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Interview: Latvia PM pledges tighter bank controls to defuse U.S. standoff

Reuters  |  RIGA 

By O'Donnell and Gederts Gelzis

(Reuters) - will invest more in monitoring banks as it overhauls financial controls, told Reuters, after the accused one of its biggest banks of money-laundering and breaching on

He said a levy on financial transactions by shell companies, which often disguise account holders, was one of many options discussed by ministers this week.

Their widespread use and the presence of more than 10 banks that take deposits from customers in and other fellow ex-Soviet states has led the and others to accuse euro zone member of allowing money laundering. has issued repeated warnings to to reform.

"Our ultimate goal is to eradicate any suspicious transactions. We don't want the banks who are just using or its vulnerabilities to make money," Kucinskis said in an interview.

"This is definitely not the future we have envisaged for ourselves. We definitely do not want to become the of the EU. When it comes to shell companies, the dangers outweigh the benefits."

When regained its independence in 1991, some banks promoted themselves to Russians as a gateway to western financial markets, promising secrecy surrounding the identity of clients similar to that in at the time.

In one television advert of that time, a boy enters a branch with a small sack of money, asking the if he will "tell his mother". The shakes his head.

Many banks taking foreign deposits did not deal with the customer directly but with shell companies, where it was difficult to prove who the owner was. Latvian bankers say controls are now tighter although critics believe such structures still allow money laundering to take place.

Last month, U.S. authorities alleged that the country's third-largest bank, ABLV, had engaged in money laundering and broken on The accusations effectively froze out of U.S. dollar financial markets, prompting its closure and hurting some local peers.

has denied wrongdoing.

"We have to introduce additional controls," Kucinskis said in the interview. "This will mean a restructuring and capacity building. We are going to audit the whole system."

On Thursday, Marshall Billingslea, who leads the Office of Terrorist Financing and Financial Crimes at the U.S. Treasury, will visit for meetings with some top Latvian officials.

Kucinskis said the government's overhaul was likely to see the number of Latvian banks involved in this business of dealing with foreign clients reduced. The country's banking sector watchdog has said similar. [L5N1QP6JX]

"Given the size of our economy and the size of the population, the number of banks will most probably in future go down. We want to make sure that the reduction process is a controlled process," the said.


But some are sceptical that the will be able to deliver on its promise of stamping out money laundering, arguing that the country's justice system has proven to be weak.

"In Latvia, we have the best legislation. The problem is in enforcement," said Janis Bordans, a former of the New Conservative Party, which will campaign in October elections against corruption.

"If you are only writing good laws and then allowing criminally gained funds on your territory, then you have a problem."

is struggling to repair its image, damaged not only by the money laundering allegations but also because of a corruption probe that led to the detention of its governor.

Last month, Ilmars Rimsevics was held by anti-corruption agents who said they suspected him of taking a bribe of more than 100,000 euros ($123,000).

He denies any wrongdoing and is refusing to resign, putting the government in an embarrassing position, not least because he has kept his role as a member of the European Central Bank's influential policy setting committee. It meets on Thursday without Rimsevics, who is banned from leaving

Rimsevics' told that they will attempt to challenge restrictions imposed by Latvian investigators on his freedom to work, seeking to take their case to the

Kucinskis reiterated his call on Rimsevics to quit. "Crooks and thieves will be prosecuted in due process," he said. "He should step down."

was one of the countries hit hardest by the global financial crisis, falling into recession as the government sought an international bailout, nationalized and made spending cuts amid a wave of emigration.

(Reporting by O'Donnell and Gederts Gelzis; Writing by O'Donnell; Editing by Catherine Evans)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, March 08 2018. 16:34 IST