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How Russian oligarchs turned the country of Latvia into their own personal money laundering machine

Grave of KGB lawyer Andris Grutups in Riga, Latvia

By John Christmas

An open secret has been continuing in Latvia ever since the USSR broke up in 1991. The Latvian government is protecting a circle of Kremlin-linked banks catering to non-resident shell-company depositors. Although these banks have been caught repeatedly organizing massive fraud and corruption, Latvia hasn't prosecuted any of the big actors even when handed completed cases by foreign governments. Yet, the Latvian government has successfully convinced willfully-blind bureaucrats from the United States, European Union, Organization for Economic Cooperation and Development, and Financial Action Task Force to regard it as a white-listed rule-of-law state thus giving perfect cover for the oligarchs running black money through Latvia.

I regularly attend international business conferences. When I mention that I am a citizen of Latvia, businessmen reply that Latvia is a center for tax evasion and money laundering. Everyone seems to know this. Even though Latvia has laws compliant with European Union standards, the laws aren't enforced. From 17 banks licensed in Latvia, 13 specialize in non-resident deposits. Dummy directors are happy to serve on the boards of pre-registered “shelf” or “shell” companies which hold bank accounts. Some of the banks have been caught offering platforms whereby dirty money can be co-mingled with clean money using fake invoices. Thousands of transfers go in and out and none of the amounts match, making it difficult to follow a trail. Not that this matters anyway when corrupt authorities co-operate with gangster bankers to hide money...

The amount of non-resident deposits in Latvia exceeds $10 billion dollars and top bankers and even government representatives admit that these accounts are usually used for transit rather than long-term savings. Therefore, the amount of money that has passed through these accounts could easily have exceeded $200 billion dollars since 1991.

This isn't the first time organized crime benefited from a captive state to use for money laundering.

Think of Cuba in the 1950's. Meyer Lansky worked with dictator Fulgencio Batista for most of his rule from 1946 to 1959 to fashion Cuba into a Mafia money-laundering center. Operations were shut down when the people couldn't tolerate the extreme corruption anymore and therefore supported Fidel Castro's revolution with tragic results.

Think of Panama in the 1980's. Rogue bank BCCI worked with dictator Manuel Noriega for most of his rule from 1983 to 1989 to fashion Panama into a Mafia money-laundering center catering to Colombian drug traffickers and other international crooks. Operations were shut down when United States Marines came to Panama and arrested Noriega in 1989 and then BCCI was closed by regulators in 1991. As regulators sifted through the ruins of BCCI, they learned that insiders had been looting the bank continuously by making fake unrecoverable “loans” and booking those as assets while somehow the Big Four auditors didn't notice.

Now think of Latvia in the 1990's and 2000's right up to today. The oligarchs who help the Kremlin to control Latvia got their start in the final years of the USSR. Valery Kargin and Viktor Krasovitsky received the first license for foreign exchange trading in the entire USSR making them into instant multi-millionaires. Imagine the connections they must have had in the Kremlin to get that license. Shortly after Latvia supposedly became independent in 1991, these oligarchs founded Parex Bank. Parex was connected with the Tambovskaya Mafia (For more on them read: The Russian Mafia in Spain) which in turn is connected with Russian President Vladimir Putin.

Also in the early part of Latvia's so-called “independence” and “democracy,” KGB-man Grigory Loutchansky licensed several banks in Latvia for transactions related to Gazprom and Russian Prime Minister Viktor Chernomyrdin. Loutchansky has the distinction of being the only person in history for whom Interpol organized a dedicated meeting of international law enforcement experts. His company Nordex in Vienna was suspected of moving large amounts of money for the KGB.

Thus began what journalists call the “Latvian Proxy Network” and what ordinary Latvians call the “Russian Mafia” or “Jewish Mafia” or “KGB Mafia.”

