U.S. Sanctioning Russian Oligarchs Spurs Cash Exodus From Latvia

(Bloomberg) -- U.S. sanctions targeting Russian billionaires have sparked a further exodus of cash from Latvia, a Baltic nation whose banking system has already been shaken by a string of money-laundering scandals.

The measures against businessmen, companies and senior officials were taken days after President Donald Trump expelled 60 Russian diplomats for the nerve-agent attack on a former Russian spy in the U.K. The penalties prompted lenders in Latvia to end relationships with the sanctioned people and entities, according to the head of the local regulator.

“There were a number of subjects from those mentioned on the list,” Peters Putnins, director of the Financial and Capital Market Commission, said in an interview in Riga on Friday. He declined to provide names.

The U.S. sanctions have pounded the business interests of billionaires including aluminum magnate Oleg Deripaska, whose United Co. Rusal has lost about 60 percent of its value since the announcement. Foreign money was already fleeing Latvia after the country’s No. 3 lender was closed amid U.S. accusations it routinely handled illicit cash. Compounding matters, the central bank is battling bribery allegations that saw him briefly detained.

U.S. Sanctioning Russian Oligarchs Spurs Cash Exodus From Latvia

Latvia, a European Union and euro-area member, has traditionally served as a payments center for clients from the former Soviet Union. In a bid to shake off claims it holds wealth of questionable origin, the government is tightening oversight of the financial system. Deposits have plunged by about 2.5 billion euros ($3.1 billion) since mid-February.

Parliament may adopt measures this month banning shell companies from Latvian banks, accelerating the fall in foreign deposits. Regulators started tightening oversight as long ago as 2016, raising capital standards and forcing lenders to undergo audits of anti-money laundering systems at their own expense.

The changing backdrop is forcing lenders with foreign clients to examine new business lines and models. Some may decide to relocate from Latvia, according to Putnins. They may choose “emigrate away,” he said, without naming specific banks.

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