By Drew Hinshaw
RIGA, Latvia -- A Latvian bank threatened with U.S. sanctions
for allegedly conducting a global money-laundering scheme,
including for companies connected to North Korea's missile program,
is seeking more than a half billion dollars in government bailout
money in an effort to stay afloat.
The accusations against ABLV Bank by the U.S. Treasury
Department have ignited one of Europe's biggest money-laundering
scandals in years and shined a spotlight on Washington's efforts to
go after Eastern European banks it says have ties to Russian money
laundering.
The case has also sparked criticism of the European Central
Bank, which has supervised the largest banks in the eurozone since
2014. The ECB defended its oversight on Thursday, saying it isn't
granted the investigative powers to uncover illegal activities.
ABLV says it isn't guilty of money laundering, but conceded at a
news conference that it suffered compliance issues big enough to
merit disciplinary actions in the past.
The bank is requesting as much as EUR480 million ($590 million)
from the Latvian central bank, which uses the euro and is an ECB
member, to survive proposed U.S. sanctions, it said.
"We are doing everything we can to ensure the stability of the
bank," said ABLV's chairman and chief executive, Ernests Bernis,
who added he had accepted the resignation of his compliance
officer.
The country's banking regulator said it was examining the
request. The central bank didn't comment.
Legislators widely ruled out any parliament-approved bailout:
"If it comes from taxpayers, forget it," said Ainars Latkovskis, a
member of parliament's defense committee.
ABLV is the country's second-biggest taxpayer, and its loss
would be a big one for a government that depends on banking to pay
the salaries of lawmakers and banking regulators alike.
But such a bailout would be a huge and politically fraught
undertaking for Latvia, a tiny country on Europe's Russian border.
Many Latvians view it as a possible bailout for the wealthy
Russians who do business at ABLV as tensions with Moscow mount.
U.S. Deputy Secretary of State John Sullivan said on a visit to
Latvia's capital on Thursday that Washington would take a harder
line against Russian money laundering in Europe, stepping in where
regulators have been politically or legally constrained from
cracking down on their own banks.
"It's a national-security issue," he said. "Security threats can
take many forms, including corruption and efforts to undermine the
integrity of the financial system."
The U.S. has deployed several hundred troops and a small
deployment of tanks in Latvia since last year, in part to check
what they say is a growing effort by Russia to reclaim a swath of
Europe it once governed over centuries.
Latvia's government and military have gone along with that
approach, boosting defense spending and policing its internet for
alleged Russian propaganda. On Thursday, Latvia's parliament voted
to restrict the use of Russian in public schools, a divisive issue
in a country with a sizable Russian-speaking minority.
Latvian banks and regulators have been slower to adjust the new
geopolitical reality. Roughly half of the deposits in the country's
banks come from abroad, particularly Russia. It is a lucrative
business that has helped turned the country into an improbable
banking center for Russians looking to convert their money into
euros, away from Russian tax authorities.
For years, U.S. regulators have warned European counterparts
that the nation of two million was turning a blind eye to billions
of dollars that slip from rogue states, internationally sanctioned
oligarchs, and Russian organized crime, via local banks, then into
Europe's wealthiest economies.
European regulators have repeatedly flagged that risk, and
warned Latvia that its government lacks the staff and capability to
monitor those financial flows. This week, the ECB froze all
payments by ABLV.
The ECB said on Thursday that under EU law only national
anti-money-laundering authorities can investigate their banks.
"Only when such breaches have been established by the relevant
national authority can the ECB take these facts into consideration
for the purposes of its own tasks," said Daniele Nouy, the head of
the ECB's banking-supervisory authority, without citing the bank or
Latvia.
Latvian regulators say they have been trying to improve their
oversight, but struggle to attract people qualified to police an
enormous number of transactions.
Roughly half of the deposits in Latvian banks come from people
and companies who don't reside in the country, particularly from
Russia and Moldova, and ABLV has become a specialist in the field
of foreign money, growing into Latvia's third-largest lender.
The U.S. Treasury Department accused the bank of making criminal
actions a "pillar of the bank's business practices." The department
has proposed sanctions that would cut off the bank's access to
dollars. ABLV has until April to respond to that proposal.
The bank has hired senior figures from the George W. Bush White
House -- including a deputy secretary of the Treasury and a deputy
national-security adviser -- to consult the bank, and defend it
publicly. At home, the company runs one of Latvia's biggest
charities.
The bank has shed more than EUR600 million in value, and
scrambled to keep money in its accounts. More than 1,000 depositors
have been asked -- and have agreed -- to keep their money in the
bank for at least a year, Mr. Bernis said.
--Patricia Kowsmann in Frankfurt contributed to this
article.
Write to Drew Hinshaw at drew.hinshaw@wsj.com
(END) Dow Jones Newswires
February 22, 2018 17:17 ET (22:17 GMT)
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