Kargin, Krasovitsky, and Loutchansky are all friends with each other, and could be seen publicly at events like the “New Wave” music festivals in Latvia where over a thousand private jets from Russia and Ukraine brought in banking clients. Mega-oligarch Roman Abramovich attended, meeting Latvian government officials on his super-yacht.

Perhaps 1999 was the decisive year when any possibility for rule-of-law in Latvia was extinguished. KGB lawyer Andris Grutups, after his office was blown up with a bomb, arranged negotiations between Kargin and General Prosecutor Janis Skrastins. Even though Grutups' phone was bugged and his conversations were published, somehow nobody from Western intelligence noticed.

I, personally, am a witness to the Latvian government policy of protecting money launderers because I am the exiled whistleblower against Parex Bank. In 2002, I was duped into working at Parex.  Employees told me that Parex had been cleaned up and wasn't criminal anymore. My job was to communicate this same message to Western banks to enable Parex to borrow ever-increasing amounts.

I gradually learned the truth. As I attended internal meetings at the bank, I learned about more and more material frauds in the bank's financial statements. I learned about deposits from criminal sources, bribery within Latvia intermediated through the bank, and “loans” which were fraudulently-booked transfers benefiting insiders.

Oligarch Kargin and Prosecutor Skrastins and other senior people from the Latvian government were sometimes in attendance at internal meetings. I don't know exactly what arrangement was intermediated by Grutups between Kargin and the government, and we may never know because Grutups died from a gunshot to the head. However, it was clear that something really terrible was happening.

In 2005, partly because of encouragement from the United States Embassy, I wrote down a list of Parex frauds. I gave the list to several Latvian government departments and fled the country. The government refused to investigate and an individual from the Latvian Prosecutors Office and Latvian State Police informed me verbally that both organizations were collecting protection money from Parex. I don't know if she was telling the truth, and nobody ever investigated, however I do know that she also fled from the country.

Next, I reported everything to the FBI. I never imagined that my banking career would end with a meeting in London talking with armed FBI agents about Latvian and Russian oligarchs.

The FBI's actions weren't satisfying because they only used the information to collect a settlement and nobody was prosecuted. But at least I could show that my whistleblowing was real. The settlement “United States versus Daimler” was one of the largest in history and made headlines globally. Daimler, among other things, paid bribes through Parex. One of the frauds from my whistleblowing tied in with the case.

I saw this as a breakthrough, thinking it was impossible for the Latvian government to ignore a case handed to them by the FBI. However, I was wrong. The Latvian prosecutors pretended that they only first heard about the situation from the FBI even though actually they knew about it from my whistleblowing a few years earlier. The prosecutors wrote a letter to “Stuttgart” to get more information. Then they waited a few more years and announced that the investigation was dropped because of the statute of limitations. Seriously? There was no need to write a letter to Stuttgart. The prosecutors had an easy slam-dunk case to collect millions of dollars and prosecute the responsible people at Daimler and Parex and instead decided to do nothing.

And, somehow, the prosecutors got away with it. Very few people noticed the obvious clue that Latvia doesn't have rule-of-law. Latvian citizens kept paying taxes and foreign governments kept lending and giving money to Latvia as if nothing had happened.

If the Latvian government's refusal to seek easy millions from Daimler for the purpose of protecting a Kremlin-linked bank isn't enough to convince you that the government was the puppet of this bank, the disappearance of over a billion dollars of Parex assets and decision of the government to fraudulently bail out the perpetrators without prosecuting them should be conclusive.

Parex reported profits during every quarter of its existence from 1993 to 2008 with annual reports signed off by Big Four auditors, mostly EY. In November 2008, the government suddenly made a huge loan to Parex and started a process of nationalization. The main purpose of the bailout was to move shell-company depositors from Parex to equally notorious AB.LV Bank.

Originally, the government said this bailout was necessary because of the United States. Later, Prime Minister Valdis Dombrovskis stopped blaming the United States and instead blamed Sweden. The government said the Parex bailout loan which totaled a quarter of the national budget would be paid back. The government proved this by selling a stake in Parex to the European Bank for Reconstruction and Development (the EBRD, funded by taxpayers from 65 countries for the purpose of “fostering transparency”) in 2009. Then, the government replenished the treasury by borrowing from the International Monetary Fund and European Union and put the Latvian population on an austerity budget.

