Latvia received an official invitation to join the Organisation for Economic Cooperation and Development (OECD) on May 11.

The member states of the OECD have decided Latvia will be the 35^th member of the organisation. During the application process, Riga's main challenge has been to tackle what has become the Baltic state’s unfortunate trademark in financial circles - a reputation for sheltering shady money from across the former Soviet bloc.

The country accelerated action to step up oversight of its financial system in the months leading up to its accession, and will now join the organisation during an official ceremony held in early June. But it will need to make a concerted effort to maintain the enthusisam now it has made it into the club and the OECD's focus moves elsewhere.

“For countries seeking to join the OECD such as Latvia, the accession process itself can serve as a catalyst for important reforms and support domestic policy agendas," the OECD said in a statement. "For example, as part of its accession process, Latvia has committed to the re-establishment of boards of directors in all large commercial state-owned enterprises and has improved its anti-money laundering regulations.”

Analyst suggest there are other factors at work to keep up the pressure on Riga. "Given the current climate of fighting money-laundering across the globe, it would be difficult for Latvia to stop their efforts. Especially not with the US-Russia relationship so tense," Per Hammarlund, chief emerging markets strategist at SEB tells bne IntelliNews.

Latvia's long journey towards membership proved good leverage for the OECD, as well as the likes of the US, to press Riga into tightening control of its banks. Latvian financial institutions have been so accommodating that non-resident deposits, originating mostly from the Commonwealth of Independent States (CIS), make up around half of all deposits in the system.

While financial market watchdog FKTK has, in theory, long been tasked with fighting money laundering, it was only in the second half of 2015, as the OECD negotiations dragged on, that it started seeing results. Before that, its reputation was shot down by the involvement of Latvian banks in high-profile international scams including the Magnitsky case and a billion dollar fraud in Moldova.

The process began when the regulator handed Ukrainian-owned PrivatBank a record fine of €2mn in December for “irregularities in line with the Money Laundering and Terrorism Financing Prevention Act”.

“FKTK has reason to believe that the bank had not taken all the necessary measures," the watchdog said at the time. "Thus, the bank was involved in transactions that lead to a high reputational risk, money laundering and terrorism financing risk.”

More action followed soon with FKTK clamping down on Trasta Komercbanka. The context for that was a damning report by the OECD, which said “non-resident banking poses a substantial risk that money obtained from corruption committed outside Latvia is laundered inside the country."

The report concluded that if Riga did not tackle the money laundering problem with more resolve, its OECD membership hopes would be in danger. The government reacted by replacing FKTK head Kristaps Zakulis with his deputy Peter Putnins, who quickly announced the watchdog would scrutinise the country's boutique banks, launch a criminal case against PrivatBank, and set up a special unit within FKTK to combat money-laundering.

But while Latvia has apparently now met the OECD criteria for transparency of its banking system, the job of cleaning it up is far from done. The ratio of non-resident deposits in the country’s banks increased in 2015 by 1.7pp to 53.4% of the total, FKTK said in February.

On top of the worrying statistics, there came the news that Rietumu surprisingly pulled out of the country’s banking association ALCB in March. A month later, Latvia’s fourth largest by assets – which specialises in serving non-resident business, particularly from Russia - was linked by French prosecutors to an alleged €100mn scam.

However, while there is still clearly plenty to do, the small economy needs to be wary, says Hammarslund; it can't tighten the screw too quickly, he warns. "They don't want to risk capital flight. There is pressure from the OECD, the EU, and the US, so Latvia will continue to counter money laundering, but it will need to do it with care," the banker from SEB suggests.

FKTK tells bne IntelliNews that it plans to roll out a number of measures within the next year to make sure Latvian banks are in compliance with the law. Spokeswoman Ieva Upleja points to a "specified supervision regime that will be assigned for non-resident banks, planned and targeted on-site inspections, and on-going off-site supervision of transactions of non-resident banks based on data to be submitted monthly."