tuesday, 13 november of 2018


Sanctions Not Money Laundering Seen as New Risk in Europe´s East

Money laundering is so 2018. A major challenge for banks in eastern Europe next year will be steering clear of geopolitical fallout.

Latvia, which was at the center of a dirty money storm this year, is pushing its lenders to comply with an increasingly complex web of international sanctions, Peters Putnins, the country’s top financial regulator, said in an interview this month. Those efforts will prove decisive in maintaining the country’s access to global financial markets.

You see that almost every month there are either European Union sanctions or American sanctions” directed towards Russia or other countries, Putnins said in an interview in Riga. “This problem is already there but during the next year I’m sure this problem will probably be even bigger.”

The Baltic nation’s financial sector was shaken earlier this year when its third-biggest bank was shut down after the U.S. Treasury alleged it was involved in money laundering and the head of the central bank was accused of bribery. In neighboring Estonia, Danske Bank A/S unit’s handling of billions off dollars in suspect funds has sparked multiple criminal investigations and calls for tougher enforcement within the EU.

Latvia is banning shell companies with no discernible business, bolstering regulations and boosting fines to overhaul the financial sector. The resulting crackdown, which began at the end of 2015, has been dramatic. Deposits held by foreigners have fallen by about 75 percent in the period, while outgoing dollar payments by foreign clients have dropped by almost 95 percent. The country will also order its smaller banks to hold more capital for risks related to money laundering and Putnins said he will suggest such a measure be adopted across the euro area.

Local lenders have had to search for new business models after international banks ended relationships allowing for direct clearing of U.S. dollars. While efforts are ongoing to secure new links, the collapse in volume has reduced the attractiveness of the sector, Putnins said.

But even the new measures haven’t stopped bad news appearing about links to sanctioned companies. Last month, the U.S. Treasury Department sanctioned entities including a Latvian company whose owners were alleged to have secretly met with a North Korean diplomat and planned to supply the country with weapons and luxury goods.

Latvia is looking into bank accounts held by the company at several lenders, Ilze Znotina, director of the Financial Intelligence Unit said last month.

You can open the newspaper and you can just read that, for example, the OFAC has sanctioned somebody” he said, referring to the U.S. Treasury office in charge of sanctions. “Money flows nowadays are seen as a kind of a weapon.”

Sanctions risk is rising for countries that border Russia and new restrictions may be put in place to counter the flow of Russian capital into EU and NATO states.

This is the ultimate border of the EU and NATO, there will eventually be tighter requirements” for countries near Russia, Putnins said, including more compliance staff and potentially holding more capital. “The further you are exposed to problematic areas the more you have to dedicate to defensive policies.”

More comments from Putnins, who is also one of 30 members of the European Central Bank’s supervisory board:

(Published by Bloomberg, November 12, 2018)

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