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February 20, 2018

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How deep does the Latvian rabbit hole go?

The news of the detention, and subsequent release on bail, of Latvia's central bank governor Ilmars Rimsevics raises a whole number of troubling issues. One is the future of ABLV, the Latvian Bank, which has been subject to a US investigation into money laundering. The position Rimsevics finds himself also raises issues about the ECB's strong form of central bank independence, bordering on a lack of accountability, which makes it very hard to remove a governor even in a case like this. In the past the ECB has come out strongly in defence of national central bankers that have been the target of attempts by governments to remove them, or that have found themselves the target of investigations. So far the ECB has made no statements on Rimsevics, but the ECB will not be able to stay silent on this case if - as is likely - calls for Rimsevics' resignation become louder. Rimsevics himself will appear on the One-on-one interview show on Latvian TV this evening. 

Last week the US financial crimes enforcement network Fincen, a division of the US Treasury department, publicised its intention to declare ABLV a primary money laundering concern which entails shutting the bank off from the US banking system. Predictably, worries over the fate of the bank have manifested themselves to the point that the SSM has instructed the Latvian authorities to impose a moratorium on ABLV's liabilities, to prevent its liquidity situation from deteriorating further. 

Yesterday after mid-day, the Latvia's bureau for preventing and fighting corruption (KNAB) made a public statement explaining that Rimsevics was suspected of soliciting a large bribe, in the region of €100,000 according to Latvian state media. Rimsevics - who denies the allegations - was released from detention yesterday evening, after an unknown person paid his bail.

The Latvian government is in full damage-limitation mode as a result of these two cases coinciding in time. In a statement yesterday, the government is at pains to stress that the country complies with international money-laundering regulations, that the Latvian financial system is sound, and that the allegations against Rimsevics had nothing to do with ABLV or with any other bank operating in Latvia. Over the week-end, both the PM and finance minister had asked for Rimsevics' resignation, or at least that he step aside from his duties while under investigation. In the above story Latvian state media note that it is nearly impossible to remove a sitting central bank governor except by their resignation. Rimsevics has been at his job for 17 years, making him the longest-serving central banker on the ECB board - though he only joined the board when Latvia became a eurozone member in 2014. The government and opposition in Latvia are now discussing the possibility of setting a limits of two five-year terms on how long a central bank governor may serve. 

Mário Centeno, asked about Rimsevics after the yesterday's eurogroup said that the affair was an internal matter of Latvia. The ECB has so far made no statements about Rimsevics' situation. 

The Latvian central bank also admitted to buying over €100m in securities from ABLV to provide liquidity to it, a substantial amount given the bank's small size. Bank officials will be in Frankfurt today to discuss a stabilisation plan for the bank, which has six months to make allegations against the US Treasury's money-laundering designation. ABLV claims that the decision is based on old events and that the bank has improved its money laundering controls over the past two years. 

Finally, we note that both the head of the KNAB, Jekabs Straume, and the government in its statement above, stressed that the allegations against Rimsevics had nothing to do with another Latvian bank - Narvik. As it turns out Narvik, a smaller bank than ABLV and therefore out of scope for SSM supervision, has been claiming for months that it is subject to extortion by an unnamed high-ranking official. The bank has even gone to international arbitration with the World Bank about this. But now, in the wake of Rimsevics' detention, the Latvian police has just launched a criminal investigation into the extortion allegations, and the Associated Press has a story in which Narvik's CEO Oliver Bramwell names Rimsevics as the high-level official. The bank claims that the sum extorted is $100,000 a month.

Narvik bank is an interesting beast in any case. A recent piece from Russian language Radio Liberty notes that Anders Fogh Rasmussen, former Danish PM and NATO secretary general, has just joined it as deputy chairman. The bank also boasts the involvement of a former head of the German intellgence BND, and the bank's chairman Grigory Guselnikov is a Russian-British associate of Russian opposition activist Alexei Navalny.

Our other stories

We also have stories on the SSM pressing ahead with NPL provisioning rules opposed by Italy; on Merkel appointing a presumed successor; on whether French unions and employers will deliver the social reforms Macron wants; on the UK threatening to halt payments if the EU does not agree a trade deal; on the open questions about Greece's post-bailout regime; and on why ESBies are not a solution to the eurozone governance problem.

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