Latvias money-laundering mud fight

RIGA — A battle over money laundering in Latvia is getting dirty.

Long notorious as a hub for cleaning illicit cash taken out of Russia and other former Soviet states, the Baltic countrys reputation has taken a further battering this year.

Latvias third-largest lender, ABLV Bank, collapsed in February after U.S. authorities accused it of “a wide array of illicit conduct,” linked to North Koreas weapons program and corruption in Russia and Ukraine. And in June, prosecutors charged the central bank governor with bribery.

Latvias troubles — and other money-laundering scandals elsewhere in Europe — have prompted the EU to draw up plans to crack down on the flow of dirty money.

The front page of the Latvian business newspaper, Dienas Bizness, featuring Finance Minister Dana Reizniece-Ozola.

They have also stung Latvias center-right government into action, with officials aiming to slash the share of bank deposits held by nonresidents from around 40 percent to 5 percent this year.

That, in turn, has sparked a backlash, with pro-Russian center-left opposition party Harmony and the countrys biggest business newspaper, Dienas Bizness, leading the charge against the governments plans ahead of a general election in October.

In the crosshairs is Finance Minister Dana Reizniece-Ozola, who has been likened to a mafia boss by Dienas Bizness and has also been featured on fake “Wanted” posters that suggest the national anti-corruption agency is searching for her.

“Theres a big, visible campaign,” said Jānis Sārts, director of the Riga-based NATO Strategic Communications Center of Excellence, a body whose tasks include analyzing disinformation and propaganda. “[The timing] correlates with the moment that Latvia started to make strong steps to eliminate [the] money-laundering business that has been here in the country for quite a long time.”

Under attack

In her dark wood-paneled office at the finance ministry, Reizniece-Ozola accused Russian businesspeople and their local associates — all of whom she declined to name — of orchestrating a defamation campaign to influence the election and hamper her efforts to clean up the banking industry.

One of the entrances to ABLV Banks headquarters on Elizabetes Street in the northern part of Riga city | Bjarke Smith-Meyer/POLITICO

Reizniece-Ozola held a copy of Dienas from June 11 this year. The newspapers pages are the salmon-pink color of the Financial Times. But its tone is much brasher than the staid FT.

A caricature of Reizniece-Ozola took up most of the front page, alongside the headline “Donna Dana, step down! Game over.”

The cartoon showed the minister standing over a chess board with a knight screaming “checkmate!” — a poke at Reizniece-Ozolas grandmaster rank in the game.

“Donna Dana … that was the name given in one of the former cartoons,” explained Reizniece-Ozola, who has been in her post since February 2016. “They were trying to [portray] me as the mafia queen or something.”

On page 2, an opinion piece accused Reizniece-Ozola of being incompetent and a U.S. puppet. A few days earlier, another Dienas Bizness article also suggested Reizniece-Ozola is guilty of mafia-like behavior.

The journalist behind the two articles, Sandris Točs, questioned government appointments to senior posts in the finance sector and accused the minister of pushing the banking watchdog to directly supervise the liquidation of ABLV Bank — rather than letting the lender wind itself down. The states direct role in the liquidation could rob the bank of €400 million, Točs wrote.

Washing dirty money has been big business in the country of some 2 million people.

He did not explicitly state how any of these measures made Reizniece-Ozola corrupt or why the comparison with a mafia queen was appropriate. Točs did not respond to multiple requests for an interview from POLITICO. However, the newspapers editor-in-chief, Līva Melbārzde, defended her publications criticism of the minister.

“Dienas Bizness, being the largest Latvian national business daily newspaper and online business news portal, implements a clear line in defence of business and entrepreneurs in Latvia,” she said in a statement.

“The Ministry of Finance has a recent record of questionable decisions with profound impact on the economy and the business environment in Latvia. It is imperative for Dienas Bizness to question, evaluate, analyze and report on these policies, and their execution and consequences,” Melbārzde said.

In particular, Melbārzde took aim at the ABLV liquidation and the decision to dramatically reduce nonresident bank deposits, which she said would cost the Latvian state billions of euros in lost income. She did not respond to follow-up questions as to whether the newspapers attacks were part of a broader, orchestrated campaign.

On August 13, investigative journalism outlet Re:Baltica published an article alleging that Dienas Bizness is being used by an oligarch with Russian-linked business interests to boost Harmony and populist party KPV LV ahead of the general election. Melbārzde did not respond to requests for comment on the Re:Baltica story.

Big business

The bitter resistance to the governments plans reflects how much of Latvias business community has benefited from the current banking setup.

Washing dirty money has been big business in the country of some 2 million people. Latvias location made it an ideal conduit to handle funds flowing to the West from Russia and other former Soviet countries after the Cold War. Latvia adopted the euro in January 2014, adding to its attractions as a center for moving money from east to west.

Services for nonresident deposits grew to become a multibillion-euro business, which also opened the door to washing dirty money via shell companies registered outside the country.

An investigation by the Organized Crime and Corruption Reporting Project, an NGO, revealed Latvias key role in a scheme, dubbed “The Laundromat,” that was used to move some $21 billion in dirty funds between 2010 and 2014. Roughly $13 billion of that tally moved through Trasta Komercbanka, a Latvian lender that has since gone bankrupt.

The Riga skyline from the west side of the Daugava river | Bjarke Smith-Meyer/POLITICO

In response, Latvias financial watchdog introduced tougher anti-money laundering measures and issued fines against banks it said were in breach of its rules.

As part of the governments crackdown, Latvias parliament passed a law in late April this year to prevent lenders from handling shell companies. The measure passed with 57 votes in favor and 17 against, with opposition coming from Harmony.

Asked whether Harmony supports Dienas Bizness attacks on Reizniece-Ozola, a spokesperson said: “It is not acceptable for a political party to comment on whether it supports or disagrees” with a media outlets positions.

Liene Gātere, the head of Latvian anti-corruption NGO Delna, said the criticism of Reizniece-Ozola likely comes from “the owners of the banks or in this case, one specific bank [ABLV]” and people “that benefit from laundering and transferring money through our banks.”

Reizniece-Ozola at the 20th anniversary of Eurogroup celebrations in Luxembourg in June 2018 | Julien Warnand/EFE via EPA

The corruption allegations against the government are overblown, said Gātere, whose organization also serves as the Latvian chapter of Transparency International. But she noted that “Latvia is pretty small, so its hard to stop the private sector from having influence within the public sector.”

For her part, Reizniece-Ozola said she could not name those she suspects of orchestrating attacks against her, as “you have to be sure” before making accusations publicly. But she insisted she would not be deterred by the campaign.

“It motivates me to continue because I can see how big the pressure is and that the [vested] interests are still strong here,” she said. “If we dont use this momentum to restructure these operations, it will probably be the last chance.”

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