Public administration has begun to take action to comply with the order by the US-created structure, the Foreign Investors' Council in Latvia (FICIL) to change the focus on the fight against money laundering and terrorism. The nationalization of third-country people's money must now be slowed down, as it has begun to bother the Americans themselves, and the fight must move against the withdrawal of money in domestic predicate offenses. Thus, the money of local people must be nationalized if they are unable to or don't know how to prove its origin or cooperate with foreigners upon whom sanctions are imposed on.
It is expected that participation in this system will place a great additional burden on state institutions and municipalities, as they must now become active preventers of suspicious crimes. Primarily, this obligation will apply not to the financial sector and white-collar transactions, but to other sectors that provide services to the State of Latvia and where money laundering, tax evasion and non-compliance with sanctions imposed by the allies are theoretically possible.
A number of issues need to be addressed in the context of the recent FICIL announcement.
First off, the specialized Economic Affairs Court, which was set up as a result of political pressure and ignoring the counter-arguments of the justice sector, will soon choke on Financial Intelligence Unit's delivered cases. I am talking about money taken from third-country nationals in the liquidating ABLV Bank. The chairman of the court Miķelis Zumbergs predicted for agency LETA that about 1000 such cases will come to court, and in each of them, the first court hearing must take place within ten days, which is practically impossible. However, it is not only due to the limited capacity of the court that the process of nationalization of all money needs to be slowed down. Neatkarīgā already reported that the overhaul of the Latvian financial sector ordered by the Americans had begun to disrupt their own business in Latvia, so "Americans are demanding to be an exception to the dirty money law." Public administration and law enforcement agencies were therefore instructed to turn towards local money laundering crimes.
A few days ago, a relevant message from the Ministry of Justice was circulated in the media: the fight against criminal proceeds should also focus on domestic crimes. These could be, in particular, tax, corruption and drug-related offenses. "In the opinion of the Ministry of Justice, these crimes also generate criminally obtained funds, which is in line with the vision of the Foreign Investors' Council in Latvia (FICIL) in this field."
The State Audit Office has a broader explanation of how to focus on monitoring domestic institutions and people. The audit authorities have performed a compliance audit “Compliance with the requirements of the AMLTPF Law and the Law on International Sanctions and National Sanctions of the Republic of Latvia in the public sector” and have published their recommendations. The central question of the audit is: "Is the public sector prepared to identify and prevent risks of money laundering and sanctions?" And, as in most audits of the State Audit Office, the answer is no. In the public sector - state and local government institutions - AML risks are not sufficiently assessed, documented, managed and controlled. Overall, the thematic audit was performed in 18 municipalities, 13 ministries and 12 state institutions.
The auditors emphasize that specific negative consequences of not managing the risks of money laundering in public administration have not occurred so far, but they could have occurred. That is why we need to be proactive in this fight. As a clear example, the State Audit Office cites the successfully avoided purchase of engines for diesel trains. It should be recalled that Pasažieru vilciens was desperately trying to buy new engines for its old locomotives from a sanctioned company in Russia, as it is the only manufacturer of these engines in the world. However, no exception was made and the transaction was forbidden. Nor has it been able to find the necessary parts in China, Greece or anywhere else, let alone whole engines. Now the local engineers continue to work wonders so that the old dinosaurs can still move and the population can travel, but the Ministry of Transport's dream is to replace the old diesel trains with electric trains sometime in the distant future. The lesson from this failed transaction is that it should not even have been attempted. And if the administration had been properly trained in recognizing AML crimes, it would not even have tried to look for parts for Russian-made engines in Russia. Accordingly, no time would be wasted looking for other solutions.
As the State Audit Office explains through various examples: "If the cooperation partner chosen by the public sector turns out to be subject to sanctions or is involved in money laundering, then the project will be delayed or not implemented. As a result: people won't get a new, modern train or tram; a gym will remain unfinished; the construction of a kindergarten will be delayed; there will be delays in the delivery of medical equipment to the hospital, etc." What, then, are the recommendations of the audit authority? A total of 37 recommendations have been made, and basically it follows from them that state and local government institutions should also start actively doing the same thing as banks, accounting offices, large companies - that is: evaluate each cooperation client, in case of suspicion they should refuse cooperation and it must be reported to the authorities. The State Audit Office states: "The public sector should promote awareness of the risks of money laundering and terrorist and proliferation financing and sanctions, improve methodological support and access to information resources, as well as improve internal control systems."
Banks and the private sector are already fulfilling this burden, more or less. Now it is time for state and local government institutions. Staff needs to be trained, new posts need to be created, procedures and algorithms need to be put in place, analytical work needs to be outsourced and everything else involved in anti-money laundering formalities needs to be done. The implementation of these requirements is unlikely to be smooth, as the audit showed that employees lack an understanding of the importance of combating money laundering.
The auditors have identified that there are at least five areas of risk in the public sector where local governments, ministries and central authorities have the potential to face risks of money laundering and terrorist and proliferation financing and breaches of the regulation of sanctions. These are transactions with non-governmental organizations, public procurements, transactions with politically significant persons, foreign transactions, expropriation of real estate. “A significant amount of public funds is circulating in these areas - in the 18 municipalities included in the audit sample alone, in 2020 the public procurement contracts reached 311,696,157 euros, foreign contracts - 12,150,179 euros, expropriation of real estate transactions - 11,706,020, and transactions with non-governmental organizations - EUR 3,932,887."
These are then the areas where the next overhaul is expected - similar to the one that the Latvian banking sector and its customers have already survived with serious injuries.
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