Latvia in MoneyLaundering.com


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.

 

Checkered past

 

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.

New video: Latvia EBRD Fraud 2013, still getting larger!

The Latvia EBRD “put option” fraud, committed in 2009 for the purpose of covering up the truth about the collapse of Parex Bank, is still getting larger.  It was bad enough that the EBRD destroyed the Latvian economy to protect two KGB-linked Oligarchs.  But now the EBRD threatens to undermine the European economic recovery by helping Latvia to enter the euro currency with falsified financial statements.  EBRD and Parex employees have already informally confessed to the fraud.  When will the EBRD make a full public confession?  Please share to fight corruption!

http://www.youtube.com/watch?v=APZ-E-X0Cow

 

 

KGB links Parex Bank with Russian Mafia nukes

A former KGB agent sent an email to Parex Bank whistleblower John Christmas.  While reading about connections with the “Russian mafia” and smuggling “nuclear component,” remember that Parex is fraudulently funded by the EBRD and has been “audited” for many years by Ernst & Young and PWC.  Latvian taxpayers should wonder why the highest spending priority of the Latvian government in all of Latvian history was bailing out the shell-company deposits at Parex.  The email below is being posted with the permission of the author.

 

Date: Sat, 26 Jan 2013 08:34:11 +0000
From: xxxxx
Subject: RE: Latvian State Police – referral by Luke Harding
To: xxxxx

Dear John,

Many thanks for your emails, which I found out to be very interesting. In relation to possible exposure of Parex: First of all, apart of yourself, I have completely different background (not financial one) and therefore, my knowledge about Parex an, particularly about its two “main gurus” – Kargin and Krasovitsky – is based on slightly different info. I was familiar with both these ‘geniuses’ since the time when Parex was not a largest bank in Latvia, but when it was a small currency exchange company. At that time, I came across to knowledge that they were heavily involved into money laundry (including ‘legalisation’ of so-called soviet communist party’s secret assets) ops conducted by both the Russian organised crime and Russian security services illegally operating in Baltic region. For instance, I am aware that Parex (Kargin and Krasovitsky) actively used for these ops certain ‘commercial’ firms which were in front of the Russian security services. In addition, I am aware about one illegal deal with participation of Parex (provided cash), when the specific amount of the nuclear component has been smuggled through the territory of Latvia to the West. Secondly, all my further intel I have received regarding Parex, due the nature of my ex-espionage work, was related to that similar “business”. For instance, I am aware they used for their illegal operations some offshore “bank” located in Republic of Nauru, as well as I am aware about one shadowy deal with issuing a fictitious bank guarantee (by Parex Bank) to the representatives of Russian mafia in the amount of 50mlns USD in 1997/98. Based on all the above, I am afraid my expertise about Parex is quiet specific and differ from your own intel. In the given circumstances, please, feel free meeting me so we can discuss the possible effective way whether and how can we work together in the future.

Kind regards,

Boris Karpichkov from London

 

Here is an article about Mr. Karpichkov:

http://www.guardian.co.uk/world/2012/feb/22/confessions-of-a-kgb-spy

Transparency International, Delna, Parex Bank

Transparency International’s Latvian affiliate Delna announced the 2011 Corruption Perceptions Index at the former office of Parex Bank.  Here is a comment from Delna Director Kristaps Petermanis:

On a more jolly note, we announced the 2011 CPI in the former Parex premises on Valdemara Street 8 http://twitpic.com/7mh7tb, because Parex to a great extent symbolizes the corruption related ills we have in Latvia. We made the 2010 CPI announcement at the Southern Bridge that was that year’s corruption symbol.

Isn’t it interesting that Transparency International believes that Parex “symbolizes the corruption” in Latvia and yet Parex is funded directly by the EBRD and Latvian government and indirectly by the European Union, World Bank, and IMF?

Here is a photo of the event:

Transparency International at Parex Bank

Alstom, Swiss Federal Prosecutor’s Office, Parex Bank

On 22 November 2011, the Swiss Federal Prosecutor’s Office announced that it ordered French company Alstom to pay 31 million euros for bribery in Latvia, Tunisia, and Malaysia.

According to the Latvian press, the bribe recipients were Karlis Mikelsons, Aigars Melko, and Gunars Cvetkovs at state energy company Latvenergo.

The Latvian project was financed by Parex Bank, however this fact has been omitted from all Latvian media articles.

The Latvian authorities are refusing to prosecute the bribe recipients and bribe intermediaries.

pdf snapshop from 18 March 2012:

DB Alstom

link if not yet censored by Latvian authorities:

http://www.db.lv/razosana/energetika/sveice-soda-alstom-par-kukuldosana-latvenergo-mikelsonam-melko-un-cvetkovam-248528

 

United States Department of Justice, Daimler, Parex Bank

On 1 April 2010, the United States Department of Justice announced a settlement with Daimler AG of $185 million for paying bribes in Latvia and other countries.

Latvian authorities refuse to prosecute the bribe recipients and intermediaries.

