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Facing pressure from the U.S. to clean up its financial system after a string of money-laundering scandals, Latvia is poised to purge the leadership of its banking watchdog.
The move follows a visit to the Baltic country in May by a top Treasury official, who Latvia has said has no faith in the chief regulator. Parliament voted 57-20 to pass legislation that calls for new candidates for the director of Financial and Capital Market Commission to be submitted by October.
Removing FCMC Director Peters Putnins is part of a push to remake Latvia’s image after its No. 3 lender was closed amid money-laundering accusations and central bank Governor Ilmars Rimsevics was charged with bribery, which he denies.
Once a magnet for cash from the former Soviet Union, the euro-area country has abandoned dreams of becoming a regional financial hub. A $230 billion laundering probe around Danske Bank A/S’s unit in neighboring Estonia hasn’t helped.
“About five or six years ago, we said Latvia was a small Switzerland, there’ll be banks here and we’ll just live on the banks’ bill and everything will be really good,” Chief of Police Ints Kuzis told a news conference this month touting better coordination among law-enforcement agencies on money laundering. “Under that was hiding some really not nice things.”
The U.S. is a driving force behind the current clampdown. The Treasury’s 2018 decision to cut off ABLV Bank AS from the U.S. dollar financial system over allegations it handled illicit funds led to the lender’s demise. While regulators have since overseen a plunge in foreign deposits and banned dealings with shell companies, officials in Washington aren’t satisfied.
The U.S. embassy in Riga openly criticized Putnins last month. Over dinner with lawmakers, Assistant Secretary for Terrorist Financing Marshall Billingslea said the Treasury doesn’t trust the regulator, according to people who attended. Putnins blamed external pressure for the bid to oust him, saying Wednesday that the move is being taken “without any reasoned argument and evaluation of the professional work of the institution.”
Billingslea has praised Latvia’s wider crackdown and says he has confidence in the government. The two countries work closely within NATO, a partnership he links to the banking issues.
“This topic of kleptocracy and money laundering is absolutely and unquestioningly a security issue,” Billingslea said in Tallinn after his visit to Latvia. “In the case of Estonia, Latvia and the United States, it’s an alliance issue.”
Meanwhile, the scandals keep coming for Latvia, which is also battling to stay off a so-called grey list of countries that can’t bring money launderers to book.
This week, the family of a murdered anti-corruption journalist from Malta submitted details to Latvian authorities of people they say were involved in a laundering network linked to her death. Earlier, $1 million of cash was discovered on a private jet arriving from Odessa, Ukraine.
The Financial Intelligence Unit has its eye on two or three banks operating in Latvia, and is looking into workarounds deployed to dodge the shell-company ban, FIU head Ilze Znotina said in an interview.
Latvia passed additional legislation Thursday tightening reporting standards on large sums of cash, giving the regulator a new mandate to fight illicit transactions and bolstering anti-money laundering rules.
“These measures demonstrate our unbending political will to make further changes in the financial sector as quickly as possible and to become a leader in transparency and governance in EU,” Prime Minister Krisjanis Karins said in a statement.
(Updates with prime minister in final paragraph.)
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