Even though the risk of being caught up in dirty money is modest, businesses should take additional care in in Latvia’s capital.
I was only in Riga briefly, but immediately felt the buzz coming off the financial district. For a country of only 2 million or so inhabitants, it’s got a lot of banks – home-grown, Scandinavian, European. And they all seem to be doing well. Retail, private and investment banking is all catered for, with the private banks assiduously and successfully targeting the rich from the former Soviet states.
It’s not hard to see why they are successful. Latvia is a stable country, its financial regulations and controls have been tightened up, and the economy is growing at a steady 2.3%, expected to increase to 3.2% next year. Indeed, Latvia is a member of NATO and the EU – the latter being a key to all those non-resident, former Soviet nationals’ deposits.
With the purchase of a €1 million house in Latvia, a foreign national receives an EU residency permit, opening doors to the whole of the EU and making further foreign travel and business much easier. Billboards highlight this unusual feature of the property market: they are put up along the road to Jurmala, the pretty port and millionaires’ playground just west of Riga, and paid for by banks and estate agents.
There is a risk that some of this incoming money is of dubious origin. Moody’s estimates the risk of proceeds of crime being deposited in local banks as modest. Still, with non-resident deposits accounting for about half of total banking deposits, and much of this coming from Russia and other former Soviet states, anyone doing business in Latvia would do well to take extra care checking the provenance of locally-sourced funds.
Latvia has committed a lot of energy into preventing money laundering within its borders, but its resources and experience are limited. In response to suspicious transactions, US regulators curtailed some local banks’ access to US dollar clearing services. While efforts are being made, many Latvian banks are vulnerable to both, abuse by criminals and sanctions by regulators.
Riga is a beautiful place, and Latvia is a country open for business. But given country’s banking history, and the long reach of Western regulators, international businesses cannot be too careful.
