Posted on May 16, 2020
Rietumu, one of Latvia's largest banks, is facing three French court hearings in May 2020 as it appeals a 2017 prosecution for money laundering in France. The bank's majority shareholder is Irish businessman and Celtic FC owner Dermot Desmond.
If the prosecution succeeds the bank will be held accountable for large scale tax evasion in France, facing a fine of up to €80 million. How did Desmond get embroiled in this case and what does its history tell us about the fight against corruption in the EU's banking sector?
Desmond was originally invited to buy a stake in Rietumu by his associate Michael Bourke, who was that bank's president until 2005. Bourke originally came to Latvia as part of an EU programme to export European banking standards to the East and ready countries for EU membership. He became Rietumu's president after he left the EU programme in 1997.
Latvia's government tried to brand their country as the 'Switzerland of the Baltic' during the nineties. The combination of light touch regulation and proximity to Russia had inevitable consequences: some Latvian bankers formed ties to the Russian mob and intelligence services, who in turn used Latvian banks for money laundering and financing special ops.
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Latvia's Parex Bank in particular became associated with gangsters linked to the FSB and Gazprom. Parex's owners, Valerijs Kargins and Viktors Krasovickis, looted it to the tune of billions and Parex became financially unviable in 2008. The Latvian government nationalised the bank and appointed Bourke to its supervisory board in 2010. His commanding portfolio combined with his credibility as a western banker untouched by eastern corruption reassured Europe's banking establishment.
Bourke remained with Parex, which was renamed Reverta, and transformed himself into a distressed assets manager until 30 June 2017. He led the bank's pursuit of its former owners.
John Christmas, the former manager of Parex's international group, believes that they were never properly held to account. In an interview with EU Today he said that, “the management of Parex Bank covered up its looting in 2009. In their 2008 annual report, they claimed that the bank collapsed because of the United States. Then, in 2009, the EBRD supposedly conducted a due diligence audit of Parex and agreed to buy a stake because it was valuable. However, in 2010, the government admitted that half of the assets were bad and split Parex into a 'good bank' and 'bad bank’. It subsequently emerged that the government secretly paid the EBRD to buy the stake. It is impossible that half of the bank's assets became bad between 2009 and 2010, and therefore the bank's 2009 financial statements were false.” If Christmas is correct these questionable financial manoeuvres, which preceded Bourke's tenure at the bank, have never been adequately addressed.
Krasovickis and Kargins remained at liberty and ultimately Parex (Reverta) was wound up at the end of 2017. Reverta actually lost a case against Rems Kargins, Valerijs's son, in the Latvian supreme court in 2015. The defeat meant that the bank was required to pay €16 million to the bank's former owners rather than the state treasury. Latvia is still pursuing Krasovickis and Kargins and is heavily in debt because of the bank's collapse which, by some estimates, has cost every Latvian hundreds of Euros.
Dermot Desmond purchased a stake in Rietumu Bank in 2005, probably after a chat with his friend Bourke. Desmond, sporting a bushy moustache of the kind favoured by villains in Victorian melodrama, is both flamboyant and media shy. However, even doing business in the bruising world of Scottish football is inadequate preparation for Latvia's highly criminalised banking environment.
The French court case against Rietumu was launched after information emerged from the Panama Papers. In July 2017 the Latvian bank was fined €80 million for laundering €200 million. Investigators, however, believe the real figure was as high as €0.96 billion.
A firm called France Offshore owned by French businessman Nadav Bensoussan had assisted clients to re-route revenues through offshore companies and evade tax. The French prosecutors demanded a four year sentence for Aleksandr Pankov, Rietumu's president, but he avoided jail and the bank denied any knowledge of the scam. In 2018 the bank tried to clean up its client base by forcibly closing 4000 accounts which it classified as a prohibited risk.
The bank will argue that it was unaware of the scam in this month's hearings. Desmond may be ruing the day his friend Bourke persuaded him to enter the murky world of Latvian banking. Latvia's financial sector remains deeply corrupt despite the EU training once provided by Bourke, and US sanctions. Indeed, if Christmas is correct, the EBRD arguably helped cover up fraudulent financial reporting at Parex Bank between 2008 to 2009. The EU may have tried to export what it saw as western financial probity to the East, but its role in the collapse of Parex shows how western institutions can become vulnerable to the corruption that Russia is exporting to the West.
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