• Latvia’s 2018 crackdown on money laundering involved the freezing of over half a billion dollars invested in foreign owned accounts.
• Hundreds of foreign owned business accounts have been frozen without citing a criminal activity as the cause.
• Fara Group’s expropriation risk practice helps amend wrongful civil asset forfeiture cases.
In the 1990s Latvia initiated an invest in Latvia campaign with the aim of becoming the Switzerland of eastern Europe, providing a financial bridge between Russia and the west. Hundreds of businesses from the Former Soviet Union (FSU) moved their banking operations to Latvia with the understanding their deposits would be secure and they could conduct hard currency transactions. By 2015, about 1 percent of all U.S. dollars moving around the world in 2015 were going through Latvia.
A few years later, in 2018, Latvian authorities were alerted by US officials about the infiltration of criminal organizations to its banks to launder money. Regulators on both sides of the Atlantic acted to shut down these networks and eliminate criminal banks.
A raft of criminal probes ensued in Latvia with a focus on non-resident owned bank accounts. Practically all accounts owned by nationals of the FSU were closed. Many of their accounts were frozen.
The severe measures employed by Latvian authorities yielded results. It shut down accounts enabling “The Russian Laundromat” scheme, whereby billions of US dollars from Russian banks were laundered through Moldovan banks, using illicit court rulings on defaulted fake debts, and sent to Latvia. Other criminal schemes, whereby offshore structures were used to hide the identify of Specially Designated Nationals (SDNs), were also discovered.
However, allegedly innocent parties have also been ensnared in the anti-AML dragnet. Hundreds of businesses are claiming their accounts were frozen by authorities without a legal justification. Some were frozen because the account holder and or the origin of funds were from countries of the FSU, whose financial systems have a reputation of being opaque and underregulated. In other instances, company accounts were retroactively held accountable to Know Your Customer’s Customer (KYCC) requirements, a measure inadvisable by the internationally respected Financial Action Task Force (FATF). There are also instances where accounts were frozen because the company had no material business activity in Latvia.
In all these cases, the businesses lost access to their deposits in Latvian banks without authorities citing a specific criminal activity as the cause. This practice, legally termed “civil asset forfeiture” or colloquially, “policing for profit,” is very controversial, and is opposed among others, by the American Civil Liberties Union and the Heritage Foundation.
Expropriation risk is not unique to Latvia. It is prevalent in the rest of Europe and the United States where civil asset forfeiture is increasingly common. Because these non-conviction based confiscations are mostly devoid of due process, when brought to trial they have recurrently been overturned.
For foreign nationals whose Latvian accounts are frozen, removing blockers is a surmountable challenge. The blockers may be bureaucratic, political, or legal. If a case can be made that the business has no predicate crimes or sanctions violations, assets can be reclaimed.
Fara Group specializes in civil asset forfeiture cases. It’s team of financial and legal experts perform independent review and opinions regarding the legal basis for authorities to freeze funds, or lack thereof. These authoritative reports can be used as evidence in both local courts and international tribunals. In strong cases, they can be used persuade relevant authorities that the client in this case has their funds unjustly detained.