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Pressure Mounts on ECB Member in Latvian Corruption Probe

In a setback to Latvia, their central bank governor, also an ECB member, was detained by the anti graft bureau.

Pressure Mounts on ECB Member in Latvian Corruption Probe
Ilmars Rimsevics, governor of the Central Bank of Latvia. (Photographer: Bradly Boner/Bloomberg)

(Bloomberg) -- ECB Governing Council member Ilmars Rimsevics was due to be released on bail from detention by Latvia’s anti-graft authorities as the country’s prime minister heaped pressure on him to step aside.

Premier Maris Kucinskis called on Rimsevics, 52, to recuse himself from his duties while a bribery investigation proceeds against him. The governor considers his arrest "clearly illegal," according to his lawyer, who told Latvian TV3 News that his client may be released and hold a news conference later in the day.

The detention kicked off a weekend of activity that culminated with the European Central Bank imposing a payment moratorium on ABLV, the nation’s third-largest bank, on Monday. Kucinskis told reporters that Rimsevics’s case had no connection with that lender. He said the anti-graft bureau may impose restrictions on the governor.

“I can’t imagine that the Bank of Latvia president, who was detained under very serious accusations, could work,” Kucinskis told Latvian TV in an interview on Monday.

Both the detention and the ECB’s move against ABLV represent setbacks for Latvia, which just last year saw its economy struggle back to pre-crisis levels after losing over a fifth of its output in the global financial crisis. After a spate of banking scandals, the U.S. Treasury Department proposed to ban the lender last week from the U.S. financial system, saying it helped entities allegedly linked to North Korea’s missile program. The bank denies the charges.

Jekabs Straume, who leads the Corruption Prevention and Combating Bureau, told a news conference Monday that his office began an investigation into a senior Latvian central bank official on Feb. 15 linked to the demanding and taking of a bribe by two people of more than 100,000 euros ($124,000). While Straume didn’t name him, he was speaking at a news conference at which Kucinskis, the prime minister, had earlier said Rimsevics’s detention would be addressed.

The governor’s lawyer, Saulvedis Varpins, said one of Rimsevics’s closest friends had paid 100,000 euros toward the policy maker’s bail. The lawyer told the LETA news service the reason for the detention -- which was preceded by a search of his office and property -- was alleged acts from years ago.

Independent Central Bank

As central bank governor, Rimsevics enjoys robust independence. Deputy Governor Zoja Razmusa will fill in for Rimsevics while he’s not at the bank, spokesman Janis Silakalns said on Sunday.

He is the longest-serving head of a national bank on the ECB’s Governing Council, which he joined in 2014 when Latvia adopted the euro. He has worked at the Baltic nation’s central bank since graduating in 1992 and has been governor since 2001.

Pressure Mounts on ECB Member in Latvian Corruption Probe

"It would be wise if he stepped down at least during the course of the investigation," Finance Minister Reizniece-Ozola said at the same news conference with Kucinskis.

She said the country was suffering a crisis of reputation over the detention and ABLV. Her ministry has changed its borrowing strategy and will refrain from refinancing operations in the near term, adding that Latvia asked the U.S. Treasury to discuss and share data on the lender, she said. ABLV has denied all accusations from the U.S. Treasury and said it will work with U.S. officials and provide information so that doubts about it can be laid to rest.

Latvia’s benchmark stock gauge, the OMX Riga Index, dipped 1.1 percent to 1,020.265 at 2:44 p.m. The yield on the government bonds due Oct. 2026 rose 2 basis points to 0.79 percent.

ECB Move

The central bank said Monday it had agreed to lend ABLV 97.5 million euros ($121 million) to help it with liquidity, with high-quality assets as collateral. That followed statements from the Financial and Capital Market Commission in Riga and the ECB, which issued statements that they would stop the lender from executing payments.

ABLV Chairman Ernests Bernis said the bank was the target of a "deliberate defamation campaign" and emphasized "that there is not and never has been any bribery regarding state authorities," according to a statement.

In an effort to shake off accusations that its banks hold wealth with questionable origins, Latvia’s financial regulator has fined three banks for handling accounts that were involved in a $1 billion Moldovan fraud in 2014. Five Latvian banks -- including ABLV -- agreed last year to record fines for failing to perform adequate due diligence and gather sufficient information on transactions and beneficiaries of deals linked to North Korea.

--With assistance from Milda Seputyte

To contact the reporters on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net, Ott Ummelas in Tallinn at oummelas@bloomberg.net.

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Michael Winfrey

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