The Ukrainian government announced on December 18th that it nationalized Privatbank. According to the Kiev Post, the reason is because 80% of the loan portfolio is insider loans. In other words, the bank was a pyramid fraud and the assets were stolen. Now, Ukrainian taxpayers are expected to repay the bank’s deposits.
The numbers seem to indicate that the Ukrainian national debt could double from this. It’s a repeat of the nationalization of Parex Bank which doubled Latvia’s national debt.
Privatbank maintains a subsidiary in Latvia that is specialized in money laundering. Latvia is an excellent location for money laundering because (1) it is in the European Union and (2) the government is 100% corrupt and never enforces money laundering laws.
The big money laundering oligarchs, Valery Kargin and Viktor Krasovitsky of Parex and AB.LV in Latvia, Ilan Shor with several banks in Moldova, and Ihor Kolomoisky with Privatbank in Ukraine and Latvia, all appear to be friends with each other because often their money laundering schemes are done in cooperation. They have now successfully destroyed the economies of all three countries.
We wonder when the international community will stop bailing out these frauds and instead force Latvia/Ukraine/Moldova to put these oligarchs in jail and take back the stolen money?
Neighboring Russia, and Under Its Sanctions’ Shadow Too
November 13, 2014 By Kira Zalan
Whatever the effectiveness of sanctions meant to sway Russia’s involvement in Ukraine, one thing is certain: they’ve worsened the country’s capital flight problem. By year’s end, approximately $128 billion will have moved abroad, up from $63 billion in 2013, according to Russia’s central bank. The European Central Bank in May cited a figure four times Moscow’s numbers.
But tracing where those funds are winding up and how they got there is difficult, according to financial crime experts. For countries with long-held financial and political ties to Russia, such opacity is only deepening suspicions that their financial institutions may be conduits for sanctions dodgers and money launderers.
Take Latvia, a former Soviet republic that earlier this year became the latest nation to adopt the euro. As part of an effort to align its banking sector with international standards, the Baltic country in 2008 passed an anti-money laundering law and established a financial intelligence unit—steps recognized by the Council of Europe’s Moneyval in 2012.
Latvia’s financial markets regulator hasn’t registered a subsequent increase in Russian capital deposits since March, the beginning of western sanctions over Russia’s involvement in Crimea.
Official statistics notwithstanding, “there’s a big industry in moving Russian money through Latvia,” said Josh Simmons, policy counsel at Global Financial Integrity, a Washington, D.C.-based advocacy group.
With Russian clients, “it’s difficult to know a lot of the time where the money is actually coming from,” said Simmons. “You don’t know if it’s proceeds of corruption, a state-owned entity or an individual that’s been sanctioned by the U.S.”
Under U.S. and EU sanctions, banks must freeze the assets of dozens of Russian companies and individuals and sharply limit the maturation windows on credit extended to certain businesses. The restrictions have forced banks to decipher hundreds of corporate arrangements worldwide to determine their exposure to monetary penalties.
‘Quite a temptation’
With a population of two million and a complex history with Moscow, Latvia has leaned toward the West since gaining its independence in 1991. That hasn’t stopped an influx of suspicious Russian funds, however.
An investigation by the nonprofit Organized Crime and Corruption Reporting Project in August exposed a scheme in which 19 Russian banks allegedly used fake debts and courts to transfer $20 billion through Moldova’s Moldindconbank to Latvia’s Trasta Kommercbanka AS between 2010 and 2014.
The exposure of Latvian banks to criminal exploits is exacerbated by the financial sector’s reliance on non-resident clients. Nearly half of all deposits in the country’s banks belong to foreign clients, according to national statistics.
“One of the biggest challenges in general is the presence of money of foreign origin in banks,” an official in Latvia’s Financial and Capital Markets Commission (FCMC) told ACAMS moneylaundering.com via e-mail. To better monitor foreign money, the regulator has imposed stricter anti-money laundering (AML) duties on banks with high shares of non-residential accounts, the person said.
“For so long, there’s been a boutique banking sector: customer oriented, whatever you want done, we’ll find a way to do it,” said Mark Galeotti, a professor at New York University. “It’s difficult [for regulators] to say, in effect, sometimes you’ll have to turn away business, particularly when the banking sector faces a lot of competition and livelihood depends on turnover.”
Galeotti, who has researched money flows into Latvia, said there is anecdotal evidence that Russians are willing to pay as much as double in percentage fees to have their money laundered.
“This is quite a temptation for Latvian bankers,” he said.
“Risks are increasing, but so are opportunities in the short-term.”
One day before the imposition in March of U.S. sanctions over violence in Ukraine, the chief executive officer of Latvia’s PrivatBank described plans to grow the banks non-resident deposits, particularly from clients in Russia, Ukraine, Kazakhstan and Azerbaijan—“countries in which businesses are interested in EU banks,” according to Latvian news agency LETA.
