Latvia Probes More Bank Leads From U.S. After Financial Scandals

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(Bloomberg) -- Almost two months after Latvia’s No. 3 bank shut amid U.S. money-laundering accusations and its central bank governor was detained over corruption allegations, the Baltic nation is pursuing more leads from America.

Regulators, police and other authorities are currently investigating the information, Foreign Minister Edgars Rinkevics said Wednesday in an interview. He wouldn’t give specifics on the leads or say whether more Latvian banks may follow the fate of ABLV Bank AS, which the European Central Bank barred from operations in February.

Latvia, a European Union and euro-area nation of 2 million people, has for years attracted cash from the former Soviet Union, of which it was once an unwilling member. But a string of scandals, including the brief detention of central bank Governor Ilmars Rimsevics and the downfall of ABLV, is forcing it to rein in business with foreign clients. Since the latest turbulence began, the banking industry has seen deposits fall by about $3 billion.

“It’s in our interests to clean up the sector as soon as possible because it’s the matter of not only the international reputation of Latvia but also national security,” Rinkevics said in Riga, the capital. “And we take our cooperation with the U.S. very seriously.”

In a bid to salvage its image, Latvia is banning shell companies and forcing lenders to close accounts with risky customers. The country’s predicament is made tougher by a bribery probe into Rimsevics, who denies wrongdoing. The investigation is preventing him from fulfilling his role on the board of the ECB.

Click here for more on Latvia’s banking woes

ABLV was the third Latvian bank the U.S. has proposed banning from the American financial system since the Treasury Department was given authority to do so in 2001. ABLV, which decided to go into liquidation, denies wrongdoing and has sent the U.S. Treasury information disputing the charges.

In Latvia, efforts to clean up the sector have become a priority for the government, which is seeking re-election in October. Parliament may pass legislation as soon as this month restricting banks’ relationships with shell companies. U.S. concerns raised during a March visit by Marshall Billingslea, assistant secretary for terrorist financing at the U.S. Treasury, were “definitely” heard, the minister said.

Jekabs Straume, head of Latvia’s anti-corruption bureau, told LNT TV this month that the bureau is examining classified information handed over by the U.S. Treasury. He declined to give details.

ABLV’s demise also exposed a weakness in Europe’s regulatory framework, under which the ECB directly regulated the lender. But responsibility for policing money laundering lies with local regulators.

The case should serve as a warning to spur the bloc into action, according to Rinkevics. Legislation should be amended to centralize control over money laundering, as it has over bank regulation, and investigative powers should be enhanced to ensure the system is more robust, he said.

“When you have this kind of division of responsibilities or not enough clarity then you end up in some of these troubles,” Rinkevics said. “We need to have some discussion on this issue on the European level, particularly on the euro-zone level.”

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