The Latvian media refuses to mention Parex Bank in articles about the Daimler settlement even though Parex financed the transaction.

pdf snapshop:

USDoJ Daimler

link:

http://www.justice.gov/opa/pr/2010/April/10-crm-360.html

 

United States Department of Justice, Daimler, Russia, Latvia

The following document contains some details from the United States Department of Justice case against Daimler AG, dated 22 March 2010.

Bribes to Russian officials went to Latvian bank accounts.

Shortly after the announcement of the Daimler settlement came an announcement that HP also paid bribes to Russian officials through a Latvian bank.  Those bribes were paid to the Russian Prosecutors Office.

Nobody has been prosecuted anywhere for any of these crimes.

pdf snapshop:

Daimler Russia

link:

http://www.justice.gov/criminal/fraud/fcpa/cases/daimler/03-22-10daimlerrussia-info.pdf

United States Department of Justice, Solaris Bus, Gundars Bojars, Viktor Vekselberg

This document from the United States Department of Justice indicates that a company paid bribes to Riga City politicians to sell buses in 2000.

The accusation must refer to the sale of buses from Solaris of Poland to Riga Transportation (formerly Imanta and Talava).  The sale was financed by Parex Bank.

Nobody has been prosecuted.  The names “Solaris” and “Parex” have been censored from all Latvian media articles on the subject.  And, Solaris continues to sell buses to Riga now in 2012.

Interestingly, the Latvian media did determine that former Riga mayor Gundars Bojars must have been involved.  Bojars’ involvement is not surprising since he was also involved in the notorious “Baltic Kristina” deal with Parex.  Nobody was prosecuted in that case, either.

Bojars is currently free and rich.  He is cooperating with Russian oligarch Viktor Vekselberg to construct a new building for the Latvian State Revenue Service.

pdf snapshot:

USDoJ Solaris

link:

http://www.justice.gov/criminal/fraud/fcpa/cases/daimler/03-22-10daimlerag-info.pdf

Declaration by John Christmas, Parex Bank whistleblower

John Christmas was the whistleblower from Parex Bank.  He gave fraud information to Ernst & Young in 2004.  He gave fraud information to the Latvian government in 2005.  He was terrorized with threats and fled from Latvia.  Ernst & Young and the Latvian government ignored the information.

The Parex fraud grew much larger and caused the Latvian Financial Crisis in 2008.

Now in 2012, there still has never been any investigation of the whistleblowing by Latvian (or European) authorities even though the fraud occurred in Latvia (and Europe).

This is a declaration written by John Christmas in January 2010.  The declaration was written at the request of Varu Tautai.  A translation (with a few errors) used to be online at VaruTautai.lv.  Most of the information in the declaration has been censored in the Latvian media.

One note:  In January 2010 when the declaration was written, it appeared that the FBI and United States Department of Justice were not going to use the information that they received from Christmas in October 2007.  However, in April 2010 it was revealed that the information was used in the USA versus Daimler settlement.  The FBI was back in communication with Christmas immediately after the announcement of the settlement.

Declaration

Guntars Vitols of Parex Bank threatened whistleblower

In late 2005, John Christmas learned that the Latvian State Revenue Service (VID) would look at the Parex Bank fraud information.  This was great news, because the Latvian Prosecutors Office, Latvian financial regulator, Latvian central bank, Latvian Ministry of the Economy, and other government agencies refused to investigate.

Christmas knew that a senior person in the VID was the mother-in-law of the former President of Parex Asset Management, Guntars Vitols.  Vitols spoke often about how much he hated the liars at Parex, and therefore it seemed possible that he wanted revenge.

Christmas asked Vitols to tell what he knew about tax evasion (paying employee bonuses in unreported envelopes stuffed with American hundred-dollar bills) to the VID.  Christmas suggested going to the American FBI if the Latvian government did nothing.

Vitols apparently went to Parex and warned them that Christmas might go to the FBI instead of telling what he knew to VID.

Christmas received the warning from Jekaterina Ecina immediately afterward.  Parex had sent thugs to look for Christmas.

Fortunately, Christmas was outside of Latvia and therefore safe.  He reported the threats to the Latvian government with only one result:  Vitols contacted Christmas and said that Christmas should expect a phone call from a prosecutor who will explain that Christmas must renounce the whistleblowing or else get prosecuted.

A prosecutor did not call, however Vitols himself called back.  This time, Christmas was ready with a recording device.  Vitols tried to convince Christmas to sign a false confession that the whistleblowing was not true, threatening arrest by Interpol and prosecution in Latvia otherwise.

In the transcripts and recordings below, Vitols (acting as an intermediary for Parex Oligarch Viktor Krasovitsky and the Latvian Prosecutors Office) communicates this illegal threat to Christmas.

It is possible to confirm from the recordings that Vitols himself was witness to at least two of the material frauds at Parex.  He was witness to tax evasion (bonuses paid in envelopes).  And, he was witness to the unreported issuance of stock options (he said “stock agreement” once and “stock option” later).

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