Think of Ukraine. More corrupt than Latvia? Maybe not. When undeclared insider loans caused Ukraine’s Privatbank to collapse, the government commenced a lawsuit against PWC to recover $3 billion.
In Latvia, the government could have sued EY for $1 or $2 billion for the Parex collapse. A whistleblower handed information about undeclared insider loans to EY a few years earlier and those same loans were some of the worst assets at Parex.
EY then ‘audited’ both Parex and ABLV’s annual reports for 2008 which was the year when the government transferred money to Parex to help a lot of Parex clients withdraw their deposits and re-deposit the money at ABLV. Maybe some assets or equity was also shifted around, who knows?
But here is the crazy new story – EY has been appointed to audit the liquidation of ABLV! Latvia isn’t suing EY and instead is giving them access to billions more dollars!
Corruption in Latvia has reached a point where it is just a game between the corrupt bankers and corrupt administrators to divide up loot, while regulators and prosecutors do nothing and pretend they don’t know what is happening. Anyone interested in investing here? Ha ha. Certainly not us, until the EU or US helps Latvia to arrest the perpetrators and put them in jail.
Soon after the Parex Bank nationalization in late 2008, the Latvian media revealed several large and fraudulent deals between Valery Kargin and Viktor Krasovitsky’s families and the bank. This was a rare time of honest reporting by the media.
The “auditors” at Ernst & Young must have known about all of these deals. However, they signed Parex annual reports containing false statements that the Oligarchs received no compensation from the bank.
Latvian authorities refuse to prosecute the perpetrators in all of these cases.
One headline story was about the fleet of luxury cars transferred from Parex in early 2008. The transfer occurred when the bank was still reporting profits every quarter and therefore before the surprise request for a bailout in late 2008. The implication is that the quarterly reports were fake and the Oligarchs already planned to give bank liabilities to the taxpayers in early 2008, but wanted to keep the luxury cars.
Another headline story regarded subordinated loans from the Oligarch families to the bank, done for the apparent purpose of compelling the Latvian government to pay huge amounts of money to the Oligarchs after the handover of bank liabilities.
And, if that wasn’t bad enough already, the article below describes an unreported reciprocal loan/deposit deal that existed for many years. It was revealed in December 2008 that Kargin and Krasovitsky each borrowed 28 million lats (twice as many dollars) from Parex and used it to make deposits at Parex at 36% percent interest. The apparent motive was to transfer millions from the bank to themselves without reporting the compensation to creditors and minority shareholders and without paying taxes, since interest income was not taxed.
One of the items from John Christmas’ Parex Bank whistleblowing list from 2004 was that Parex secretly owned a bank in Russia.
Christmas claimed that Parex owned and operated Extro Bank. For example, the Parex Credit Committee approved the loans that Extro Bank extended. Latvian State Controller Inguna Sudraba was on that committee.
The fraud claim is backed up by an email written by Parex vice president Gene Zolotarev. The claim is also backed up by a Skype conversation (below) with former Parex manager Christa Rubstein. She also confirms in the conversation that Parex paid employee compensation illegally.
Even though three witnesses wrote that Parex owned Extro Bank, the auditors at Ernst & Young did not care at all and ignored the huge fraud.
Therefore, Parex was able to sell Extro Bank to Banco Santander. Santander is one of the largest banks in Europe and has millions of shareholders in Spain and the United Kingdom.
According to emails (below) from a private investigator who contacted Christmas, Banco Santander got “robbed” in the purchase. The loss could have been 40 or 50 million euros.
Law enforcement is not interested at all, as usual. Also, the media is not interested.
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.
The UK Financial Services Authority (FSA) and Ernst & Young Global knew that Parex Bank was a fraud already in 2007. They also knew that whistleblower John Christmas was being terrorized with murder threats.
However, the FSA and E&Y chose to ignore the information and sit and watch while Parex borrowed approximately one billion euros in London through syndicated loans and bond issuances.
The money disappeared and now ordinary Latvian taxpayers must pay back the creditors with bailout funds from the European Union.
Parex Bank used to have a subsidiary called VIP Avia. In the early 2000’s, consultant ABN AMRO advised Parex not to have this frivolous subsidiary, the function of which was providing private jets for the Parex oligarchs.
Parex did not react by selling the subsidiary. Instead, Parex changed its balance sheet to show VIP Avia as a loan to an unrelated party instead of a subsidiary.
This reaction was illegal. However, Latvian authorities refuse to prosecute the responsible people from Parex and Ernst & Young.
John Christmas blew the whistle on this fraud in 2004/2005. Dienas Bizness newspaper published an article about this fraud in 2009.
When John Christmas learned in August 2004 that the financial statements of his employer, Parex Bank, were false, he blew the whistle as required by law. He gave a long list of frauds to Ernst & Young Baltics partner Valters Kronbergs. If Ernst & Young had withdrawn its audit opinions, as required by law, then the Latvian Financial Crisis never would have happened. Latvia would have a thriving economy today, like its neighbor Estonia.
Unfortunately, Kronbergs reacted to the whistleblowing by sometimes denying that the whistleblowing took place and sometimes getting angry at the whistleblower. The auditors refused to investigate the frauds and continued to sign Parex annual reports until 2009, after the nationalization.
Many more Parex frauds have been revealed in recent years, but the Ernst & Young auditors don’t care. They refuse to withdraw their opinions.
Below is an email in which Kronbergs denied the whistleblowing. It is a simple matter to analyze the wording of this email and determine that he was lying.
And, this paragraph is from a businessman who wrote to Christmas after seeing Kronbergs. While Kronbergs was denying that the whistleblowing occurred in emails, he was telling people that Christmas was a horrible person for being a whistleblower.
“Where are you? Still in Spain? What are you up to? I understand that you are not too popular in some quarters in Riga, especially dangerously – Parex – and some of the ex-pats [Valters Kronbergs] you apparently included in your assault on Parex? So I heard, but that does not mean any of it is true or otherwise.”