The very next year, in 2010, the government admitted that half of Parex assets were bad, implying that the EBRD bought worthless stock. And, the bad assets had nothing to do with the United States and Sweden. For example, an uncollateralized transfer of over $100 million to one of Vladimir Putin's friends was booked as a loan even though recovering the money was impossible. These sorts of deals were reminiscent of BCCI in Panama. Parex annual reports had been fake for years, as I had claimed in my whistleblowing, and most of the bailout funds would never be recovered.

In 2014, after a few more years of government officials still blaming Sweden, the government admitted that the share sale to the EBRD had been fake. The government reversed the privatization. Essentially, the government paid the EBRD to pretend to buy the stock. Latvia had borrowed money from the IMF and EU fraudulently, issued bonds fraudulently, entered the Euro currency fraudulently, and lost the opportunity to sue EY. All for the purpose of protecting the shell-company accounts at the looted offshore bank for the Tambovskaya Mafia.

The fraud was revealed. And yet the disinformation continued. The small circle of journalists who cover Latvia in the international media are still going along with Dombrovskis' absurd and baseless story that Sweden caused the crisis without mentioning the EBRD fraud. To make the Sweden story seem plausible, Dombrovskis has to change the order of events. He claims that Sweden caused a crisis, then Parex collapsed because of that crisis, then the Latvian government bailed out Parex to rescue the Latvian economy from Sweden. The real series of events, that the economy was doing fine then the government fraudulently transferred a quarter of the national budget to the Kremlin's offshore bank and then the economy collapsed, is somehow not getting into the mainstream media.

Meanwhile, AB.LV Bank, with many former Parex accounts and key personnel, had become one of the largest banks in Latvia. In the years leading up to the 2014 revolution in Ukraine, oligarch Serhiy Kurchenko moved billions of dollars out of Ukraine. In 2015, it was revealed that oligarch Ilan Shor moved one billion dollars (18% of GDP!) out of Moldova. Their bank? AB.LV! The further impoverishment of the already impoverished people of Ukraine and Moldova could have been avoided if Latvia and the EBRD had exposed the truth about the collapse of Parex instead of covering it up.

What is the reason why this racket is perpetuated even though full information to shut it down has been openly available for years? Maybe it is a tendency for Western politicians to tell polite lies about Latvia with good intentions, wrongly thinking that they are helping Latvia.

Hillary Clinton, then United States Secretary of State, visited Latvia in 2012. She said, “I want to commend you and your government for the very difficult decisions that you took . . . to chart a path forward that will provide a stable, prosperous future.” Was she referring to the decision of the government to fraudulently transfer a quarter of the national budget to an offshore bank to benefit two oligarchs and doubling Latvia's national debt in the process? The fact that the Latvian government initially blamed the United States for the collapse of Parex even though the United States had no involvement should have made Clinton angry. But anyway she decided not to speak truthfully and instead to support anti-US propaganda. Did Clinton think she was helping Latvia? Or maybe her false words have something to do with campaign donations received from Loutchansky years earlier?

Christine Lagarde, then Managing Director for the IMF, also visited Latvia in 2012. She praised Latvia for the great success of its government when the economy collapsed in 2008/2009. Specifically, she praised the government for slashing the budget, “doing what needed to be done,” and for the government's long-term view. She also praised the EBRD's contribution. Then she said “more” should be done to reduce inequality. Seriously? The Latvian government, in cooperation with the EBRD, arranged the fraudulent transfer of a quarter of the national budget to protect two oligarchs who were already the richest people in the country, and she thinks Latvia should do “more” to reduce inequality? Did she receive false information from her advisers? Or, did she make up lies herself thinking that she was somehow helping Latvia? The fraud was partly aimed at the IMF, helping Latvia to falsely appear to meet IMF debt targets.

