bne -

Latvia's financial regulator said on July 26 it's investigating transfers made to an account at Parex Banka by TeliaSonera in connection with an Uzbek mobile licence - an intriguing case that involves Uzbekistan's "robber baron," a Swedish telecommunications company with its finger in pies across Emerging Europe and the Commonwealth of Independent States (CIS), and a Latvian banking sector insisting it is not a growing money-laundering centre for the region.

The transfer, made by TeliaSonera when it bought the operating licence for the Central Asian state in 2007, already claimed the scalp of the company's CEO in February after auditors hired to investigate graft accusations said the carrier should have been more careful about where the cash was heading. Law firm Mannheimer Swartling said in its review that TeliaSonera transferred money into accounts in Nordea Bank and Parex held by Gibraltar-based Takilant.

Swedish prosecutors opened an investigation last year into whether the country's largest operator knew, or should have known, when it bought the licence for the Coscom operator from Takilant in 2007 that the money went to President Islam Karimov's family. The Swedish Financial Supervisory Authority on April 16 fined Nordea SEK30m (€3.5m) for being "deficient in its handling of the EU sanctions regulations and in its work to prevent money laundering."

The Latvian Financial and Capital Markets Commission (FCMC) found that Nordea's unit in the Baltic country had no weaknesses that would allow transfers such as in Sweden, said spokeswoman Ieva Upleja. However, the regulator is currently investigating the role of Parex - which was the country's second largest lender until it collapsed in 2008. The state has now split it into a new lender Citidale Banka, and asset management company Reverta.

"The processes are continuing, yet it's too early to talk about the results," Upleja said in a statement late on July 25, according to Bloomberg. TeliaSonera has made no comment at the time of writing.

Dragging feet

The move comes as Latvia continues to refute claims that its banking system - relatively large for its small economy - has a growing role as an offshore banking hub in CEE, particularly for former Soviet states. However, the tardy investigation of the Parex transfers suggests that the FCMC continues to drag its feet in dealing with an issue flagged by several EU institutions during the country's recently successful accession to the Eurozone.

The Latvian regulator will likely be hard pressed to find a more unsavoury figure to deal with than Galina Karimova, the feared and reviled daughter of the Uzbek president, who is widely believed to be connected to Coscom. Speculation suggests she is in the midst of a campaign to stamp out the competition on the Uzbek mobile market. Indeed, her power is such that the Russian giants that have traditionally controlled the market appear unable to put up much of a fight.

MTS has already gone, its local unit buckling under the weight of tax investigations earlier this year - actions which were very similar to those carried out against Coscom ahead of the 2007 purchase. Auctions to sell off the assets have thus far attracted no bidders. This week, Vimpelcom - itself owned by rapacious Russian oligarch Mikhail Fridman - found itself under mounting pressure, with the Economic Court of Tashkent rejecting a lawsuit from unit Unitel against a decision by an antitrust regulator to include it into a list of monopolies. The same court released Coscom from such a definition.

Thus, Latvian banks remain under suspicion that they are a major port of call for shadowy cash flows around the region. Both the government and the FCMC have vigorously attempted to refute the claims - which have only grown since the debacle in Cyprus wrecked the favoured destination of so much CIS cash. However, as bne recently reported, there are many questions still to answer over the regulators actions on suspicious transfers connected to the Magnitsky case, while several other investigations reveal transfers connected to questionable state contracts in Ukraine.