Long-awaited banking diplomacy expected to bring results

Russia moved a step closer towards excluding Latvia from its list of offshore zones after a delegation led by central bankers spent two days in Riga on a fact-finding mission.

Andrei Kozlov, deputy chairman of the Russian Central Bank, told reporters that the dual purpose of his visit to Latvia was to coordinate work with Latvia's Finance and Capital Markets Commission and assess whether Latvia can demonstrate the necessary criteria for removal from Russia's list of offshore zones.

"Both goals were accomplished," said Kozlov. "I received complete and accurate information which I will present to the board of directors" of the Russian Central Bank.

A final decision on Latvia's offshore status is up to the bank's board, explained Kozlov.

Latvia was blacklisted as an offshore zone by Russia in 1999. Although Kozlov insisted that the decision, coming just months after the Russian financial crisis, was not political, most insiders believe the opposite.

"Absolutely, it was politically motivated," said Teodors Tverijons, president of Latvia's Commercial Banks Association, who met with Kozlov for one hour last week.

At the beginning of the month the Central Bank annulled two regulations that severely restricted Russian banks' operations with Latvia. As the bank said at the time in a press release, the decision was partly thanks to the improving political climate between the two countries.

In September Janis Jurkans, chairman of the left-wing For Human Rights party, met Russian President Vladimir Putin in the Kremlin.

"It was the wrong decision on the part of Russia," Tverijons said of the decision. "Lately they have begun to realize that it hurts Russian financial institutions and small and medium business more than it does Latvian banks," added Tverijons.

Furthermore, Latvia, a member of the World Trade Organization, has the right to apply pressure on WTO candidate countries - i.e., Russia - through the organization's headquarters in Geneva. Only by addressing its concerns with Latvia will Russia find it easier to join the organization, explained Tverijons.

"Latvia does not have offshore legislation," he said. "Latvia's banking laws are in full accordance with European standards. We implemented international banking standards back in 1994, whereas Russia has yet to do so."

Though he did not speak specifically about Latvia's offshore status with Kozlov, Tverijons said he thinks the country will be delisted in the next 2 or 3 months.

Uldis Cerps, chairman of the Finance and Capital Markets Commission, also characterized the Russian delegation's visit as positive.

"We are very satisfied with the visit," said Cerps, who also met with Kozlov last week. He said that the two sides signed a memorandum of understanding providing for the exchange of vital information.

The Foreign Ministry, who is officially negotiating with Russia on the offshore issue, released a statement saying that Foreign Minister Andris Teikmanis urged Kozlov to life restrictions on banking operations, and that the latter "made positive comments on the surveillance of Latvia's finance and capital markets."

Also, Teikmanis "reiterated Latvia's desire to find a solution to the issue of compensation by the Russian Central Bank for the cash deposit made by Latvia in 1993, and the settlement of debt obligations and demands dating from 1992", said the statement.