ILMARS RIMSEVICS, governor of Latvia’s central bank for the past 17 years, had been due to retire next year. Instead, he is facing calls to resign. On February 17th he was detained by Latvia’s anti-corruption authority on suspicion of taking a bribe of at least €100,000 ($123,000). The prime minister, Maris Kucinskis, says the allegations are so serious that Mr Rimsevics cannot possibly return to work. Mr Rimsevics, for his part, is staying put. Released on bail on February 19th, he denies the allegations, saying he was set up and is facing death threats.
Just a few days earlier, in an unrelated case, the US Treasury had proposed sanctions on ABLV, one of Latvia’s largest banks. It claimed ABLV had “institutionalised money laundering” and facilitated transactions with North Korea, which is under sanctions. In the days that followed €600m was withdrawn by the bank’s customers. On February 19th, seeking to stabilise the institution, the European Central Bank (ECB) froze payments by ABLV. Latvians with accounts at the bank have had their debit cards cut off.
Past money-laundering cases have stained Latvia’s banking system. Several of its banks were alleged to have moved money stolen from Hermitage Capital Management, an investment fund, in 2008. The evidence came from Sergei Magnitsky, a lawyer, who was later imprisoned and maltreated in Russia, and died in custody in 2009. Documents leaked in 2014 exposing the “Russian Laundromat”, whereby $20.8bn was moved illicitly from Russia, suggest that the money flowed through Moldova and Latvia to 732 banks in 96 countries. Many global banks have refused to conduct transactions with Latvian banks since.
As Latvia’s central bank governor, Mr Rimsevics has been responsible for nominating the country’s chief financial regulator. Punishment for these and other transgressions has been mild. An audit of the banking system prompted by the Russian Laundromat case led to just €640,000 in fines being levied on three banks. For comparison, last July a court in Paris fined Rietumu, another large Latvian bank, €80m for money laundering.
The incipient bank run on ABLV and the authorities’ attempts to stabilise the situation will awaken ugly memories for Latvians. During the global financial crisis Parex Bank, the country’s second-largest, suffered a bank run. A government rescue put severe strain on the public finances. The national economy contracted by 25% and unemployment soared above 20%. One in ten Latvians migrated. The country was eventually bailed out by the IMF and the European Union.
But the fallout will not be limited to Latvia. Mr Rimsevics has been a member of the ECB’s highest policymaking council for more than a decade. He joined its governing council in 2014, when Latvia adopted the euro. The ECB has been criticised for its slowness to act after the accusations against ABLV, taking six days before ordering the payment freeze. The case will cause ripples throughout Europe.