(Bloomberg) -- Latvia’s prime minister says his nation is cracking down on shady dealings in the financial sector to help local banks regain access to directly transact in dollars.
Doing so is vital for boosting trade and investment, according to Prime Minister Maris Kucinskis, whose government has sought to tighten banking supervision after the demise of the Baltic nation’s No. 3 lender amid U.S. money-laundering accusations. International banks such as JPMorgan Chase and Co. and Deutsche Bank AG have shut off access to correspondent accounts handling dollar transfers.
“The main goal is the recovery of the U.S. dollar accounts, which is probably not a process of one month,” Kucinskis said last week in an interview in Riga, the capital. The number of risky clients will be cut to a level “that we’ll be able to control and show to our allies.”
Latvia has long been a banking hub for clients based in the former Soviet Union. Membership of the European Union and -- later on -- the euro, further bolstered that status, with cash often held in dollars. Money-laundering scandals triggered a crackdown by the government, shrinking the non-resident banking industry. Local lenders have been affected worse by the loss of dollar services than the Nordic banks that dominate Latvia’s market.
Dollar transfers have plunged since 2014, when they were the equivalent of 221 billion euros ($269 billion), to about 76 billion euros last year. They’ve shrunk further this year and stood at about 2 billion euros in March. Rietumu Banka AS, Latvia’s biggest private bank, told clients last month it was exiting dollars completely.
Keen to rebuild its reputation, further damaged as the country’s central bank head fights bribery allegations, the government proposed banning the riskiest shell companies from the financial sector. Parliament approved the restrictions in the final reading Thursday.
The legislation won’t just affect shell companies, but will also “create an information-sharing platform between the public and private sectors to effectively fight against financial crime,” the Association of Latvian Commercial Banks said in a statement.
Re-establishing correspondent accounts with U.S.-based lenders will also help. “Our investors are asking for this, and our businesses are asking for this,” Kucinskis told local TV this week.
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