Head of FIU Ilze Znotiņa: We are not servants of the Americans

As a publicity campaign of the Financial Intelligence Unit or for some other reasons, Ilze Znotiņa, the chief financial intelligence of the state, offered an interview to Neatkarīgā Rīta Avīze. To the publication, which is currently in opposition to the ruling coalition. The conversation is long, touching on many current topics - ABLV bank; Americans placed in Latvian government; servicing third country money; what is fair and just; conflict with lawyers and politicians. At the end of the interview, the cherry on the cake - does Ilze Znotiņa, as one of the most generously paid officials in the Latvian public administration, really trust Latvian commercial banks?

Let's start with the latest public news from your field of activity. FinCEN's claim that ABLV bank has invested billions in corruption has not been confirmed. KNAB has terminated the criminal proceedings. Does this mean that we should be glad that Latvia's good name is gradually being renewed?

This week has really been so busy for me that I have not been able to look at the KNAB statement in-depth. There are several directions that ABLV has been criticized for, and KNAB works within its competence. Unfortunately, I do not have such complete information. In addition, this criminal case was initiated long before I started working for the Financial Intelligence Unit.

That was three years ago, and now they concluded that they have not been able to obtain evidence in three years.

It would not be right for me now to comment on what KNAB says. However, anything we can use to restore Latvia's reputation is extremely important. What we have done over these three years is also aimed at restoring Latvia's reputation. In that sense, as you ask, I have to agree that any action we can take to reduce this veil of suspicion is very much appreciated.

If I understand correctly, the statement about the financing of North Korea, which allegedly took place through Latvia, has also not been confirmed so far.

I have already said this in interviews. We have identified a large number of suspicious transactions, most likely involving money laundering, but we have not identified transactions with North Korean individuals. But inspections have been completed to a very small extent. The liquidators have sent us an extremely small amount of information, so it would not be right to rush ahead. It is the task of the liquidators to investigate these clients. Research is being carried out with increasing quality. Let's wait and see what they will find.

From the outside, it seems that the actions of supervisory authorities - both national and international - against ABLV Bank have been incomparably more severe than against other banks. Including against such banks, whose tasks have been performed by ABLV. Has this particular bank not been targeted in excess?

I am trying to understand why there is such an impression that there has been some action against ABLV from the Latvian authorities. The bank itself decided to liquidate.

And again, I want to distance myself a little from the period when I was not present.

I started working on June 1, 2018, and the liquidation decision was made at the end of February. The license was revoked by the European Central Bank, the statement was made by FinCEN. What we need to do now is check all suspicious transactions. We would do exactly the same job if it were another bank. And the same thing is happening with PNB bank. The only difference between ABLV and PNB bank is that the disbursement process has ended in PNB bank and they are in a state of insolvency. ABLV has outstanding creditors' claims. PNB has none. And what the liquidators of PNB bank are sending us reports on are mostly the amounts of money that customers want to pay in order to repay their credit obligations. For ABLV, on the other hand, it is in exactly the opposite direction.

To get it out.

Yes. But the clamor around ABLV, in my opinion, is exaggerated. We do indeed do all the same actions, at least in the Financial Intelligence Unit, as we do with any other suspicious transaction that enters our service. I had a conversation with the European Commission yesterday. Unfortunately, this is the reality, that the ABLV scandal caused a whole cascade of events in Europe. And that is the reaction.

If the KNAB now says that there is no evidence for FinCEN's allegations, then perhaps this cascade of events was started erroneously. And in this regard, I have a general question about why Latvia should allow a foreign country to interfere in its internal financial affairs. Why do we have US consultants at the Ministry of Finance, and why is the AML law being coordinated with the US Embassy? They represent the interests of the United States, not Latvia, why is this happening?

In terms of FinCEN's reaction to ABLV. It is not the first bank in Latvia to receive such a reprimand. In 2005, there was Multibanka - what is now Industra -, there was Ogres Banka. We have already had this experience. Why is FinCEN allowed to do so? And not only against Latvia. Against Cyprus, Andorra. All over the world, so-called FinCEN 311 announcements are being made to banks. And why do they do that? If banks operated with wooden rubles or tugriks, FinCEN would have no right to say anything.

It's about dollars.

About dollars, that's right! And this is the reality that every financial institution that uses even one dollar in its operations must take into account. FinCEN and the US government believe that they have the right to protect their national currency.

And so we let them adjust our laws?

We are not lawmakers. In the latest amendments, the only thing we called on the Ministry of Finance to amend and brought to the Saeima was a proposal to abolish the parallel reporting system. To reduce administrative burdens on both the public and private sides. That was our only proposal. What is done next, what happens and what they are coordinated with, I cannot comment.

