FinCEN Names ABLV Bank of Latvia an Institution of Primary Money Laundering Concern and Proposes Section 311 Special Measure
The U.S. Treasury Department on Tuesday issued a proposed rule that names Latvia's ABLV Bank a "foreign bank of primary money laundering concern," a move that obliges U.S. financial institutions to sever any ties. The proposal, which accuses ABLV of, among other things, aiding North Korea, also highlights broader money laundering risks associated with Latvian banks.
Although the notice issued by Treasury's Financial Crimes Enforcement Network (FinCEN) is technically a proposed rule authorized by Section 311of the USA PATRIOT Act, in effect it bars U.S. institutions from offering correspondent banking services, direct or indirect, to ABLV. Based in Riga, Latvia, ABLV is the country's second largest bank.
"FinCEN will continue to take action against foreign banks that disregard anti-money laundering safeguards and become conduits for widespread illicit activity," Treasury Secretary Steven Mnuchin said in a written statement.
"Deficient practices at banks foster a wide array of illicit conduct, including activity linked to North Korea's weapons program and corruption connected to Russia and Ukraine."
Although ABLV holds no correspondent accounts at U.S. financial institutions, it "accesses the U.S. financial system through nested U.S. dollar correspondent relationships with other foreign financial institutions," FinCEN said.
A "nested" correspondent relationship can allow a foreign bank to clandestinely pump funds of unknown origin into the U.S. financial system. The upshot, therefore, is that U.S. banks will need to take steps to ensure that the foreign banks they serve are not facilitating ABLV's transactions.
ABLV has wittingly "institutionalized money laundering as a pillar of the bank's business practices," thereby attracting organized crime groups, weapons proliferators, corrupt officials, and those seeking to evade sanctions, FinCEN said.
Corrupt officials in Azerbaijan, Russia, and Ukraine have purportedly funneled billions of dollars in dirty money through shell company accounts at the bank, which also has facilitated transactions for parties "involved in North Korea's procurement or export of ballistic missiles," FinCEN said.
FinCEN's proposal also said the Latvian banking system in general is reliant on non-resident deposits for capital, exposing it to increased illicit finance risk, in part because verifying clients' backgrounds and business activities is difficult.
"Criminal groups and corrupt officials may use elaborate offshore services to hide true beneficiaries or create fraudulent business transactions," the Treasury bureau said.
Latvia's primary banking regulator, the Financial Capital and Market Commission (FCMC), must do more to ensure the country's banks comply with AML requirements, it said.