Blacklisted bankers head to Washington

  • 2005-05-04
  • By Aaron Eglitis
RIGA - Representatives of two Latvian banks targeted for money laundering by the U.S. Treasury Department said they intended to travel to Washington to appeal the decision in the hope of removing the stain on their reputation.

Analysts have already acknowledged that the Treasury Department's statement, made on April 21, could lead to the banks' demise or a consolidation, since much of their money is made through transfer fees.

Already, the two banks 's Multibanka and VEF Banka 's have complained about difficulties in executing transactions denominated in U.S. dollars. Multibanka lost millions in assets just days after the announcement.

Both banks decried the move, claiming that their operations were in full compliance with regulations.

"Multibanka is not servicing any numbered [encoded] account," Svetlana Dzene, chairman of the Multibanka board, said in a statement posted on their Web site. In an interview with the Russian language Telegraf newspaper, she said the bank was searching for a U.S. legal firm to act as counsel. She also expressed confidence that the bank would succeed in defending its reputation against the charges of abetting money laundering.

VEF Banka said that it also adheres to local banking laws, and that the bank has not received any inquires regarding money laundering from foreign banks since 2004.

Industry officials decried the accusations, saying they lacked substance. "There is a lack of information," said Teodors Tverijons, head of the Latvian Commercial Banking Association.

He said that the blacklisting came as a surprise to him, especially given that the banking association had recently adopted two new sets of regulatory procedures.

However, the text of the Treasury Department's press release was unequivocal and listed the allegations of impropriety in both banks, while more detailed reports contain in-depth explanations of how the dubious transactions were executed and even the names of participating entities.

Multibanka is accused of offering customers the use of numbered accounts and confidential services through its branches in Belarus, Ukraine and Russia. The Treasury Department said it possessed evidence linking Multibanka with dubious Russian shell companies and money transfers.

Regarding VEF Banka, U.S. authorities said the financial institution lacked the appropriate mechanisms to check where the money was coming from and verify the true identity of the account holders.

A report by the Financial Crimes Enforcement Network, an arm of the Treasury Department, said Latvia was an ideal transit corridor for Russia, and that smugglers began with cigarettes and alcohol and are now believed to have turned to trafficking narcotics. By the end of 2004, Latvian banks reportedly held $5 billion in assets from the CIS countries, accounting for more than half of all the deposits in Latvian banks.

The country may be home to a legion of shell companies transferring money under a threshold of 40,000 lats (58,000 euros) to evade detection, said FinCEN.

The reports also stated that enforcement has been relatively weak, as only two cases have been brought to court since 2004, both ending in acquittal.

The government of Latvia was designated a country of "primary concern" for money laundering by the State Department in 2005, though many nations with well developed financial industries were also included on the same list.

"The United States has the authority to rescind a 311 [calling for the elimination of money laundering connected with terrorist financing 's ed.] designation if we believe the financial institution or jurisdiction has shown real progress and taken aggressive steps to address the concerns and risks identified in the 311 action," Molly Millerwise, a spokesperson for the U.S. Treasury Department, told The Baltic Times in an e-mail inquiry.

She added that overturning a blacklisting has been done before. For example, two years ago Ukraine was successfully taken off a list of money launders.

Millerwise confirmed that the U.S. government had expressed concerns prior to the designation.

VEF Banka was cited in the FinCEN report as moving large amounts of capital connected to shell companies based in e China, Russia, India and Kuwait. VEF also transferred over $200 million within a two-year period for two "highly suspect corporate accountholders."

Some U.S. banks had already terminated accounts held with VEF due to suspicious shell companies that lacked information like listed telephone numbers and annual reports. VEF is believed to be connected with companies that engaged in Internet financial fraud, said the FinCEN report.

Treasury officials' increased scrutiny of international financial transactions came after the terrorist attacks on the U.S. in 2001 and the adoption of the Patriot Act, section 311.

Money laundering is the transferring of money gained illegally in order to make those resources eventually look clean and legitimate. It can take a few forms: the use of wire transfers until the initial origin is obscured, money placement or transferring large sums of currency piece by piece to avoid detection and then sending them elsewhere.

The rapid growth of the banking sector in Latvia began immediately after the fall of the Soviet Union, when banks emerged as massive clearing houses for currency transactions and settlements. Due to the country's proximity to Western Europe and huge number of ethnic Russians, it was only natural that some of the capital flight fleeing Russia in large denominations went through Latvian banks in the 1990s.