EH 8: illict wealth, money laundering Flashcards
Latvias integreation
dependent and more peripheral
Latvia´s industry collapsed in the 1990s
Exports remained flat until the 2000
There is less FDI, but Latvia’s exports are often part of GVC
It specializes in lower-end ICT and transport services, as well as agricultural products
beyond non-resident deposits
Latvian banks that specialized in servicing non-residents were always a group apart from those that worked with locals, and didn’t focus on attracting deposits
through a strong network of correspondent relationships with Western banks, they served as a pipeline for post-Soviet money to safer havens
in 2013, when the IMF reviewed the system, it found that a quarter of the non-resident banks’ assets were parked with foreign banks with which they had correspondent relationships
Latvian banks are part of the “offshore”economy
offshore economy
refers to a location that is not in one’s native nation, and where rules (esp. taxation or secrecy) differ from those in the home nation
Locations are often island nations where companies, investments, and deposits are established
Companies and people (usually those with a high net worth) may relocate abroad in search of better terms, such as tax avoidance, loosened restrictions, or asset protection
Although offshore institutions can be utilized for unlawful reasons, they are not necessarily illegal
e.g. Panama, banks in Luxemburg
connection resource wealth, corruption and offshore finance
One of the most important sources of illicit wealth is large scale corruption of state elites across the globe, and particularly from resource-rich countries
The rise of offshore finance has changed corruption:
-Earlier corruption was largely confined within the national borders “steal and spend,”
-Offshore instead enabled corrupt elites to “steal, obscure and spend” ever larger amounts of money
specifities of the post-soviet space
Large-scale transformation enabled state looting by political and economic elites on an unprecedented scale
Already in the 1980s, the KGB started moving money out of the Soviet Union
After the communist system collapsed, “an unusual coalition of former members of the party elite, the military complex, and veterans of the security and law enforcement apparatus, …and organized crime” engaged in large scale corruption
The resource boom of the 1990s and 2000s enabled additional appropriation and accumulation of individual wealth
With Putin’s coming to power in the 2000s, the kleptocratic (plündererherrschaft) system consolidated
While Russia is one of the largest generators of illicit money, corruption and state looting has taken place across the post-Soviet space
Kleptocracy
it is globalized, not confined behind national border
It is pointless to ask whether Russia is a kleptocracy. It is more appropriate to examine how Russia’s elites are part of a kleptocratic system by which their thefts from the national budget are connected, via Scottish limited partnerships and Moldovan or Latvian banks, to the London property market
money laundering
Process of illegally concealing the origin of money, which is obtained from illicit activities (for instance corruption, drug trafficking etc.).
The aim is to make this money a legitimate source
concealing or disguising the illicit origin of the property to evade the legal consequences of his actions
The estimated amount of money laundered globally in one year is 2 - 5% of global GDP, or $800 billion - $2 trillion in current US dollars
Due to the clandestine nature of money-laundering, it is however difficult to estimate the total amount of money that goes through the laundering cycle
three steps of money laundering
Placement (moving the funds from direct association with crime)
Layering (disguising the trail to foil pursuit)
integration (making the money available to the criminal from what seem to be legitimate sources)
High level corruption
In 2018, three Latvian banks accused Ilmārs Rimšēvičs, Latvia´s central bank governor, of having demanded bribes for protecting the banks against state regulation
Rimšēvičs was briefly detained, and was barred from performing his duties, which also includes his role at the European Central Bank.
This decision was overturned by the European Court of Justice in early 2019, which ruled that the government did not provide any evidence strong enough to support the claims against Rimšēvičs
Why has Latvia become a center of money laundering? legacies & early transformation
The Soviet occupied republic of Latvia contained the USSR’s largest port for oil exports.
Soviet Union unraveled -> Latvian ports became magnets for corruption, theft and windfall profits
Offshore banks emerged in Latvia to handle the torrents of cash from selling off the former USSR’s oil and metals
The largest of these offshore banks, Parex, founded by two Konsomol figures, used the turbulent times to establish themselves as the first legal Soviet private currency exchange in 1990
-> They original advertisement was “we exchange all currencies and ask no questions!” in 2005, they advertised “that Riga was closer to Moscow than Switzerland and that all at Parex spoke Russian”
Transformation strategy: the switzerland of the baltics
-> Prime minister: Repse -> ideal Switzerland: desired that Latvia would develop into an international banking paradise characterized by the rule of law and monetary stability
EU fight against money laudnering
lack of willingness or/and capacity to fight money laundering
While Latvia´s EU membership made it an attractive destination for dirty money, and Latvia joined the eurozone in 2014
while the EU has established new banking supervision mechanisms in the Eurocrisis, and conduct risk (which includes money laundering) has been recognized one of the key risks for the euro area banking system, -> “The Single Supervisory Board cannot take on such a responsibility, because we already have many tasks which require our full attention”
