The walls appeared to be closing in on Latvia's Trasta Komercbanka over the weekend after the Baltic state's financial regulator imposed withdrawal limits on depositors because the bank failed to take action on improving its capital base and proving that it has not been involved in money-laundering.

In an announcement made shortly before banks closed on the evening of January 22, the Financial and Capital Markets Commission (FKTK) said: “The board of FKTK on 22.01.2016 decided to impose restrictions on the activities of the joint stock company Trasta Komercbanka, forbidding it from performing debit transactions in any currency, including through online banking, ATMs and by cash, with clients in the amount that exceeds €100,000 per depositor.”

According to FKTK chairman Kristaps Zakulis, the reasons for the highly unusual action were manifold: failure to increase its capital, plus failure to improve the bank's development strategy and “internal control system” (code for money-laundering checks).

FKTK said it had already issued warnings to the bank's largest shareholders, Igors Buimisters and Ivan Fursin, regarding their failure to fulfill statutory obligations of shareholders having a qualifying holding under the Credit Institution Law.

“The bank was given time to address the particular issues to improve its activities. The bank has not managed to do it within a reasonable timeframe, therefore the regulator is compelled to take the next step and make use of instruments laid down in the Credit Institution Law – in this case to impose restrictions on the activities of the bank,” said Zakulis.

But it goes deeper than that. For years, bne IntelliNews has been raising awkward questions about the role of Latvia's numerous boutique banks catering primarily for non-resident depositors (NRDs) from Russia, Ukraine and other CIS countries, with plenty of evidence pointing to the fact that the banks and closely-allied offshoring specialists were responsible for laundering billions of dollars that were siphoned from public purses in Russia and Ukraine or from the proceeds of organised crime.

Among those banks, Trasta has gained more than its fair share of mentions, most notoriously being linked to the Magnitsky case, when a Russian accountant of that name uncovered massive fraud by Russian officials and was murdered in custody for his efforts, and the mysterious case of a disappearing Ukrainian oil rig. Trasta has always denied any wrongdoing. 

Until recently, such concerns were waved away by the Latvian authorities as some sort of Anglo-Saxon conspiracy, but in recent months the weight of evidence appears to have reached a tipping point, most recently with clear evidence that at least one other non-resident deposit Latvian bank was involved in sucking a billion dollars out of Moldova – a move which crippled the country’s economy and caused political turmoil.

The prospect of seeing yearned-for membership of the Organisation for Economic Cooperation and Development (OECD) slipping away seems to have concentrated minds wonderfully in Riga, and after years of dishing out token wrist-slapping penalties to banks without even naming them in public, FKTK has suddenly stated handing out tickets left, right and centre.

In December FKTK handed out a record €2mn fine (14 times bigger than any it had previously imposed) to the local branch of Ukraine-owned PrivatBank for its role in the Moldova scam. It followed that up a few days later with hefty fines for individual board members, including Ukrainians Oleksandr Trubakov and Oleksandr Mekekechko.

Indeed, Ukrainian connections seem to coincide with a fair number of the more controversial Latvian banks. As previously outlined by bne IntelliNews, ABLV Bank also has close links to Ukraine (which FKTK found to be entirely innocent), and in the case of Trasta its Ukrainian co-owner Ivan Fursin is not only a business partner of oligarch Dmytro Firtash but a Party of Regions MP who is – in the sort of twist only Eastern Europe can throw up – chairman of the Rada's anti-money laundering and financial monitoring committee.

Now attention will focus on Trasta's short-term fortunes. Though only 7% of the bank's clients have more than the €100,000 transfer limit in their accounts, news of the limit's imposition might start a rush for the exits and a possible run on the bank.

Predictably, Trasta was keen to play down such speculation, telling bne IntelliNews in a statement: “In the coming month Trasta Komercbanka will announce details of a new investor, and on March 10 will conclude a new share issue, resulting in a basic capital increase of €15mn.”

FKTK's concerns were being addressed, the bank insisted, adding: “The bank has operated in the financial market for more than 25 years, and has successfully made it through a number of financial crises and is confident of being able to restore its operations as a successful company.”

FKTK was careful not to be seen to be advising people what to do with their money, but the mere fact that in a Q&A sheet for Trasta clients it asked: “What should the clients do now – hurry up and withdraw the limit that is available?” suggests a spate of withdrawals is not unexpected. However it should also be noted that unlike NRD banks ABLV and Rietumu bank, FKTK does not rate Trasta as a “systemically important” bank.

In that context, FKTK's actions look like a case of the authorities being seen to act before a possible collapse rather than after the fact, as was the case with the chaotic 2011 demise of Latvijas Krajbanka and its Lithuanian parent Snoras bank, both owned by Russian oligarch Vladimir Antonov, or the 2008 collapse of Parex bank. By acting now, it means that if the worst does happen, Latvia can claim that for once it acted rather than merely reacted when it was already too late.