Posted on Jan 02, 2020
How the EBRD became involved in a fraudulent privatisation deal to cover up looting at a Latvian bank, by Stephen Komarnyckyj for EU Today.
John Christmas, the former head of Parex Bank's international group, still dare not return to Latvia fifteen years after blowing the whistle on fraud at the bank. An American by birth, Christmas began his career in the US banking sector and had been delighted when he landed the job at Parex in 2002. However, his career at the bank resembled the film Devil's Advocate in which Keanu Reeves's fresh-faced lawyer becomes aware that his employer is Satan.
Christmas listened horrified as senior employees at the bank told him of the frauds at Parex as if laundering money were as normal as taking out a mortgage. He began emailing and faxing details of the bank's wrongdoing to auditors, creditors and rating agencies and was forced out of his job in 2004. Christmas left Latvia in 2005 due to concerns for his safety and would later be told by a Parex employee that the bank was hunting him down.
The threat to John's safety was due to the bank's links to organised crime and Russian intelligence.
The bank's owners, Valerijs Kargins and Viktors Krasovickis (pictured left), were Russian speakers with close links to the Tambov mafia. Grigorijs Rabinovics, who was a Mafioso linked to the gangster-cum-banker Aleksandr Torshin, was a close associate of both men and a shareholder in Parex. Torshin, a former Russian central banker, later became famous as the handler of Maria Butina, the gun-toting Stetson-wearing Russian agent who helped him incite America's gun lobby to support Trump. The bank was associated with a string of murders in Latvia but no one was ever prosecuted. Four years after Christmas left the bank Parex folded due to the wholesale looting of its assets by the owners.
The vast majority of the stolen money was never recovered and appears to have been laundered through shell companies, real estate, and the Tambov Mafia's networks. It may even have formed part of the slush fund Torshin used for his donations to the US National Rifle Association. The audit report detailing suspicious transactions at the bank was suppressed according to one of its authors Ilse Znotina.
The bank was purchased from its owners by the Latvian government for a token payment in late 2008 and was restructured in 2010. The restructure resulted in two new companies being created: Reverta, which was the successor of the old Parex corporation, and Citadele, which was a new corporate entity. Parex used some of its assets and liabilities to create Citadele which remained operational as a bank and inherited Parex's Swiss subsidiary AP Anlage & Privatbank.
The bad assets were retained by Reverta, which pursued its former owners for some of the money looted from the bank by means of extravagantly favourable loans they authorised to themselves. This was a token exercise. The government could have prosecuted the bankers and the auditors for fraud and pursued the bank's owners for the money which was looted by fraudulent operations.
The bail out cost billions of Euros which could have been saved if the bank had been allowed to fail and if the owners had been pursued aggressively to recuperate the money they stole. However, the bank quietly paid off most of the debts due to the looting undertaken by loans to shell companies and other mechanisms by using funds borrowed from the EU via the government. The losses were transferred to the Latvian taxpayer and it is unclear whether these debts will ever be repaid.
Citadele was meant to be a new ‘clean’ bank but it inherited many of Parex's staff and has substantial private banking and non-resident portfolios, which may still be servicing Russian and Ukrainian oligarchs.
Citadele was privatised in 2010 with the EBRD purchasing a 25% stake in the bank and one voting share. However, the deal was a fraudulent transaction undertaken under the terms of a guarantee which was kept secret from Latvian citizens and creditors; Latvia agreed to give the EBRD both the money to purchase its stake in the bank and an additional bung of EUR 55m. Latvia would also be obligated to repurchase the shares. The ‘privatisation’ was in fact a thinly disguised loan. We only know of the guarantee's existence, which has never been mentioned in the bank's annual reports, due to a document published on the Eurostat website. Why did the Latvian government hush up the looting at Parex and only launch some superficial efforts to recover the looted assets?
The corrupt network around Parex reached into the heart of the Latvian government. Ilmars Rimsevics (pictured right), the governor of The Bank of Latvia when Parex collapsed, is currently being prosecuted for taking bribes.
Inguna Sudraba who was on Parex's credit committee when it voted to approve the fraudulent loans became Latvia's state auditor responsible for investigating the fraudulent loans she had been involved in approving. Arnis Lagzdins, the bank's compliance officer until 2008, would later fill the same role at Lithuania's Ukio Bank, which collapsed in 2013 having been looted by its owner and involved in money laundering for Putin.
Lagzdins would later be appointed as Latvian banking's representative to the USA with the aim of restoring trust in Latvian banking. Perhaps inevitably Latvia's ABLV Bank collapsed largely due to money laundering in 2018 while he was in this role.
The owners of Parex remain untouched because they could bring senior figures in Latvia's government crashing down with them. They continue to enjoy a billionaire lifestyle while Latvia's taxpayers foot the bill for a bogus transaction with the EBRD OK.
The EU has yet to learn the lesson of Latvia's looted bank: the very best bank robbers in Europe no longer wear stockings over their heads and brandish shotguns, they just set up the bank and syphon off more in funds than the bank has in capital and most of them are bosom buddies with the Russian mafia and intelligence services. Until they do, more banks in Europe will collapse and more Russian billionaires will funnel shady cash to crackpot left and right wing politicians or throw parties for a politician who wakes up drunk in an airport without his security detail and wonders what the hell happened last night.
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