The Strategist

The ECB shuts off the problematic Latvian bank ABLV

02/26/2018 - 13:43

On Saturday, the European Central Bank (ECB) said that ABLV, the third-largest bank in Latvia, which recently found itself at the center of the scandal after the US Treasury accused it of laundering money, is problematic. The ECB will not conduct the financial rehabilitation procedure for ABLV, because it is not systemically significant, so the bank will simply be liquidated.

The ECB shuts off the problematic Latvian bank ABLV
On Saturday, the European Central Bank issued a statement in which it recognized the third-largest bank of Latvia ABLV problematic. The ECB bases its conclusions on the significant deterioration of the liquidity situation and the lack of sufficient funds for ABLV in case of outflow of deposits. In the opinion of the ECB, the Latvian bank is unlikely to be able to pay off its debt obligations when the maturity of debts is suitable. The ECB's decision also applies to the ABLV unit in Luxembourg. Since the bank and its subdivision are not systemically important for their countries and region, the ECB decided not to carry out the procedure for their financial recovery. The organizations will be liquidated in accordance with national legislation.

A scandal erupted around ABLV in mid-February: the US Treasury published results of an investigation, accusing the Latvian bank of corruption and money laundering.

According to the Ministry of Finance, ABLV was involved in large-scale money laundering operations, bribed influential representatives of local authorities, withdrew money through one-day firms, conducted operations with representatives of the DPRK, thus violating the sanctions regime.
After this statement, the ECB banned ABLV from carrying out customer debit operations in any currency, explaining that "the financial condition of the bank has deteriorated noticeably" due to the publication of the investigation. The bank is rejecting all accusations, its management insists that since the publication of FinCEN, the bank has raised enough funds to meet all the requirements of depositors, and believes that the bank is not allowed to work "for political reasons."

The Minister of Finance of Latvia, Dana Reizniece-Ozola, assured the depositors during a press conference that all their deposits are insured. "Since March 7, the bank's clients, depositors, will be able to receive insured bank deposits within eight working days," she said. Under the Latvian laws the state guarantees safety of contributions to € 100 thousand. The prime minister of Latvia Māris Kučinskis said that the question of improvement of the financial control in view of the given circumstances will be discussed at an emergency meeting on Monday. "I am confident in the stability of Latvia's financial sector and in its ability to take the necessary steps to ensure that the banking sector can regain its reputation," the Prime Minister said. 

The investigation of the Ministry of Finance of the United States was also mentioned in connection with the detention and interrogation of the head of the Central Bank of Latvia, Ilmārs Rimševičs. The Latvian authorities said that his detention was carried out within the framework of the investigation of the criminal case on bribe taking. However, the finance minister of Latvia mentioned the American investigation referring to the detention. Mr. Kučinskis himself, who denies his guilt, in an interview with the Financial Times on Friday said that he was the victim of a concerted campaign by several banks that were dissatisfied with his policy of increasing transparency in the banking sector of the country. On the last Monday, the prime minister of Latvia Māris Kučinskis has demanded from the head of the Central Bank of Latvia to retire. Official accusations to Mr. Rimševičs have not yet been filed, he was released on bail.