Palaces of taxpayer-funded Parex oligarchs in Jurmala, Latvia

Villa Adlera: The mansion of Valery Kargin

Villa Marta: The mansion of Viktor Krasovitsky

The ongoing saga of a small private bank in Switzerland gives clues about what could still be going on as long as the lies and cover-ups continue.

Parex bought a small Swiss bank named AP Anlage un Privatbank for the stated purpose of moving clients to that bank just prior to Latvia's accession to the European Union in 2004. Some clients were afraid that the European Union might compel Latvia to establish law enforcement and therefore wanted their accounts in Switzerland. Kargin moved his most strategic employee to AP Bank, the man responsible for shell-company deposit services for the bank's richest clients from Moscow and Kiev.

In early 2008, Parex went through a series of dealings that in retrospect appear to have been designed for the purpose of asset-stripping in preparation of giving the bank's liabilities to Latvian taxpayers. One of these deals was the planned transfer AP Bank from Parex to Latvijas Krajbanka. The agreement was announced in May 2008. Then, Parex collapsed in November 2008 and Latvijas Krajbanka oligarch Alexander Antonov was almost killed by an assassin in March 2009 and the transfer was canceled. Latvijas Krajbanka collapsed, having been looted, in December 2011. One can only speculate on the nature of negotiations between Kargin and Antonov.

Meanwhile, the Latvian government created a supposedly “good bank” called Citadele Bank. Citadele received some of the former assets of Parex including AP Bank. Also, Citadele received some of the liabilities. Citadele was capitalized by the government using taxpayer money, and then some shares were transferred to the EBRD. The government sold the rest of the shares to an investor group. The details of both transactions are top secret (remember, the mission of the EBRD is “fostering transparency”) and therefore creditors and taxpayers don't know if there is another secret guarantee. A member of the board of Citadele boasted of the success of the “good bank” by announcing on Facebook that Parex/Citadele “is no longer criminal.”

I'm not convinced that Citadele “is no longer criminal” since Citadele still specializes in shell-company deposit services for clients from Russia and Ukraine. Also, Kargin's strategic employee is still at AP Bank, perhaps still offering shell-company services to the super-rich of Moscow and Kiev.

But you wouldn't know this from reading the news. Officially, the owners of Citadele include the EBRD, former Federal Reserve Chairman Paul Volcker, and former World Bank President James Wolfensohn. Onlookers might assume that it's impossible that dirty money from Russia and Ukraine can be running through Citadele because why would Volcker and Wolfensohn want to be involved in that?

I suspect another trick reminiscent of BCCI. BCCI was owned by the respectable Sheikh Zayed of Abu Dhabi and used former United States President Jimmy Carter as its spokesperson. However, Zayed and Carter had no idea what was going on inside BCCI. They thought it was a lawful bank helping developing countries. They were completely surprised when it turned out to be a big criminal scam, with Carter embarrassed and Zayed losing his investment.

What is next for Latvia? Since the Kremlin's bankers still have an iron grip on the government while the West pretends not to know, I expect we will see continued rampant corruption. Perhaps the government dreamed of making Latvia rich like a new Switzerland. However, the reality is that the country is sinking into poverty like Cuba and Panama. Latvia's banks aren't only laundering money for foreign crooks. They are laundering money for domestic crooks and demanding bailout funds from domestic taxpayers and the compromised prosecutors can't do anything about it.

Author John Christmas is a financial professional educated at Dartmouth College and Cornell University. His whistleblowing information is openly available on www.LawlessLatvia.com and the LatviavEBRD Youtube channel. His whistleblowing has been reported in major newspapers in Italy and the Netherlands. He spoke about the whistleblowing at the U.S. Senate in 2014 and Offshore Alert Conference in 2015. However, still now in 2016, the Latvian Proxy Network racket continues with no end in sight as thousands of responsible bureaucrats in dozens of countries refuse to act.

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