Latvia Vows to End Money Laundering, But Asks, ‘Will Europe?’

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Latvia’s new prime minister pledged to eradicate the kind of money laundering that’s shaken this corner of the European Union. But he has another important message: while his country may have been a gateway for dirty cash, the rest of bloc is also to blame.

The Baltic nation was rocked in 2018 when its central bank boss was charged with accepting bribes and its third-biggest bank was closed. Scandals, including a $230-billion laundering storm at Danske Bank A/S in neighboring Estonia, have since engulfed the region.

Latvia Vows to End Money Laundering, But Asks, ‘Will Europe?’

A year on, central bank Governor Ilmars Rimsevics -- who denies wrongdoing -- is back at work after the EU’s highest court lifted his suspension. Krisjanis Karins, who became Latvia’s premier in January, says he’ll win back investor trust by tightening regulation and demanding proof for the origin of cash in the financial system. He urged other countries to act too.

“When you go to a store to buy milk, the cashier never asks you where that 1.50 euros came from, they just take your money and smile. Well, it used to be the same with 150 million euros,” Karins said in an interview in Riga. “We’re no more guilty than other countries, we’re simply on the front line. We’ll change our ways. The concern is, will the rest of Europe?”

‘Knightsbridge Properties’

Since 2016, Latvia worked to flush out risky banking clients. But while fines were levied for actions tied to a $1 billion fraud in Moldova and transactions with North Korea, it wasn’t enough to stop the U.S. Treasury from accusing ABLV Banka of money laundering and proposing to ban it from the American financial system. That led to the lender’s demise.

The U.S. action shows “there’s a deficiency in the European banking system,” Karins said. European authorities have focused on prudential regulation and neglected money laundering, he said.

Long a favored haven for Russian tycoons, Latvia isn’t the only country that’s come under scrutiny, often for handling fortunes that originated in the former Soviet Union.

The Baltic branches of Danske Bank A/S and Swedbank AB have also admitted to handling suspicious flows in announcements that have wiped billions of dollars off their market values. Deutsche Bank AG has also been implicated in separate cases, raising doubts about the quality of supervision and enforcement across the continent.

“The fight against money laundering needs to be implemented at all levels of its flow,” Karins said. “If the money was laundered through, say, the Estonian branch of Danske bank, it didn’t fall into the sea. It landed somewhere, say, in some Knightsbridge properties in the U.K. Now the U.K. government is starting to ask wealthy property owners to show the source of their wealth. That’s how it should be done.”

U.S.-Born

Karins, 54, was born in the U.S. to Latvian refugees who fled during World War II. When he moved permanently to Latvia in 1997, he had a PhD in linguistics from the University of Pennsylvania but, as an outsider, couldn’t find a place in academia. After a stint in the frozen-food business, he joined Latvia’s first central bank governor, Einars Repse, and his New Era party in 2002.

Now, he’s leading a government that’s grappling with the reputational damage the financial scandals of 2018 wrought. His cabinet needs to show progress in tightening rules further or risk censure by the Council of Europe for money laundering deficiencies, which would hit economic growth.

“We’re interested in not being on the gray list but I want to go one step further” to help boost trust, Karins said. “To get that investment I need a top-grade banking system, where reputation isn’t an issue.”

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