But does the US Embassy submit them through you or through the Ministry of Finance, where they have their own person?

No. That would be absurd, and why would we in abolishing the parallel reporting system...

I am not just talking about this one amendment, but about the bill as a whole. That it was agreed for the second reading with the people in the Ministry of Finance appointed by the United States. That's where they are sitting!

I don't understand at all where all this is coming from... Well, it's not true.

How so? It was an official announcement that US people had been placed in the Ministry of Finance under the technical assistance program. It is not some fiction.

Yes, I was one of the signatories to this contract for a U.S. consultant. His task is to help us set up internal control and coordination systems between public authorities. But I personally haven't even met this consultant since she arrived. We are not working with her with such intensity that we can somehow say that the Americans will teach us now.

But the point of this still is that they come to our aid to protect their dollar?

Well, I don't think so. This is definitely not the case. The United States is the country with the oldest and longest experience in the field of anti-money laundering and anti-terrorist financing. There is no other country in the world that has so much experience. They started as early as the 1970s, when we did not think about it at all in the countries of our bloc. And Europe also did not think about it. With its AML directives, Europe is still far behind when compared with how effectively the United States is fighting crime. But so that you understand my position correctly, I am very nationally patriotic. I strongly advocate that our country be our country.

So by no means can I agree that we are any servants of the Americans or anything like that. Absolutely not!

At the time of these FATF and Moneyval talks, there was a very, very difficult situation. A small country, sandwiched between the great powers, left to fight on its own. But we won and we did not sell our souls to anyone. It was work that was needed for us in Latvia to finally live in normal, dignified conditions.

This morning I was at a veterinary clinic, and there a lady could not pay for the medicine for her dog. Well, then why do we live so badly? There is probably an answer to that.

Because we serviced third country money? But it was that people from third countries once responded to the invitation of the Latvian government - come and invest money in our banks!

I agree.

At present, its money is being nationalized because unidentified origin is equated with criminal origin. Do you think this is fair? We invited them! We told them - come, we won't ask you any questions. Now we take their money away from them.

Well, first of all, what is fair and honest? I really like to talk about these topics, I once wanted to enter the Faculty of Philosophy.

Yes, I am asking if this is fair.

I do not know whether the answer is fair or unfair. If I invite people to visit me, who say that they will come and plant flowers in my garden, but they plant giant hogweed for me there. Is it fair, is it honest? The money that went through - did someone from the Latvian government say - come and invest here the money you have stolen from your government. What you have stolen from, for example, the Turkmens. Did we ask for that?

But we are talking about money of unknown, not criminal origin.

But what does unknown origin mean? Just so you understand how I look at a suspicious transaction report I receive at the Financial Intelligence Unit. Well, for example, we - Ilze and Imants - sign a contract, for the painting that is behind you on the screen. I will transfer 200 euros to you, you will send me the painting by courier. Thanks, and the deal is over. But what happens in these suspicious transactions? We see that Imants had that painting. After that, the painting reaches Ilze, but on the way, we transfer money to Marta. Marta transfers the money to an offshore in Seychelles, and the offshore in Seychelles sends it to you. But the money is no longer transferred to the Latvian account, but to a trust created in the name of the children. Maybe, on the one hand, it could be some sort of aggressive tax planning. But on the other hand, why is Marta involved, why Seychelles. Why?

If the investigator does not find the answer, why immediately say that it is a crime and not a complicated transaction?

It doesn't happen like that. That's why money is being released. Just released! Really, you need to ask the State Police. In our case, the Financial Intelligence Unit is required by the AML Law to have "reasonable suspicions". What is reasonable suspicion in my case? When money comes in, for example, for grain, for saffron, for some special screws, for some microchips. Something in mass, with a price that is difficult to determine. We have just received a report of a transaction in which two million metal bottle caps were delivered to a high-risk country.

That's a lot of bottles.

Lots of rum bottles. And those caps have traveled from China through a company based in Seychelles but owned by Russian businessmen. Russian businessmen are transferring dollars from that Seychelles company to China, while the country receiving the caps is transferring euros, for some reason. The country receiving the caps is in the Western Hemisphere and has US sanctions imposed on it. It cannot use dollars. And my question when I see this report is: can there be two million bottle caps? And do two million caps really cost five million dollars?

I understand that you have many cases that are indeed criminal. At the same time, there are quite a few lawyers and businessmen who are already talking publicly about being jerked around. That these deals are real. Not all people who oppose you are criminals or lawyers of criminals.

My institution cannot call someone a criminal, a court can. What I am required by law is to notify law enforcement if we see that suspicious funds are in circulation. With this wording, I send a message to law enforcement that the funds are likely to be criminal. And then we explain why. But even in the course of the investigation, even the police and the prosecutor's office do not have the right to call someone a criminal. At no point.

