Latvia's third-biggest bank sought emergency financial support on Monday after US officials accused it of helping breach North Korean sanctions, hours after the central bank governor was arrested over separate bribery allegations.
The financial sector in Latvia, a small eurozone state that shares a border with Russia, has come under wider scrutiny for being a conduit for illicit financial activities.
ABLV Bank was ordered by the European Central Bank to stop all payments as its liquidity position had deteriorated sharply since the US Treasury accused it of allowing clients to conduct business with North Korea.
The Treasury's Financial Crimes Enforcement Network (FCEN) said bank executives and management had bribed Latvian officials to cover up their activities.
"ABLV has institutionalised money laundering as a pillar of the bank’s business practices," the FCEN said in a statement linking some of the alleged activities to North Korea's ballistic missiles programme.
The bank has said the US accusations were based on unfounded and misleading information.
The Latvian central bank said it had agreed to provide €97.5 million worth of funding to ABLV but the bank had yet to receive the money.
ABLV said it had ample collateral so was not seeking a bailout, just temporary liquidity support.
In its document detailing the allegations against ABLV, the FCEN said the reliance of the Latvian banking system on non-resident deposits for capital exposed it to increased illicit finance risk. It said such deposits amounted to roughly $13 billion.
"Non-resident banking in Latvia allows offshore companies, including shell companies, to hold accounts and transact through Latvian banks," it said, adding criminal groups and corrupt officials may use such schemes to hide true beneficiaries or create fraudulent business transactions.
"(Former Soviet Union) actors often transfer their capital via Latvia, frequently through complex and interconnected legal structures, to various banking locales in order to reduce scrutiny of transactions and lower the transactions' risk rating."
CENTRAL BANK GOVERNOR
In a separate development, Latvia's anti-corruption authority said it had detained central bank governor Ilmars Rimsevics, an ECB policymaker, over the weekend for demanding a bribe.
It said its investigation was not connected to the probe into ABLV.
"(Rimsevics' arrest)... is about demanding a bribe of no less than €100,000," Jekabs Straume, the head of Latvia's Corruption Prevention and Combating Bureau told reporters at a news conference.
Rimsevics' lawyer said the central bank governor rejected the allegations made by the anti-corruption authority.
"But they (the allegations) have been expressed only orally, so we have not seen a specific document at the moment," Saulvedis Varpins said.
Neither the police nor the anti-corruption authority gave details of the alleged request for a bribe.
Latvia's government increased pressure on the central bank boss to quit.
"I can't imagine that a governor of the Bank of Latvia detained over such a serious accusation could work," Prime Minister Maris Kucinskis said on Monday.
Rimsevics was arrested on Saturday after police searched his office and home. He can be held for 48 hours, a period which is due to expire late on Monday.