FinCEN Names ABLV Bank of Latvia an Institution of Primary Money Laundering Concern and Proposes Section 311 Special Measure

13 February 2018, Bachir El Nakib (CAMS) Senior Consultant Compliance Alert LLC


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

Immediate Release
FinCEN Finds the Bank Orchestrates Money Laundering Schemes, Obstructs Regulatory Enforcement, and Has Conducted Activity Linked to North Korea

WASHINGTON – The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) today issued a finding and notice of proposed rulemaking (NPRM), pursuant to Section 311 of the USA PATRIOT Act, seeking to prohibit the opening or maintaining of a correspondent account in the United States for, or on behalf of, ABLV Bank.  FinCEN is proposing this action based on its finding set out in the NPRM that ABLV is a foreign bank of primary money laundering concern.

“FinCEN will continue to take action against foreign banks that disregard anti-money laundering safeguards and become conduits for widespread illicit activity,” said Steven T. Mnuchin, Secretary of the Treasury.  “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.  FinCEN is committed to protecting the U.S. financial system from these types of risks.”

As described in the finding, ABLV has institutionalized money laundering as a pillar of the bank’s business practices.  ABLV’s management permits the bank and its employees to orchestrate money laundering schemes; solicits high-risk shell company activity that enables the bank and its customers to launder funds; maintains inadequate controls over high-risk shell company accounts; and seeks to obstruct enforcement of Latvian anti-money laundering and combating the financing of terrorism (AML/CFT) rules in order to protect these business practices.

ABLV’s failure to implement, and disregard for, effective AML/CFT and sanctions policies and procedures have made the bank attractive to a range of illicit actors engaged in organized crime, weapons proliferation, corruption, and sanctions evasion.  Illicit financial activity at the bank includes transactions for parties connected to UN-designated entities, some of which are involved in North Korea’s procurement or export of ballistic missiles.  In addition, ABLV has facilitated transactions for corrupt politically exposed persons and has funneled billions of dollars in public corruption and asset stripping proceeds through shell company accounts.  ABLV failed to mitigate the risk stemming from these accounts, which involved large-scale illicit activity connected to Azerbaijan, Russia, and Ukraine.

Section 311 actions alert the U.S. financial sector to foreign institutions, such as ABLV, that are of primary concern and through the public rulemaking process, if necessary, cut them off from the U.S. financial sector.

The NPRM as submitted to the Federal Register is currently available here.

Written comments on the NPRM may be submitted within 60 days of publication.

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