But you can't just rely on assumptions - maybe or likely.

No, they have to find out. The formula says that there must be a 50 percent or higher probability that the funds are indeed criminal. What happens next? These criminals, as you called them, but they are not criminals at all - a businessman or some individual with his lawyer goes to the police and explains, he brings along the documents proving the transaction, he brings everything he can imagine. And then comes the moment when the police have to make a decision. No, there is no crime here. We believe what he says. Or we don't believe it. And then the next step follows - they go to court. And the court can also say - we do not believe in the prosecutor's office and the police. It is not criminal money.

As for lawyers, I myself have been a lawyer. Of course, I would defend my client and represent him by all possible legal means. And the press is one way to create the feeling that something is not fair and honest. But even a lawyer cannot slip through the eye of a needle if it is not possible to justify why the client did not pay taxes to Latvia.

Understood about lawyers, but during the examination of the same AML bill, you had a conflict with the deputy Gatis Eglītis. And there was also talk in the coalition about the quality of your work and your personality. Why are you in conflict with politicians? Do politicians also defend criminals?

The situation is no different or worse than I have experienced since literally the first day I started working for the Financial Intelligence Unit. Politicians have their own goal, they have to defend their values, probably also the values ​​of their supporters.

Eglītis said that he is defending the Latvian economy and there is no reason to believe that he is lying.

This is completely understandable. If I were Mr. Eglītis, I also wouldn't say anything else. And you, Imants, would not say anything else if you were Mr. Eglītis. Politicians have different levels of understanding of what needs to be done and what we are doing. I have been confronted with these difficult processes in which the state had to be defended from day one. It was very hard when the sword of Damocles is hanging over you. Where your country is not only humiliated but might be humiliated even further. At the same time, I kept going to the Saeima at that time, even every other week, and I had to face enormous pressure all the time. Why do we have to follow any recommendations at all? Why do we have to do anything?

If the largest national commercial bank falls, obviously everyone is worried and panicking.

But it was not just about the national commercial bank. It was about the financial center! If you read the same reports from international organizations, no direct reference was made to this one bank at any time. You mentioned it yourself, and I can say it 100%, we had a number of things at the time where we had acted differently than we do now. At the government level. Government, social partners, business organizations.

The sale of temporary residence permits was a political order.

But of course. We are the bridge between East and West. We have banks servicing in Russian, all the possibilities, come, live with us, just give us some money. And at the same time, I don't have to tell you that our police were absolutely neglected in terms of resources. And what happened in 2014, when the little green men went to Ukraine? We all had to worry about what was going on, and at the same time, there was a huge amount of foreign money in our country.

Now that money is gone. Has that made us safer? The banking sector is working with pennies compared to how it was at the time. It does not benefit the economy.

This is not a question of the economy, this is a question of national security. And I do not agree that banks are working with pennies. Just look, they are still earning.

But those amounts have fallen dramatically over the years.

But that is precisely where there is that difference between the kind of investor we wanted and the kind of investor we got. Those amounts have fallen for non-resident services, where the only added value was for those who serviced. The country - you, me, all of us - did not receive a single cent. The same PNB bank, look at the annual reports, why they are insolvent. How then could their capital be increased? Huge amounts of money were passed through and they took a commission.

I am not too sad about the end of such a business.

And right now we are doing what we need to do. We work so that the mass of money from one country and one region is not so pronounced. I am sure that you, as an educated, informed person, a professional, are well aware that money from that region is toxic enough. And now, if we talk about what is the main goal. At the moment, there is still that historical thing, there are banks in liquidation. There are also some banks that are still trying to organize something here and pretend to be lowly and inconspicuous, but such practice is still going on. The FCMC is working, and I hope that they will learn to control those few individuals who are still trying to do something old-fashioned. The main thing we achieved with these three years of terribly hard work was to open our eyes. I repeat all the time in all the presentations, like a broken record, that, yes, of course, the regional financial center, bad money and so on, everyone knows these things about Latvia and blames us. But in fact, there are two important things for a more prosperous country. Why has the level of the shadow economy not changed for us? It has been stagnant for several years. That's dramatic. And the second thing - corruption. Why is it still so high here among all OECD countries? There was just a report from Transparency International, an index of corruption perception. 37 countries, and Latvia in 28th place.

What I want to achieve is to stop treating that criminal money as the main pain point. That criminal money is not created out of thin air. It arises from tax crimes, from the fact that someone does not pay wages officially.

That is just what I wanted to ask about, whether the type of crimes you are dealing with are not given too much attention by the public. It sometimes feels like we are some kind of country full of corruption and terrorism supporters. But that's not true! Someone was shot in broad daylight. That is much more terrible.

