Latvian banks will be banned from offering services to shell companies, after the lawmakers in Riga on April 26 passed a ban on such practices by a vote of 57-17, with four abstentions.

The ban is a response to the international scandal that erupted after US financial authorities charged ABLV, the third-largest bank in Latvia, with money laundering and facilitating transactions linked to the North Korean regime. ABLV ceased operations as a result of the charges.

Doing business with shell companies is an oft-used mask money flows. Latvia, which has attracted billions of euros of non-resident money from Russia and other post-Soviet countries, has seen cooperation between its banks and shell companies proliferate.

The ban – which is expected to be signed into law by the president and enter into force over the coming days – orders banks to end such cooperation within 14 days and close shell companies' accounts within 60 days, LSM reports. 

The Association of Latvian Commercial Banks (LKA), which backed the ban, is calling for more action, however. 

“The government must do everything in its power to show clear action and resolve to combat financial crimes and prevent exploitation of the Latvian banking system for illegal activities that violate international practice and law," the LKA said in a statement.

The ban could cost the Baltic state 0.5% in GDP growth, Prime Minister Maris Kucinskis said in early April. But the cost is acceptable, he said. Latvian GDP grew 4.5% in 2017. Growth is expected to come in at 3.5%-4% in 2018.