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Draghi Stays Silent as ECB Is Said to Seek Clarity on Latvia

The ECB is holding off from public comment on the bribery allegations against Latvian Governor Ilmars Rimsevics.

Draghi Stays Silent as ECB Is Said to Seek Clarity on Latvia
Mario Draghi, president of the European Central Bank (ECB). (Photographer: Alex Kraus/Bloomberg)

(Bloomberg) -- The European Central Bank is holding off from public comment on the bribery allegations against one of its policy makers as it carries out due diligence into the accusations, euro-area officials familiar with the matter said.

Draghi Stays Silent as ECB Is Said to Seek Clarity on Latvia

More than 48 hours since Latvian Governor Ilmars Rimsevics was detained by anti-graft authorities and pressed by the government to step down, the ECB is still unclear on the details of the case, the people said. The Governing Council expects to be briefed by the Executive Board at a scheduled meeting on Wednesday, they said, asking not to be identified as internal discussions are confidential. The ECB has been in contact with Rimsevics, one person said.

An ECB spokesman declined to comment.

The longer the standoff in Riga runs, the more pressure ECB President Mario Draghi will come under to publicly address some of the gravest allegations ever against a Governing Council member. He’s almost certain to face questions on Monday, when he’s scheduled to testify before the European Parliament in Brussels.

The Allegations

Latvia’s Corruption Prevention and Combating Bureau, which detained Rimsevics, said it had begun criminal proceedings against a “a top-level public official” of the country’s central bank. It’s investigating “an alleged solicitation and acceptance of a bribe” of at least 100,000 euros.

Separately, Latvian police are looking into allegations brought by Norvik Banka JSC in a 39-page complaint to a World Bank arbitration body. While the document, filed in December, only refers to a “very high-level, senior Latvian public official,” Norvik chief Oliver Bramwell confirmed that person is Rimsevics.

An ECB spokesman declined to comment.

Not Leaving

“There has never been such an open allegation against a central-bank governor, therefore it’s very risky for the ECB to come out openly until they hear from him and his lawyers,” said Panicos Demetriades, a former Governing Council member who recently published a book about his own experience of being pushed out as head of the Cypriot central bank. “If he says to them ‘you need to come out and support me’, it’s a different story, but they might still be on the fence."

One outstanding question is whether Rimsevics, 52, will turn up to Wednesday’s meeting. Latvian finance minister Dana Reizniece-Ozola said on Tuesday afternoon that Rimsevics "cannot leave the country, as part of restrictions imposed.” He is one of the 21 policy makers, out of a total of 25 on the Governing Council, who is entitled to cast formal votes this month under a system of rotation designed to streamline decision making.

Reizniece-Ozola, who on Sunday called on the governor to step down -- at least during the course of the investigation -- said the travel ban is “one of the practical reasons” why Rimsevics should move aside to allow Latvia to “fully represent itself at the ECB.” 

According to the Rules of Procedure on Governing Council meetings, Rimsevics may appoint an alternate if he is prevented from participating for a prolonged period. That person would then be able to cast a vote.

Read the latest on Latvia’s central-bank scandal

The Latvian said in a press conference on Tuesday that he’s innocent and won’t step down as governor, though he added that it’s “hard to say” if he’ll return to work immediately. 

The terms of his bail prohibit him from performing his duties. The Latvian central bank has said Deputy Governor Zoja Razmusa will fill in for Rimsevics at the ECB, though she is ineligible to vote. She is already covering his day-to-day duties.

A spokesman for the Latvian central bank said on Tuesday that the institution is “in consultation with the ECB on how the situation should be treated from the point of view of the ECB’s statutes.”

EU treaties dictate that politicians can only remove a governor if they are unable to perform their duties, or have been found guilty of serious misconduct.

Disinformation Claim

Separately, Latvia’s Defense Ministry signaled that Russia may be inflaming the crisis engulfing the Baltic nation’s banking industry.

“There is a high probability that an externally organized widespread information operation is being carried out that, by its structure and execution, is identical to those observed in pre-election periods in the U.S., France and Germany,” the ministry said in an emailed statement on Tuesday, which didn’t explicitly name Russia.

The warning comes four days after U.S. Special Counsel Robert Mueller accused 13 Russians of a sophisticated disinformation campaign that targeted the 2016 election and sought to sow discord in the U.S.

Rule of Law

In previous cases of allegations against national governors, the ECB acted quickly to warn governments to respect central-bank independence. When Slovenian police raided the office of Governor Bostjan Jazbec in July 2016 and seized his laptop, Draghi responded within hours by sending a letter to the country’s prosecutor warning of potential legal action. 

The ECB president twice stepped in to deal with perceived political pressure on the Cypriot central bank, when the government first tried to oust Demetriades and then, after he resigned, started dismissal proceedings against his successor, Chrystalla Georghadji.

Those episodes related to accusations against governors for actions undertaken in the course of their duties, and can’t necessarily be compared with the Latvian case, one of the euro-area officials said.

“The fact that the ECB is now being silent and waiting to see the evidence of the case is encouraging,” said Leo Hoffmann-Axthelm, a researcher at Transparency International EU who edited a report on the ECB’s accountability in 2017. “It just means that they respect anti-corruption authorities and just like the rest of us will wait until the rule of law has run its course.”

--With assistance from Piotr Skolimowski Carolynn Look Alessandro Speciale and Aaron Eglitis

To contact the reporters on this story: Paul Gordon in Frankfurt at pgordon6@bloomberg.net, Jana Randow in Frankfurt at jrandow@bloomberg.net.

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Zoe Schneeweiss, Craig Stirling

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