What are you saying, a country of corruption and terrorism supporters? Well, of course not!

Well, that's what FinCEN accuses us of. That we support North Korea. That's pure nonsense!

But, Imants, did you know that in 2017, the FCMC fined six Latvian banks for servicing North Korean transactions? Six Latvian banks! And the only bank that was not punished, but which had exactly the same inspections as the other six, was ABLV. And it was the only bank where the FCMC unfortunately couldn't prove it.

Or they did not handle these transactions.

Exactly. The FCMC concluded an agreement with ABLV, said that all kinds of tasks must be implemented and fulfilled in the future. As usual, the presumption of innocence is in place. But when it comes to what is more important and what is less important, I fully agree with you that money laundering is just one topic that is really interesting just to understand why, for example, contract killings take place. Why some of our officials are inexplicably wealthy. My part in trying to improve the situation in the country as much as possible is solely based on the good old principle - follow the money. We can trace from the opposite side, we can try to understand what has happened through the financial flows. But occupational crime, life, health, property protection, children's rights... Of course, all this is more important.

The vast majority of people, citizens and entrepreneurs are honest people. Is it not the case at the moment that catching a few criminals makes life difficult for absolutely everyone? For example, the AML law - for accountants, traders, lawyers - endless reports, new responsibilities. Are there really no methods to deal directly with criminals, not with everyone.

Imants, what is your education, are you a philosopher?

Why would you think that? I am a journalist by education.

You use words like honest and the like. These are such philosophical things. I would like to believe that most people are honest. But at the same time, we have a shadow economy index. A couple of weeks ago we had a campaign - know the laws of money so you don't get lost in their turns. We ended with an interactive game, which was attended by academic staff, entrepreneurs, representatives of organizations and also one prosecutor. We were talking about this very issue.

The prosecutor said he had to reject the offers of seven builders to repair his house. They refused to accept payment by bank transfer. Well, there is the question, what is honest.

It is honest not to cheat your country! When the first wave of Covid hit, didn't your heart ache for the many people who didn't receive benefits? I don't want to sound all light and sweet, because I'm definitely not. But when the first wave of Covid hit, I visited my mom's friends to provide for them. This level of poverty is terrible - for the elderly, large families, teachers!

Here I would like to oppose a little. If Latvia is in the top thirty of the 200 countries of the world in terms of wealth, if I am not mistaken, we are not poor. There are many countries where the biggest event of a person's life is to move from one bush to another or get a new box. And at the same time, their happiness index is higher.

You are right, but at the same time, we need to look at it from a different perspective. It's not about one box or another box. I have also been to very poor countries and they have a higher happiness index because they rely less on the government and much more on themselves and fortune. But do you not agree that we have huge inequality in the country?

Undoubtedly.

That is the thing we should reduce. When it comes to really prosperous countries and inequality, there is, of course, some layer of very, very rich people, but then there is also the so-called middle class. But that has been very difficult to reach in our 30 years of independence. Very difficult. Do we really have the desire to lose enough of the working population again every time there is a crisis? Those who do not know whether they will be protected or not. Will they have enough benefits? These are very serious things, it is not trivial.

You yourself mentioned rich officials and this division. You are also a rich official. One of the best paid in the country. Maybe you could suggest where to put all the money that can't be spent. Where is it safe to invest? Really in Latvian banks? Do you trust Latvian banks?

First of all, when I said wealthy officials, I was thinking of officials who gain their wealth not through honest work, but in a different way.

I understand, you talked about all sorts of cunning customs officers. Your income is legal.

Yes, my income is legal and I work hard. I'm not ashamed of that. And I frankly find it strange that people are trying to discuss the amount of my salary. When I came to this post three years ago when I was selected in the interview, I said that this is very wrong. That the immaturity of this institution and its inability to deal with the enormous risks that existed in our country was, in a sense, linked to exactly the same thing that was on the side of law enforcement in general. There were very low paid officials here, including the manager. When I came to this interview, I immediately said on the first day, colleagues, you can choose me, but if you choose me, you have to make this institution better paid. And I'm not ashamed of it.

However, I would like to turn to the second part of the question. Do you trust Latvian banks? You see how much trouble there has been, how many banks have gone bankrupt. If a person has money, it may be safer to buy gold, paintings, houses than to put it in a bank. At one time, this was a very scandalous issue that put Mr. Smirnovs in prison.

Who is Mr. Smirnovs?

He was a teacher. He once publicly stated that Latvian banks could not be trusted and was arrested for doing so. Very interesting story.

I really don't know such a person. I must have missed it.

But do you trust Latvian banks?

Short answer, yes, I trust Latvian banks!

Thank you for the conversation!

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