When Latvia adopts the euro on Jan. 1, it will bring with it a banking sector that is swelling with suspicious money from Russia and the east, just as the currency bloc is trying to clamp down on such havens.
It was just nine months ago that the eurozone had to rescue Cyprus, a similarly tiny member state that also specialized in attracting huge deposits from Russia and former Soviet states. Since then, eurozone leaders have vowed to crack down on financial sanctuaries and improve transparency.
But as the 18th member of the eurozone, Latvia is likely to see a greater, not smaller, influx of dirty money as the country will be viewed as safer than its eastern neighbors while financial oversight remains loose…
Latvia has 20 domestically registered banks, or one for every 100,000 residents, an extremely high ratio. Of these, about 13 are considered “boutique banks” that rely almost exclusively on foreign funds, mainly from volatile countries of the former Soviet Union. Rather than lend to businesses and consumers, these tiny financial institutions primarily serve as safe havens or money transfer operations. They tend to keep their money in liquid assets so it can quickly be moved.
Some of the money is dirty. This year, Latvia’s bank regulator slapped a 100,000-lat ($200,000) fine on a bank for failing to exercise sufficient internal controls with money connected to the so-called Magnitsky case.
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