EXCLUSIVE INVESTIGATION: UK’s Shadowy Financial Sector
Money Laundering Havens Run by Former Latvian Bank Executives
A recent investigation has uncovered a web of connections between former executives at Latvian non-resident banks fined for insufficient anti-money laundering (AML) compliance and e-money institutions (EMIs) in the UK. The sector, once seen as a haven for shell companies, has become increasingly intertwined with EMIs, posing a significant money laundering risk to Latvia and the EU.
AML Breaches and Lack of Supervision
The investigation found that several e-money businesses in the UK are being run by individuals with ties to Latvian non-resident banks, which have been previously fined for AML breaches. The Latvian Financial Intelligence Unit (FIU) has explicitly attributed these EMIs a medium-high money laundering risk due to their ability to provide services across the EU.
Growth of EMIs in Latvia
The growth of EMIs in Latvia has been rapid, with many operating without sufficient supervision. The FIU notes that high-risk clients are increasingly turning to this sector, which poses a significant threat to AML efforts in the country. Despite efforts to strengthen supervision rules in 2018, the number of registered EMIs in Latvia has dropped, but those with freedom to operate across the EU still pose a high risk.
European Commission’s AML Package
In response to growing concerns over money laundering, the European Commission presented an ambitious package of legislative proposals to strengthen the EU’s AML system. The new measures include:
- Creation of a new EU AML authority
- Directly applicable rules for customer due diligence and beneficial ownership
- Strengthened regulations for the crypto sector
Recommendations for Governments
Transparency International Latvia recommends that governments in Latvia and other Baltic countries take the following steps to address the pressing problems identified in this report:
- Support EU efforts to establish a supranational supervision and reporting mechanism for cross-border transactions
- Implement measures to strengthen monitoring and transparency of corporate services in Latvia, including developing licensing requirements for company service providers (CSPs) and publishing a public register of all CSPs under SRS supervision
- Engage with competent authorities in Estonia and Lithuania to ensure interoperability among corporate registries and harness AML intelligence value
UK’s Role in Addressing Money Laundering Risks
The UK government must also take action to address the money laundering risks posed by EMIs operating in the country. The sector’s growth has been fueled by lax regulation, and it is imperative that authorities prioritize AML compliance to prevent further criminal activity.
Conclusion
This investigation highlights the urgent need for improved cross-border supervision and intelligence sharing to combat money laundering and terrorist financing. It is crucial that governments, regulatory bodies, and law enforcement agencies work together to ensure that the financial sector operates in a safe and transparent environment.
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This publication was produced in the framework of the Global Anti-Corruption Consortium and reflects the opinion of Transparency International Latvia.