Banks, Direct Speech, EU – Baltic States, Financial Services, Latvia, Legislation, Round Table

The article was prepared for the International roundtable-seminar “Latvian banks: what lies ahead?” held in the Baltic International Academy on 18 May 2016. Its organizers: Baltic International Academy (BIA), Employers’ Confederation of Latvia (LDDK), Diplomatic Economic Club (DEC) and online magazine baltic-course.com.

Having realised that no bail would be received, as his next step the investigator chose to instigate personal charges against the President of Rietumu Banka.

Comments the president of Rietumu Banka Aleksandr Pankov in an interview with DB [Dienas Bizness]. 

- Recently the ‘Panama documents’ have been a much discussed topic in the mass media. Rietumu Banka has been mentioned in connection with them, but the bank has so far refused to comment on anything. Why?

First, we must say that so far we do not know whether these documents contain any information that might be connected with Rietumu Banka. Thus, as a matter of fact, there is nothing on which to comment. Generally we support the policy of supervision of financial sector policy, transparency and the exchange of financial information on an international scale. However, it should be underlined that such an information exchange process should take place in accordance with the law. We are a bank, and no one has released us from the duty to comply with specific procedures, from taking care of safeguarding the personal data of our clients, as well as from compliance with bank confidentiality regulations.

- Tell us about the case instigated in France, including against the bank you manage.

This is not a new case. French investigators launched an investigation against a number of French nationals and the company France Offshore about five years ago. A number of international banks were being investigated, including the Latvian bank Rietumu Banka. To understand the next steps of the investigation, it is necessary to take into account the particularities of French court proceedings that differ significantly from Latvian proceedings. An investigator in France has very broad powers, also acting as a judge. Namely, the investigator has sole rights to take decisions that are compulsorily executable in the territory of France. Based on this, the investigator requested that banks, which, according to the information at his disposal, had cooperated with France Offshore, should pay cash bail for the period of the investigation. The amount of bail set for Rietumu Banka was 20 million euros. According to international practice, to execute such a decision needs to be approved in Latvia under the prescribed procedure. However, Latvian law does not provide for the application of such cash bail. We requested and received clarification of the matter from the relevant Latvian institutions. A situation arose in which Rietumu Banka – that operates in terms of the Latvian legal environment – would actually breach the laws of this country should it execute the requirement of the French investigators. We notified the French side of that, and offered other types of bail that are provided for under Latvian laws and that in our opinion might have been acceptable during the French investigation proceedings. However, neither our proposals nor our position was taken into account. In assessing the situation generally, we believe that the investigator was seeking to exert maximum pressure on Rietumu Banka. Having realised that no bail would be received, as his next step the investigator chose to instigate charges personally at the president of the bank, disregarding that Rietumu Banka had been cooperating constructively throughout all stages of the investigation and had timely fulfilled all the investigator’s requests in compliance with Latvian law. It should be noted that we found it very strange that the French investigation did not want to respect and take account Latvian law, i.e. the law of a friendly European country that is a Member State of the European Union.

- The French side accuses you of taking part in activities that are aimed at tax evasion. What type of activities and accounts does this exactly concern?

Our research shows that it is mainly all about savings type accounts, and there have not been active transactions relating to these. Just like all other accounts, these accounts have been monitored under anti-money laundering (AML) policy. In cases where such accounts did not satisfy AML criteria, we closed them.

- Were these also offshore accounts?

It should be pointed out that it is not uncommon that anything associated with offshores is mixed together and presented as something bad or even illegal in itself in the mass media. The truth is that such form of organising a business has been long known and legitimate. It is a common practice used by international holdings, shipping companies, large and conservative Western pension funds with impeccable reputations, which could not even be suspected of carrying out any illegal or risky activities. In this field, international rules need to be complied with – there are lists of “bad” offshores, which, by the way, do not include Panama. If international bodies or, for example, a country, were to consider that these lists should be expanded, they have all the rights and opportunities to do so. We, on our part, would strictly respect such decisions. However, creating business structures and advising on such matters is not our business. We are a credit institution, and our business is lending, investing, financing various development projects, providing advice on investing in financial markets, and servicing such transactions. We comply with the anti-money laundering policy stringently; relevant audits are carried out at the bank on a regular basis. We have all the necessary tools to track and identify suspicious transactions. When identifying a suspicious case, we provide the information to the Money Laundering Prevention Service as required by the law.

