"The Working Group commends Latvia for the significant legislative steps it has taken to fight foreign bribery both before and after its accession to the Convention in May 2014. However, other implementation efforts remain at a reasonably early stage. There are particular concerns about Latvia’s criminal enforcement capacity, the laundering of proceeds of corruption from overseas, and several remaining legislative deficiencies," the summary of the weighty OECD report says.
The report also raises "serious concerns" about the effectiveness of KNAB, Latvia's dedicated anti-corruption law enforcement agency and "political interference" in KNAB's work.
"Foreign bribery allegations have not been proactively investigated. KNAB therefore needs to ensure that its personnel issues do not interfere with KNAB’s ability to investigate foreign bribery. Latvia should also proactively investigate allegations of foreign bribery, as well as related money laundering and false accounting. Enforcement efforts could be improved through increased training and closer co-operation between relevant agencies," the OECD says.
Also of note is the concern the OECD expresses about suspicions that some of Latvia's banks are conduits for money laundering, a claim repeatedly denied by the country's financial regulator, FKTK.
Latvia’s financial sector famously provides “bridging” services between East and West with more than half of Latvian bank deposits originating from outside Latvia. Of that amount, 80% of non-resident deposits originate from beneficial owners in countries in the Commonwealth of Independent States (CIS) in Eastern Europe and Central Asia.
No fewer than 14 of Latvia's 20 commercial banks cater to the non-resident market.
"Existing measures have failed to detect alleged large-scale money laundering that was subsequently reported in the media. Latvia should accordingly require banks that take non-resident deposits to adopt stronger anti-money laundering measures. It should also inspect banks more frequently and sanction banks that breach relevant laws. The money laundering offence should be enforced more consistently," the OECD says.
"Non-resident banking poses a substantial risk that money obtained from corruption committed outside of Latvia is laundered inside the country. Much of the deposits originate from countries with reportedly high levels of corruption."
Officials of the Financial Intelligence Unit are overworked and under-resourced, the report suggests, leading to a situation in which the prevalence of money laundering is likely to be more widespread than official figures would suggest.
"Latvia’s system of reporting suspicious transactions is not effective for detecting corruption and related money laundering. The number of suspected corruption cases forwarded by the FIU to KNAB for investigation is extremely low and not commensurate with the corruption risks in Latvia," the OECD concludes.
However, the report does also note the high level of cooperation given to OECD officials by the Latvian authorities - though this is hardly surprising given Latvia's current ambition to become a full member of the OECD within the next year.
Even those efforts were not without blemishes though, with the report noting somewhat archly that "Latvian officials absented themselves from the panel with civil society".
In addition, officials themselves seemed confused about the extent of foreign bribery allegations.
"There are five known allegations of bribery of foreign public officials that could implicate Latvian individuals or companies, or other entities over which Latvia has jurisdiction. None have led to formal investigations," the OECD noted.
"During the course of this evaluation, Latvian authorities provided differing responses regarding the number of relevant foreign bribery allegations, with the number varying between one and three (in addition to the two allegations where bribes may have transited through Latvian banks). The final figure of five allegations was confirmed after the on-site visit."
Even those companies most at risk of getting tangled up in foreign bribery deny that is the case.
"It is striking that most Latvian companies and business associations are unaware of or even deny their exposure to this risk. All companies and business associations at the on-site visit, including the two that have faced bribe solicitations abroad, stated that they were not at risk of committing foreign bribery. Yet this risk was clearly present when these companies described their operations."
All in all, it adds up to a less-than-ringing endorsement of Latvia's OECD membership bid.
The full report can be read HERE.
