Latvia to Cut Shell-Company Dealings After U.S. Security Warning

(Bloomberg) -- Latvia plans to reduce its banks’ dealings with shell companies after a warning from the U.S. that it needs better controls given its NATO status and shared border with Russia.

Under pressure after the demise of its No. 3 lender amid money-laundering allegations and violations of North Korea sanctions, the Baltic country will consider clean-up measures this week. The move follows a March visit by Marshall Billingslea, Assistant Secretary for Terrorist Financing at the U.S. Treasury Department.

The message from the U.S. was that “as a border state, NATO member state, and with our geopolitical situation, we can’t allow this volume of risky money,” Prime Minister Maris Kucinskis said Monday in an interview with Latvian TV. Transactions with shell companies “will be reduced to the level of 5%, and then there’s a question of how much time will be needed, two or three months. The main thing is that it doesn’t lead to some radical closing” of lenders.

Latvia’s banking industry, which serves as a hub for deposits and payments from clients in the former Soviet Union, has been rocked by the closure of ABLV Bank AS and a corruption investigation into central bank Governor Ilmars Rimsevics. Both deny all wrongdoing. Local lenders have attracted a steady stream of controversy, being implicated in the handling of part of a $1 billion Moldovan bank fraud and billions of dollars of illicit cash from Russia.

Latvian regulators have raised compliance standards and boosted fines, resulting in a more than 30 percent drop in the level of non-resident deposits between 2015 and 2017. The pace of reduction “in this situation has been too slow,” Kucinskis said.

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net.

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

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