Small sector, big perks
Although the size of Latvia’s banking industry remains modest when compared with offshore hubs like Cyprus and Malta, the country is nevertheless a regional financial center, according to the country’s regulator.
That’s because Latvian banks have carved a niche by “dealing with short-term incoming cash flows,” said Kristaps Zakulis, FCMC chairman, in a statement. The specialization differentiates Latvia from historical financial sectors, such as Switzerland and London, which focus more on attracting long-term deposits from non-residents, according Zakulis.
With Scandinavian-owned Swedvank, SEC and Nordea dominating the domestic market, Latvian boutique banks have had to cater to Russian-speaking clientele, according to Galeotti and Andrew Bowen, a Boston College Ph.D. candidate working with Galeotti.
Rietumu Banka, which in August was the subject of a FCMC enforcement action for inadequate customer controls, advertises 5-year residence permits for foreign investors who deposit more than 300,000 euros in 5-year-term deposits or bonds—“the fastest and easiest way to the residence permit.”
The permits, which can also be obtained by investing 72,000 euros in real estate or 35,000 euros in a business, come with an EU national ID card and a guarantee of free movement within 25 countries of Europe’s Schengen Area.
With the exception of Hungary, Latvia’s permit thresholds are lower than any other EU country, including Spain, Greece and Portugal. But while Hungary’s permanent residence program has “reportedly attracted little interest,” over 7,000 people—75 percent of whom are Russian—had been granted permits as of 2013, according to an August 2013 story by The Wall Street Journal.
“Cyprus is still under heavy surveillance while Latvia is still an integral point for getting capital out of Russia,” said Bowen, adding that there has been talk recently of repealing the lax residency visa system. “They’re trying to be more careful,” likely as a result of pressure from other European economies, he said.
If Latvia has made progress in policing its financial sector, it has done so following decades of banking troubles.
Immediately after the fall of the Soviet Union, in the early 1990s, the Baltic nation adopted a posture on financial regulation that was “extremely liberal,” said Anders Aslund, a senior fellow at the Peterson Institute. “They simply didn’t understand what they were doing.”
Parex Banka, established in 1992, was “a money laundering bank from the outset,” that would “exchange all currencies and ask no questions,” said Aslund. Parex became the second largest bank in Latvia and was subsequently faulted for facilitating money laundering and corruption.
In 2005, the U.S. Treasury Department designated Multibanka and VEF Bank as institutions of “primary money laundering concern” under Sec. 311 of the Patriot Act.
Two years later, six Latvian banks were among the financial institutions implicated in the so-called “Magnitsky Affair,” in which attorney Sergei Magnitsky allegedly uncovered evidence of a $230 million Russian tax fraud. The perpetrators purportedly funneled $63 million through Latvia’s banking system.
Following a probe into the allegations, FCMC fined one unnamed bank approximately $200,000, the maximum monetary penalty the regulator can impose for poor internal controls. Latvian media reported that $365 million may have been laundered through an account at Trasta Komrcbanka, $6.2 million of which may have had links to fraud scheme.
The Latvian bank has denied the allegations.
Other scandals have linked Latvian banks to money laundered by Mexican drug cartels and deposed Ukrainian officials.
Following compliance troubles at home, at least one U.S. bank—JPMorgan Chase— decided earlier this year to end its dollar-clearing transfers for Latvian lenders, officials confirmed. Commerzbank and Deutsche Bank are still providing the services for Latvian banks, according to the bank Web sites.
To address concerns, Latvia intends to impose tougher AML rules on banks “to sharpen the combat of potential money laundering through the Latvian financial sector,” officials said in an e-mail.
But more rules may not be enough, according to Galeotti.
“To be honest, there is a need for people to get caught and tried and put in prison to get people to realize that the balance between risk and opportunity has shifted,” he said.
Journalist Graham Stack has launched a new website called “Ukraine Leaks.”
Mr. Stack has done an excellent job researching the “Latvian proxy network” which is a group of dummy directors who use offshore banks in Latvia to organize huge corruption projects in Ukraine, Russia, and other countries.
Earlier, we posted a link to his article in BNE about Parex Bank’s gift of approximately $100 million of Latvian taxpayer money to Vladimir Putin’s friend Eduard Khudainatov.
The debut article on “Ukraine Links” is about a sham oil platform deal for Ukraine. Trasta Komercbanka of Latvia (founded by former Parex Ukraine rep Igors Buimisters) had a big role, explained on the website.
The transaction has also been linked to Latvian centi-millionaire Vasilijs Melniks. He is a former government minister who became wealthy by transferring state assets to himself in the 1990s.
Buimisters and Melniks have never been prosecuted despite involvement in many corruption scandals reported in the Latvian media over the past two decades.
