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After a string of bank closures and a high-level bribery scandal put it at the heart of Europe’s dirty-money storm last year, Latvia declared efforts to clean up its act a success.
The Baltic nation of 1.9 million people, once seen by clients in the former Soviet Union as a financial gateway to the eurozone, is fighting to stay off a gray list of jurisdictions deemed incapable of tackling money laundering.
Avoiding the list -- drawn up by the Paris-based Financial Action Task Force and currently including Syria, Pakistan and Yemen -- is vital to maintaining the faith of foreign investors. Latvia’s banking industry is dominated by Nordic heavyweights Swedbank AB, SEB AB and Luminor Bank AS.
With FATF set to decide in February, the key question is whether Latvia’s steps to impose harsher punishments, freeze more suspicious assets and bar risky shell companies are enough. Its chief regulator thinks so.
“If we just look only objectively at what Latvia’s done, we have the full conviction that we shouldn’t be there,” Santa Purgaile, chairwoman of Latvia’s Financial and Capital Market Commission, said in an interview. “At the same time, the risk hasn’t been totally taken away.”
Purgaile was appointed last month after the U.S. took issue with her predecessor, while a new director of the anti-money laundering watchdog was also installed last year. Central bank Governor Ilmars Rimsevics, the subject of the bribery scandal, is on trial after refusing to resign and denying wrongdoing. He’ll leave next month when his term ends.
The revamped institutions have been busy. The European Central Bank declared AS PNB Banka failing or likely to fail, causing its closure in September. Five other lenders are considered high risk because of their products or clients and must transform their operations or merge, according to Purgaile.
Despite neighboring Estonia being at the center of the money-laundering woes gripping Danske Bank A/S, there are signs Lativia’s crackdown is being recognized.
Relations with the U.S. Treasury have improved, with Purgaile calling a recent meeting “very friendly.” That could be useful after some international lenders ended relationships for clearing dollar transactions.
It’s too early to say whether the encouraging mood music will help keep Latvia off the gray list. But whatever FATF decides, the country’s banks won’t revert to their previous business models.
“These are irreversible changes that the state and the financial sector have carried out,” Purgaile said.
--With assistance from Milda Seputyte.
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