European Commission took its time to examine the situation before taking action: it was only in May, three months after the US notice, that it responded on the issue of money laundering. Three Commissioners wrote to the presidents of the financial regulatory authorities, inviting them to a joint working group dealing with the subject.

The US accusations are all the more embarrassing as no one disputes them: a bank in the eurozone did help North Korea finance its weapons programme, and help scammers loot Moldovan banks.

“It’s very embarrassing to depend on US authorities to do the job of monitoring money laundering,” said Danièle Nouy, head of the ECB’s Supervisory Board, during her hearing before the European Parliament in April.

This state of affairs results from the fact that the ECB has no power to enforce anti-money laundering as authorities from the different member states are supposed to carry out this task.

“The ECB cannot rule on infringements of anti-money laundering rules. It is only once such infringements have been established that the ECB can suspend a license,” said Nouy.

Commission questions effectiveness of monitoring

“Many recent cases of money laundering raise questions about the effectiveness of monitoring and the enforcement of anti-money laundering rules, which are in the hands of the national authorities,” a Commission spokesperson told EURACTIV.

The Commission has therefore invited the national supervisory authorities and the three oversight authorities (banking, insurance and financial markets) to a working group. This group should start work “before the summer,” according to the Commission.

Difficulties in combating money laundering in Europe

Despite tougher rules against money laundering, there are still many shortcomings among Member States, the European Central Bank and the Commission. reports.

The Commission is also debating the advisability of setting up an ad hoc anti-money laundering authority. For Sven Giegold, Green MEP, such an authority is much needed.

“In a banking union, we need skills at the European level to enforce the anti-money laundering rules. It is unacceptable that the ECB depends on the decisions of anti-money laundering authorities because of the risks of financial crimes,” the MEP said.

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