UPDATE FEBRUARY 2015, NEW ARTICLE ABOUT VASILY MELNIKS:
Global Financial Integrity and the Adriatic Institute for Public Policy have posted about the apparently fraudulent EBRD bailout of Russian/Ukrainian offshore specialist Parex Bank of Latvia in 2009. The bailout empowered corrupt Oligarchs and devastated the Latvian economy. When will the EBRD explain its actions to taxpayers?
Ukraine 2014 is a repeat of Kyrgyzstan 2010 – a kleptocracy is overthrown by a violent revolution and we discover that the kleptocrats were using Latvian banks.
The article names the usual “dummy directors” from Parex Bank sister company International Overseas Services. These directors have been involved in other gigantic crimes also, however Latvian prosecutors are not bothering them. Instead, the prosecutors continue to threaten two whistleblowers with prosecution in order to dissuade future whistleblowers.
The European Union, United States, Russia, and Ukraine have been fully aware for 20+ years that the Latvian government is protecting a massive money-laundering racket. However these governments have taken no action except to fraudulently provide more funding to the racket through the European Bank for Reconstruction and Development.
If you know anyone from the EBRD, please ask them why they are on the wrong side in Eastern Europe.
Since the early 1990’s, Latvia has been the offshore banking center for Russian, Ukrainian, and other CIS oligarchs. In the beginning, oligarchs such as Grigory Loutchansky, Viktor Chernomyrdin, Yulia Tymoshenko, and Pavlo Lazarenko were making use of Latvian banks.
Now in 2012, the offshore business has increased, to the detriment of the Latvian, Russian, and Ukrainian people. The offshore banks of Latvia are endorsed and/or funded by the following organizations: Moodys Ratings, Fitch Ratings, S&P Ratings, Ernst & Young, PricewaterhouseCoopers, the European Union, the IMF, the EBRD, and the World Bank.
Latvian banks are permitted to branch freely throughout the European Union with no oversight from local regulators.
Here is a list of Latvian banks in June 2012 with notes on associated oligarchs:
(1) ABLV Bank – Offshore bank serving Russians and Ukrainians. When the European Union bailed out Parex Bank, many deposit accounts moved here.
(2) Baltikums Bank – Offshore bank serving Russians and Ukrainians.
(3) Baltic International Bank – Offshore bank serving Russians and Ukrainians. Linked to oligarchs Valery Belokon, Boris Berezovsky, Kurmanbek Bakiyev, Alexander Lukashenko.
(4) GE Money Bank – In process of being sold to Otkritie Financial Corporation of Russia.
(5) DNB Bank – Latvian retail bank.
(6) Swedbank – Latvian retail bank.
(7) Latvijas Biznesa Banka – Offshore bank serving Russians and Ukrainians. Owned by Bank of Moscow, linked to Yuri Luzhkov.
(8) Norvik Bank – Former Lateko Bank. Offshore bank serving Russians and Ukrainians.
(9) Latvijas Hipoteku un Zemes Banka – Government bank linked to Latvian oligarch Andris Skele.
(10) Expobank – Offshore bank serving Russians and Ukrainians. Formerly named LTB Bank and formerly owned by MDM Bank. Linked to Oleg Deripaska.
(11) SEB Bank – Latvian retail bank.
(12) SMP Bank – Formerly Multibanka. Offshore bank serving Russians and Ukrainians. Blacklisted by United States Treasury in 2005. Linked to Arkady Rotenberg, Vladimir Putin’s judo partner.
(13) PrivatBank – Offshore bank serving Russians and Ukrainians.
(14) Regionala Investiciju Banka – Offshore bank serving Russians and Ukrainians.
(15) Rietumu Bank – Offshore bank serving Russians and Ukrainians. Linked to Suleiman Kerimov.
(16) Trasta Komercbanka – Offshore bank serving Russians and Ukrainians. Was involved in the Sergey Magnitsky money laundering case.
(17) UniCredit Bank – Latvian retail bank.
(18) Latvijas Pasta Banka – Spun off from Latvian Post Office and privatized to former owner of Lateko Bank.
(19) Citadele Bank – Offshore bank serving Russians and Ukrainians. Spun off from Parex Bank. Funded by EU, IMF, World Bank, EBRD. Linked to Oleg Boiko, Yuri Shefler.
(20) Rigensis Bank – Offshore bank serving Russians and Ukrainians.
(21) (not licensed anymore, but nobody being prosecuted) Latvijas Krajbanka – Linked to Snoras Bank of Lithuania, Alexander Antonov, Vladimir Antonov, Oleg Deripaska.
(22) (not licensed anymore, but nobody being prosecuted) VEF Bank – Was blacklisted by the United States Treasury. Linked to Leonid Reiman, Alisher Usmanov.
Here is the list from the Latvian regulator: