Upheavals in the Latvian banking sector

  • 2018-02-28
  • Karlis Streips

There’s been a huge commotion within Latvia’s banking industry during the last week or so. First it was discovered that the financial authorities from the Treasury Department have accused ABLV Bank of money laundering financing terrorism. The complaint can be found in a dense 30-plus page document that appears to have covered the sins quite thoroughly. Needless to say, the bank, the country’s third largest, has strongly denied the charges, arguing that they apply to events that took place a long time ago and that ever since it’s been working hard to improve its operations. Among other things, it claims to have reviewed its more suspicious clients and to have reduced client numbers by around 25 per cent. The vast majority of the bank’s clients are foreigners with foreign interests, and it would be no surprise if some of them, particularly those from Russia and other former Soviet countries, were interested in using the bank’s services for nefarious purposes. The bank has 60 days to file a formal written response with the American authorities, so this is an issue that promises to remain open for some time to come. 

The Bank of Latvia, the country’s central bank, pumped substantial resources into the bank to stop it from collapsing when during the first few days after the announcement some €600 million was withdrawn from its accounts. The central bank has reassured the general public this isn’t taxpayers’ money but an investment in bank securities that will be recouped once ABLV Bank is back on its feet. This is not comparable with the collapse of Parex Bank during the last global financial crisis when the government bought its remaining assets for €1, split its toxic assets into a separate company and allowed its positive assets to be claimed by Citadele, Parex Bank’s successor. 

Neither is it comparable with the total collapse of the Latvian Savings Bank and, back in the 1990s, Banka Baltija. In the former case, a shareholder in the bank pretty much bled it dry, whilst the latter’s operations were basically a pyramid scheme, with the owners promising huge interest on deposits and making some payments, but using incoming money to do so until there was no money left. Two of the bank’s officers went to jail after a long trial that suffered a number of delays including one caused by its Chairman Aleksandrs Lavents who spent several months claiming to be too sick to be tried. This is a common ploy among people facing legal charges, something one would think the judicial system would employ medical staff to examine those who do so. More often enough, these claims turn out to be nonsense.

The country’s other current big scandal relates to the President of the Bank of Latvia, Ilmars Rimsevics, who, upon returning from a brief trip to Spain visited the Corruption Prevention and Combating Bureau (KNAB) where he spent seven hours before being further detained behind bars until he was released on €100,000 bail provided by a person described as a ‘good friend’ of his. The KNAB claims that Rimsevics has in the past requested a bribe, forced someone to pay a bribe and received one. Fuel was poured onto this particular campfire by yet another bank, Norvik Banka, where certain staff members have claimed that Rimsevics once asked them to pay a bribe of €100,000 per month. Latvia’s Finance and Capital Markets Commission has responded by saying that the Norvik and its shareholders have always been ‘problematic’, and so such claims shouldn’t be taken seriously.

Meanwhile, Rimsevics has been making the rounds to prove his innocence. On release from prison he made a brief statement to the media stating that he categorically rejects the charges. He then went on to appear on the television programme 1:1 on Latvian Public Television and be interviewed online by the Latvian journalist Janis Domburs on delfi.lv. In the latter two cases, Rimsevics claimed to have no idea as to where the charges originated from and insisted he’s not in the slightest bit guilty of the charges made against him.

This is a conundrum for Latvian politicians. The law on the central bank says that the President of the Bank of Latvia can only be removed from his or her post if he or she wishes it to happen or the person concerned is convicted of a crime. Rimsevics has been at the central bank from its very beginnings, earlier serving as its Vice President under Einars Repse who went on to form the New Era Party and run successfully in the country’s parliamentary elections. 

Rimsevics has been reappointed to the job twice and this is his third term. He’s said in the past that he wouldn’t be seeking a fourth term because he feels that he’s done everything that he can, including overseeing the replacement of the old Latvian currency with the euro in 2014. Members of Latvia’s Parliament are currently looking at possible amendments to the aforementioned law with an eye towards making the sacking of its president easier. Prime Minister Maris Kucinskis has said that he can’t imagine Rimsevics ever returning to the job.

Back in the early 1990s, when Latvia’s economy was pretty much a Wild West situation, banks popped up like mushrooms after the rain, many of them pocket banks for people who’d somehow and very suddenly become extremely wealthy and needed somewhere to keep their money. Prior to the ABLV scandal, several others have been accused by the Americans of dirty deeds, and many of the original banks are now long gone. Bank supervision in Latvia is now in the hands of the European Central Bank. One wonders where it was looking in the past.