- Another topic of interest to many is the commercial relations of Latvian commercial banks with their international counterparties, in particular with our correspondent banks in the United States. What is your opinion of the situation?

Latvia currently has only one correspondent bank for direct dollar clearing – Deutsche Bank. Therefore I completely understand the concerns about what would happen if Deutsche Bank left our market. The banks involved in international financial business are very well aware of the importance of this matter. Considerable effort is being devoted to ensuring that we should be transparent and comprehensible to US financial structures. And I can assure you that we have achieved remarkable success within the last 12 to 18 months or so. Last week I returned from the USA where we took part in many meetings with the CEOs of large US banks; I personally had the opportunity to ascertain that the reputation of Latvia is changing for the better. In this regard we have felt great support from the Latvian public authorities. Recently an important meeting was held in the USA attended by the Latvian Finance Minister, the management of the Bank of Latvia, and the management of the FCMC, all of which are also working on these matters. Incidentally, the latest news concerning Latvia’s compliance with the standards set by the Organisation for Economic Development and Cooperation (OECD) is yet further proof of our good reputation. Latvia's image abroad depends not only on the strengthening of financial supervision, but also on how this information is presented and commented on. This affects economic development, the availability of affordable credit resources, and the development of the middle class in this country.

- There has been talk that a large group of Latvian banks will soon need to undergo an audit carried out by US AML experts. What do you think of that?

Well, this work is already being carried out. I think it is an important and positive step in improving mutual understanding with our counterparties. The US auditors will have access to all our procedures and processes, they will be able to familiarise themselves with the required information, as well as the methods of information processing. We understand that for the US regulator and US banks it is important that the audit is carried out by US experts. The very process and results of this audit will be very important in strengthening mutual trust and the transparency of our financial system.

- Based on last year's performance, Rietumu Banka is ranked as one of the top three Latvian banks. Does this mean that from now on your bank's activity will be supervised from Frankfurt?

It is true that in terms of key indicators and total assets Rietumu Banka has strengthened its position in the leadership group, outperforming a bank belonging to the Swedish SEB group. So yes, such development of events can be expected.

- According to recent information, new and more stringent AML requirements have been adopted in Latvia. What do you think of these developments?

The new regulation sets forth very accurate and clear formulations and requirements. For instance, it lays down an accurate definition of a ‘shell company’ and how to proceed in certain cases when servicing the transactions of such customers. I think that this regulation will help improve the application of statutory requirements in practice. All banks are currently actively involved in the implementation of these requirements, which need to be implemented by 1 September.

- Control measures applicable to the exchange of customer data are being strengthened on a global scale. What does this mean for Latvia?

We can observe a complete globalisation of this process. After the FATCA (Foreign Account Tax Compliance Act) standard was introduced in the USA, the duty to provide information to the USA on the financial operations of residents was imposed on countries using US currency in their operations. This experience has been recognised as successful, and has led to the idea of creating an international club in which global data exchange on the operations of taxpayers in the club’s member states would take place. Fifty-five countries, including Latvia, have joined this club. Now the member states are adapting their national legislations in order to ensure the exchange of such information. In other words, Latvia will have a duty to inform other countries about the financial activities of its residents. Conversely, it will receive details about the activities of Latvian taxpayers abroad. This mechanism will enable the French authorities to get information about the foreign accounts of their taxpayers, including cases where the taxpayers would have withheld such information from their tax returns.

- You were rebuked for refusing to comment on negative information. What is your opinion on the fairness of leaking information in the public space?

Generally, one can understand the motivations of young and ambitious journalists who research their topics. But speaking of, for example, the ‘Panama Files’, one should take account of the lawful interests of those whose personal information has been leaked. The confidentiality principle regarding personal information has not been cancelled yet. Let’s also not forget that information about the goal of those leaking the data is missing, we know nothing about it. We are also of the view that any commenting or drawing of any conclusions before the investigation has been completed is not right or proper. We are confident that all our activities comply with the statutory requirements and, if necessary, we are ready to prove our case in court.