RIGA - The integrity of Latvia's banking system came under question again last week with reports that a major U.S. bank had shut down its correspondent accounts with local financial institutions and that a high-ranking U.S. official had expressed concern about the possibility of Latvia's banks being used by the shadowy forces that finance global terrorism.
The Wall Street Journal reported that the Bank of New York had halted correspondent relations with several banks in Latvia regarded by experts as outlets for laundering Russian money.
The newspaper wrote that an investigation is under way in the United States involving the scrutiny of an $885,000 transfer in 2000 from Latvia via Bank of New York - which is owned by Netherlands' ABN Amro - during a transaction seen as part of a tax evasion scheme in Russia.
The newspaper went on to state that the ongoing investigation prompted the Bank of New York to halt correspondent relations with nearly 100 banks in Russia, Eastern Europe and the Caribbean states. U.S. regulatory bodies that have suspected the Dutch bank's New York branch for transferring money of dubious origin demanded the cessation of correspondent relations.
Ieva Upleja, a spokeswoman for the Finance and Capital Market Commission, Latvia's market watchdog, said the article published by The Wall Street Journal is most likely about events that happened some two years ago.
Meanwhile, the Latvian daily Diena reported that during last month's visit by U.S. Deputy Secretary of State Richard Armitage, the latter expressed concern about terrorist-organization supporters using Latvia's banking system to transfer funds.
It is believed that despite the overall protection of Latvian banks against money laundering, some banks still did not possess the necessary controls. What's more, Latvia does not have laws requiring the serious investigation of such cases, the confiscation of illegal cash and punishment of the offenders.
"The weakest links in the chain are the Latvian laws and separate smaller banks paying insufficient attention to suspicious transactions. That way terrorist organizations do not get the signal that the international financial system supervision works in the country," a U.S. Embassy official told Diena.
For instance, Latvia still does not have a mandatory declaration of cash on the border, allowing virtually anyone to bring large amounts of money into the country and deposit them into banks.
In response to U.S. concerns, Prime Minister Indulis Emsis said he would instruct the responsible financial supervision bodies to come up with an action plan for solving problems in the banking sector.
Upleja said that information was exchanged on a daily basis between Latvia's control services and analogous institutions elsewhere in the world, including the United States.
"For example, during the course of this year Latvia's banks have filed more than 10,000 reports on suspicious and unusual transactions," said Upleja.
She also noted that the latest report by the International Monetary Fund on Latvia praised its banking system and supervision. Aldis Lieljuksis, deputy chief of the Service for Prevention of Legalization of Illegal Proceeds, told Diena that the service was closely cooperating with the FBI, and that every year it investigated more than a dozen cases on suspicious clients of Latvian banks.
Last year the agency received around 15,000 reports from Latvian banks on possibly suspicious transactions. This year's figure was already some 300 reports higher, Lieljuksis said.