Latvia's ABLV receives emergency central bank loan and suspends withdrawals

Latvia's ABLV receives emergency central bank loan and suspends withdrawals
The US Treasury has accused ABLV Bank of money laundering and facilitating transactions linked to North Korea.
By bne IntelliNews February 20, 2018

The financial system of Eurozone member Latvia continued to reel on February 19 after the Baltic state’s third-largest bank, ABLV Bank, was forced to accept help from the Bank of Latvia to remain liquid and suspended withdrawals. Concurrently, the Latvian anti-corruption police said the governor of the central bank was suspected of bribery.

The Bank of Latvia loaned nearly €100mn to ABLV Bank against a collateral of “safe, highly liquid” securities as the privately-owned lender’s financial situation deteriorated following last week’s allegations from the US Treasury’s Financial Crimes Enforcement Network (FinCEN). 

The US institution accused ABLV Bank of money laundering and facilitating transactions linked to North Korea. That put the Latvian banking system in the spotlight again for being a haven for illegal money, especially stemming from Russia and other countries of the former Soviet Union.

“FinCEN assesses that, beginning in 2012 and continuing into 2017, ABLV [Bank] conducted a high volume of transactions for shell companies registered outside of Latvia in offshore secrecy jurisdictions totalling tens of billions of dollars,” the US institution said in its report.

In reaction to the apparent run on the bank’s deposits, the European Central Bank instructed the Latvian Financial and Capital Market Commission to order ABLV Bank to suspend client payments.

“Temporarily, and until further notice, a prohibition of all payments by ABLV Bank on its financial liabilities has been imposed, and is now in effect,” the ECB said in a statement.

After FinCEN made its allegations public, some €600mn was withdrawn from ABLV Bank, the bank admitted. That explains why it had asked the Bank of Latvia for a much bigger loan of €480mn. Meeting the requested loan value was not out of the question, the central bank's board member Edvards Kusners told Latvia’s state broadcaster LSM

ABLV Bank said, however, that was not seeking a bailout and the loan from the Bank of Latvia was just a temporary liquidity support. On February 20, ABLV Bank will present to the ECB a stabilisation plan, the bank said. 

Meanwhile, the governor of the Bank of Latvia Ilmars Rimsevics is facing allegations of bribery. The governor, who also represents Latvia in the European Central Bank, was questioned and then detained on February 17. He was due to be released on bail, according to latest reports.

The Latvian anti-corruption police KNAB did not offer much detail of the investigation that led to the detainment of Rimsevics. The probe centres on the governor’s “requesting and acceptance of a bribe” of at least €100,000 from a businessman, KNAB said. The bribe is believed to come from businessman Marins Martinsons.

Separately, news emerged – as reported by AP – that Rimsevics also tried to extort money from Norvik bank in return for making “successful banking” in Latvia possible, AP claimed. KNAB did not refer to those revelations.

The Latvian Prime Minister Maris Kucinskis and the Finance Minister Dana Reizniece-Ozola have called on Rimsevics to step down.

“Every day that Mr Rimsevics remains in the post of governor of the central bank, the situation [for the reputation of Latvia’s financial system] substantially worsens,” Reizniece-Ozola told reporters in Riga, according to Reuters.

 Rimsevic is expected to hold a press conference to comment on the scandal on February 20. He maintains the allegations made against him are false.