The head of Latvian financial regulator resigned on January 25 following criticism of the FKTK’s record on curbing money-laundering in the banking system.

The resignation of Kristaps Zakulis comes just days after FKTK closed in on alleged illegal activity at Trasta Komercbanka in a move that highlights that money laundering remains a major issue in the country. Latvian banks are a popular haven for non-resident deposits (NRDs) from Russia, Ukraine and other CIS countries, which make up around half of all deposits the system. Despite warnings from international institutions across the years, Latvia's role as a money-laundering hub has been exacerbated by the ineffectiveness of FKTK, according to critics.

“Non-resident banking poses a substantial risk that money obtained from corruption committed outside Latvia is laundered inside the country," the Organisation for Economic Co-operation and Development (OECD) said in a report in October. The report was considered a blow to Latvia’s hopes of finally joining this year.

The regulators last minute effort to close the door at Trasta appears to have been the final straw for its chief. "During the four years I have been in office I have worked intensively with colleagues to achieve the same targets and goals... [however] since the chairmanship of FKTK is a position of trust, I believe that my resignation will reduce the suspicions, rumours and shadows of doubt cast over FKTK,“ Zakulis said in a statement.

FKTK said it had made fighting laundering one of its priorities. However, that has not apparently made Latvia's banks any safer. FKTK was forced to apply withdrawal limits at Trasta after the bank failed to take action on improving its capital base and or prove it is not involved in money laundering.

Trasta, which denies any wrongdoing, has been linked to a number of controversies over the years, including the Magnitsky case. Mounting criticism of Zakulis' handling of the case started circulating over the weekend, raising bets that the regulator would walk.