By Kharon Staff
August 24, 2018
On August 23, 2018, the Council of Europe’s Moneyval money laundering monitor published a report saying that the Latvian financial sector’s appreciation of money laundering and terrorism financing risk was “not commensurate with the factual exposure” of financial institutions. This report follows a February 2018 Notice of Proposed Rulemaking against ABLV Bank, AS by the US Treasury Department, which named the Latvian bank as a financial institution of primary money laundering concern pursuant to Section 311 of the USA Patriot Act.
According to the notice, ABLV Bank’s “business practice of banking high-risk shell companies without appropriate risk mitigation policies” caused the bank to facilitate transactions for “parties connected” to Koryo Bank, Foreign Trade Bank of the Democratic People’s Republic of Korea, Korea Mining Development Trading Corporation, and other US-sanctioned North Korean entities. The notice added that Ukrainian tycoon Sergey Kurchenko, who was sanctioned by the US in 2015, “funneled billions of dollars through his ABLV shell company accounts” prior to being sanctioned.
The notice stated that ABLV Bank, AS “institutionalized money laundering as a pillar of the bank’s business practices” to the extent that “ninety percent of ABLV's customers are high-risk per ABLV's own risk rating methodology and are primarily high-risk shell companies registered in secrecy jurisdictions.”
According to the US Treasury, the beneficial owners of ABLV are Ernests Bernis and Olegs Fils. The notice said that “Bernis holds 4.93 percent of shares in the bank directly, and 43.12 percent of shares indirectly via Cassandra Holding Company, SIA. Fils holds 43.13 percent of shares in ABLV indirectly through SIA ‘OF Holding.’’’
On February 23, 2018, the European Central Bank (ECB) withdrew its credit license for ABLV Bank, AS, prompting the bank’s liquidation.
As part of the liquidation process, ABLV Bank will terminate its provision of financial services to new clients. ABLV Bank maintains branches in Russia, Ukraine, and Hong Kong, among other international locations.
Europe’s Central Bank in February ordered the liquidation of ABLV Bank’s subsidiary in Luxembourg, but a local court ruled against this decision, allowing ABLV Bank to seek new investors for ABLV Bank, Luxembourg, S.A.
ABLV Bank has not publicly stated whether it will liquidate its numerous subsidiaries or real estate holdings. Following the bank’s voluntary liquidation annoucement, ABLV stated that it “invested” two real estate properties into one of its subsidiaries, NHC 5, SIA, “in order to facilitate its further management, maintenance, and collaboration with the tenants.” According to a press release, NHC 5, SIA’s share capital included “properties owned by ABLV Bank at 21A Elizabetes St. and 23 Elizabetes St.”
ABLV Bank’s holdings encompass dozens of Latvia-registered companies, including firms in the financial services, real estate, and shipping sectors. The bank’s holdings stretch to Cyprus, where it beneficially owns ABLV Corporate Services LTD.
ABLV Bank is also the founder and largest shareholder (24.64 percent) of AmberStone Group, AS, a diversified Latvian holding company with at least 19 subsidiaries in the healthcare, shipping, agriculture, and hospitality sectors.
ABLV Bank owns Pillar Holding Company, KS, specializing in forfeiture maintenance and sale. According to a 2015 ABLV press release, Pillar Holding Company and its affiliates “oversee approximately 530 real estate properties.”
ABLV Bank subsidiary New Hanza Capital, AS has invested in commercial properties since 2015. Its commercial real estate portfolio in Latvia includes an office building at Riga International Airport that it leases to Air Baltic Corporation, AS, as well as logistic centers and warehouses.
In September 2017, New Hanza partnered with Germany-based investment company IntReal to establish the New Hanza Capital Fund 2017, an alternative investment fund to expand New Hanza’s reach into the German real estate market.
Another ABLV Bank subsidiary, Latvia-based Pillar Management, SIA, owns architectural design firm Pillar Architekten, SIA, construction management company Pillar Contractor, SIA, and real estate management company Pillar RE Services, SIA.
ABLV Bank’s wholly-owned subsidiary ABLV Asset Management, IPAS operates mutual funds traded on the Nasdaq Riga stock exchange, three of which are majority owned by the bank.
ABLV Bank served as the custodian bank for these mutual funds until May 2018, when Latvian Baltic International Bank took over ABLV’s intermediary role for all mutual funds operated by ABLV Asset Management, IPAS.
In 2006, ABLV Bank’s owners Ernests Bernis and Olegs Fils established the ABLV Charitable Foundation to partner with the bank on charitable projects in Riga. In April 2018, ABLV Charitable Foundation was renamed Novum Riga Charitable Foundation, which announced that it would continue the foundation’s projects, including “the development of the new business and leisure district New Hanza” in Riga.
In 2014, the Novum Riga Charitable Foundation co-founded the Latvian Museum of Contemporary Art Foundation, which plans to open a museum in 2021. To date, the Novum Riga Charitable Foundation has financed over 90 pieces of art for the project.
In 2015, ABLV Bank issued a USD 9 million loan to Latvia-based DOP Investment, with DOP’s subsidiary AFI Investicijas AS serving as a guarantor. The loan was increased to USD 12 million in 2017.
An executive at both of these companies, Denis Pospelov, was a founder of Russia-based SMP Bank, which was sanctioned by the US on April 28, 2014, for being controlled by Arkady and Boris Rotenberg. Pospelov left his management position at SMP Bank two days after its designation.
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