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Control Service: Latvia’s focus solely on banking sector’s «cleaning» is not enough

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUEconomic crimes are not crimes in which there are no victims. It is exactly the opposite – the entire society is the victim. Latvia’s focus on «cleaning» the banking sector is absolutely not enough to sort things out – economic crimes are not possible without corruption, says Anti-Money Laundering Service’s Chief Ilze Znotiņa.

In an interview to BNN, Control Service’s Chief Ilze Znotiņa explained what it would mean for Latvian residents if their country remains in the so-called grey area and why political will to tackle economic crimes has been insufficient in the past several years.

«There is a lack of understanding in the political environment as to what anti-money laundering measures are»

Latvia’s fears of ending up on the «grey list’ have increased so far in less than a year that voicing the slightest criticism towards the financial sector now basically means shooting yourself in the foot again. Still, Latvia does have a self-preservation instinct. Ending up among countries with high risks means Latvia would be put alongside countries like Serbia, Syria, Sri Lanka and even North Korea, as well as many African countries – Botswana, Ghana, Ethiopia, etc., which are constantly mired in corruption scandals.

How and why after countless warnings from the European Union and different institutions on lack of anti-money laundering measures Latvia has ended up in a situation when it is unclear if it could end up on this «list»?

When asked this question by BNN, the head of Latvia’s Control Service said this: «There is a severe lack of understanding of what money laundering is and what needs to be done to prevent this crime.» She also notes politicians do not understand what international partners expect of Latvia. According to Znotiņa, Latvia lacks experience and knowledge combating money laundering. «Meanwhile, those few experts that understand this topic are unjustifiably questioned.»

When asked about her opinion on the initiative for forming an expert group to combat dirty money, Znotiņa said: «Some time ago I had to ask politicians are all talk and no walk with these problems or if it’s the lack of understanding that this is a very important process – supporting experts to combat economic crimes.»

«It is possible that expanding the capacity of the police, KNAB and customs police could potentially step on the interests of those who have slept calmly all these years, knowing they can do whatever they want. So then the question is whether or not this is all because of lack of knowledge or if this is intentional negligence. I hope to never come to the conclusion that it is all intentional,» says Znotiņa.

She does admit the situation is starting to recover – she has been in her post for nine months and political support for strengthening the Control Service has been provided.

After the Mneyal report Latvia has ended up under strict monitoring of the US FinCEN. A couple of years may be needed for Latvia to be able to prove everything is fine on a technical level – legislation, external and internal regulations, etc. Until there is clarity, Latvia will have to continue its efforts. Meanwhile, it is hard to get away from the monitoring process. «Latvia should not linger in it for long. It’s not that hard, after all – sort out the legislative foundation and processes,» says Znotiņa.

It should be said that Moneyval also follows closely to developments in Latvia. Meanwhile, Financial Action Task Force is currently in the process of evaluating whether or not Latvia should be put on the «grey list».

Znotiņa believes Latvia has a chance of avoiding the list. Nevertheless, there is a lot of work to do, and the Control Service requires funding in order to implement recommendations that cannot be implemented without funding.

Unanswered questions about ABLV Bank – the risk that could potentially sink Latvia

Control Service’s chief says the scandal with ABLV Bank has made other countries worried about the way Latvia handles the situation. She says during the meeting of representatives of anti-money laundering services from 159 countries, she was asked by colleagues how Latvia intends to deal with ABLV Bank situation.

«This is a very serious matter. I we cannot prove that we’ve got the situation under control, there will be no way to prove we’ve learned our lesson. The unresolved problem with ABLV Bank could have a serious impact on the stability of Latvia’s financial sector,» says Znotiņa.

She notes: «A year ago, FinCEN criticized Latvia for ABLV Bank and the problems associated with it. The first Moneyval report was received some time ago. It wasn’t something that could have prompted us to consider FATF grey list. Then we received the second report in February and the situation took a massive turn.»

«One of the biggest problems that surfaced because of all this is Latvia’s lack of reaction to the first report.» Znotiņa says the world has specific standards on how problems should be addressed and which measures should be undertaken in the event of receiving such reports.

«When I became head of the Control Service, I was already the head of Moneyval delegation. A plenary meeting was held in Strasbourg, and we had to defend our positions. It was impossible to convince delegations of other countries that we’ve assessed the problem and that we intend to deal with it.»

While some worry Latvia could be added to this «grey list», most of our society have no idea how this could affect their lives. The answer is quite simple – economic decay; we would become poorer.

«This means there is a risk of loans becoming more expensive for residents and interests rates going up as a result. Bigger guarantees will be required. There is a risk of some banks closing in Latvia. With that, the range of services might become narrower as well. It is only logical for there to be surges and drops in the economic development cycle, but this drop is something we can avoid,» says Znotiņa.

She also notes that in such a problematic situation some companies could end up insolvent, because payments for goods will likely end up delayed. «It is possible the companies that produce now will no longer be able to sustain exports of goods or services. There is a risk of foreign partners reconsidering cooperation plans with companies to which transfer of money would require gathering a pile of documents and proof that they are not money launderers».

Znotiņa describes this situation as «the new reality we all live in». «First we are accused of money laundering and then we clean house. The new forget to follow rules of the game. For example, in 2008, during the financial crisis, when the question was about the country surviving financially, we sought a solution to improve the situation. At the same time, we made numerous mistakes, including selling residence permits to citizens whose backgrounds were not checked. It was important for them to invest in Latvia. But by doing this we opened the way for dirty money to enter our country.»

As an example she mentioned the lack of funding for the police and other law enforcement institutions. «It is possible that we did not pay enough attention to what supervisory institutions know of their duties,» comments Znotiņa.

«No economic crime is possible without corruption»

At the same time, Znotiņa says it is important to no overdramatize solely Latvia’s situation. «Currently Europe is engulfed in numerous scandals involving money laundering cases. Latvia is not the only country. Let’s look at Estonia, where a very small bank turned out to be the cause of an enormous toxic element. We know this bank was technically only a branch of a large Danish bank. The question is: what were Danish supervisors doing this whole time? And this is not all – other examples include Andora’s bank, Malta’s bank, Cyprus’ Bank, Deutsche Bank, which keeps ending up in publications about their ability to combat money laundering.»

Znotiņa believes nearly the entire world is in a very complicated situation. Superpowers impose all kinds of sanctions, forcing small countries play «by the rules». «There are also efforts to combat terrorism financing. We can say from Latvia’s experience that terrorism financing often goes hand in hand with money laundering.»

However, she adds: «I believe focusing solely on banking sector’s development or its ‘cleaning’ is absolutely not enough. We have to understand – no economic crime is possible without corruption».


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  1. Zerry says:

    It really is worth investing more to KNAB and high skilled investigators. If Latvia could split the grey economy then would not be a problem how to finance education or medical services. Just lack of moral backbone among politicians is the problem.

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