Latvian lender ABLV has asked the US Financial Crimes Enforcement Network (FinCEN) not to go forward with sanctions against it for money laundering, the bank said on April 20.

Latvia’s third-largest bank by assets, ABLV began undergoing liquidation in February, when the US Financial Crimes Enforcement Network (FinCEN) alleged it was an active money launderer and some of its activities were linked to North Korea’s missile programme.

However, ABLV said – through a letter by law firm WilmerHale – that FinCEN’s allegations were based on “thinly sourced, often dated, and largely conclusory factual assertions.”

ABLV also said that by the time of FinCEN’s note that eventually led to the bank’s entering liquidation, it had made a successful effort to “lower its risk profile by transforming its customer base away from higher-risk non-resident clients.” 

In effect, the Latvian bank claimed, FinCEN failed to demonstrate that ABLV posed a problem for the US financial system. Since ABLV is undergoing liquidation, moving forward with sanctions against it is pointless, the bank said.

The request is likely an exercise in damage control by ABLV owners and related entities and individuals, suggests Girts Rungainis, an expert in financial services and former Association of Latvian Commercial Banks board member.

“They are [trying] to diminish future risks, expenses and salvage the remains of their reputation,” Rungainis told bne IntelliNews. Avoiding sanctions makes a difference to the bank owners, other capital holders, and clients because otherwise, he said, they will face “extra scrutiny”.

ABLV’s public plight began in mid-February after FinCEN accused it of engaging in money laundering and other illicit activity. That prompted a run on the bank’s deposits, followed by a decision by the European Central Bank not to save the Latvian lender, as it was “not in the public interest”.

ABLV’s failure put the Latvian banking sector in the spotlight again for dubious links with forms of financial crime, often originating from Russia and other countries of the former Soviet Union. Non-resident deposits accounted for nearly 40% of total deposits in Latvian banks in 2017, the Baltic state’s financial market regulator, FKTK, reported earlier this year. 

That is a substantial ratio but still down from over 50% just two years ago, an effect of the crackdown Riga which instigated on non-resident money. Most recently, the Latvian government also began pushing a law to ban doing business with shell companies.

"[Latvia’s efforts to supervise banks] have not been sufficient to achieve a more substantial reduction in the share of risk customers and the involvement of the Latvian banking sector in activities non-compliant to international practices and laws,” Latvian Prime Minister Maris Kucinskis said in February, pledging to improve the financial supervision system.