Search on for missing funds

  • 2011-11-30
  • From wire reports

RIGA - In the wake of the collapse of Latvijas Krajbanka, many non-residents who have invested money in the bank’s subordinated capital in order to receive Latvia’s temporary 5-year residence permits are now extremely worried, a lawyer who wants to remain anonymous said to news group On average, three non-residents per week have invested a total of 290,000 euros in the bank’s subordinated capital up till now, in order to receive the residence permit.
“Through our law offices alone, 15 clients used this opportunity, and the total number of such people could be many times larger. Most of them reside in London, and the telephone in our office is red-hot right now,” said the lawyer.

These non-residents make up the most vulnerable part of Krajbanka customers now, because they are not depositors. “The law does not provide that these clients may receive even the state-guaranteed 100,000 euros from the Deposit Guarantee Fund, because their money has been invested in the subordinated capital,” he explained.
Also, these non-residents may encounter problems with extending their residence permits next year. “The residence permits are issued for a period of five years but they must be prolonged on an annual basis. To have his or her residence permit extended, the person must present the authorities a Latvijas Krajbanka notification, stating that a given amount is part of the bank’s subordinated capital.

Right now it appears that receiving such notifications from the bank may be very problematic,” added the lawyer.
Non-EU citizens use Latvian law not only to get legal entry into the EU. The possibility of obtaining Latvia’s temporary residency permit is not the reason why Russian citizens may be interested in buying property in Latvia, said Russia’s largest property management company Miel CEO, Grigory Kulikov. In one year’s time, Russian and C.I.S. country citizens have bought property in Latvia worth about 100 million lats (142.8 million euros).

“I believe that this amount will not grow much larger. Why not? Because 150,000 euros is not a small amount to pay for a residency permit. Russian residents can now receive three- or even five-year Schengen visas, for instance, in Italy, Spain or France, without much of a problem. Of course, they have to pay 1,000 euros, or even 2,000 euros for such a visa, but this is incomparable with 150,000 euros,” says Kulikov.

Residency permits are also available in Slovenia, Lithuania and Estonia, and for a much lower cost. “Therefore, I believe that there will not be too many people willing to receive European Union member state residency by buying property worth 150,000 euros,” notes Kulikov.

Nevertheless, the number of Russians who might want to buy property in Latvia will probably increase, albeit not because of the residency permit. They are people who “need” to have property in Latvia, and the opportunity to receive the permit will be just a bonus for them, he adds.

Addressing the Unity party congress on Nov. 26, Prime Minister Valdis Dombrovskis said that the Latvijas Krajbanka affair shows that Latvia must not only work to increase the volume of investments in the country, but also evaluate the quality of the investors wishing to invest in Latvia. He emphasized that the government must work hard to improve the business environment, which is the most important precondition to attract investments. However, the recent events show that attention must also be paid to the honesty and true intentions of those investing in Latvia.
“It is clear that we must evaluate more carefully potential investors. This is especially true in the financial sector,” the prime minister said.

The Financial and Capital Market Commission last week decided to suspend all financial services provided by Krajbanka after a large amount of money was discovered missing.
Head of the Economics Department at SSE Riga Morten Hansen wrote on his blog that “Given the majority ownership of [Lithuanian] Snoras and Krajbanka (by a very young (35 or so) alleged ‘oligarch’), what makes people deposit big time in  Krajbanka? I may understand many pensioners, for whom it is the remnant of the old Soviet savings bank, the bank they are used to, but what makes several state enterprises deposit very large amounts in a bank which was not allowed to set up a branch in the UK and was not allowed to take over Sweden’s Saab?

Perhaps the authorities should also fare a bit more cautiously when handing out banking licenses? Certainly, the early 1990s (there were no less than 61 banks here in 1993 - doing what, one may ask?) is not a model to repeat… More prudence should be warranted.”
Sweden has offered Latvia all the help it may need regarding Latvijas Krajbanka, in trying to recover the assets removed from the bank, Swedish Foreign Minister Carl Bildt said after a meeting with Prime Minister Dombrovskis in Riga on Nov. 28.

In an interview with LNT broadcast ‘900 sekundes’ last week, the bank’s temporary administrator, Financial and Capital Market Commission deputy chairman Janis Brazovskis said that the money missing from Krajbanka, 100 million lats, was used for two purposes - to increase the share capital of Krajbanka as well as to finance Antonov’s private projects, for instance, the planned takeover of the Saab corporation.

Although this money formally still belongs to Krajbanka, it is encumbered by pledge agreements.
According to Brazovskis, pledge agreements worth 100 million lats altogether have been signed with several foreign banks by Antonov and Krajbanka President Ivars Prieditis. Brazovskis said that with their actions, Antonov and Prieditis committed a crime, and perhaps even a string of crimes.

However, there is only a theoretical chance that these deals could be called off. In practice, this would mean a lengthy and highly expensive process, said Brazovskis.