FCMC in collaboration with U.S. law enforcement authorities identifies weaknesses and imposes monetary fines on JSC “NORVIK BANKA” and JSC “Rietumu Banka”

| Print

Riga, 21.07.2017

Press Release 

FCMC in collaboration with U.S. law enforcement authorities identifies weaknesses and imposes monetary fines on JSC “NORVIK BANKA” and JSC “Rietumu Banka” 

The Financial and Capital Market Commission (FCMC) in collaboration with the Federal Bureau of Investigation’s (FBI) Counterproliferation Center has identified Latvian banks, JSC “NORVIK BANKA” and JSC “Rietumu Banka” which had not complied with the provisions of anti-money laundering and counter terrorist financing (AML/CTF) regulatory framework. Violations relate to customer due diligence, including also transaction monitoring and obtaining insufficient information about the beneficiaries indicated by the customers and transactions performed. JSC “NORVIK BANKA” in the period from 2013 to 2014 and JSC “Rietumu Banka” from 2009 to 2015, several customers of those banks, making use of off-shore companies and complicated chain transactions, transferred the funds from their bank accounts, to circumvent international sanctions requirements imposed against North Korea.

It should be noted that the FCMC detected similar violations of circumventing international sanctions requirements in three other banks in Latvia. At the end of June this year the FCMC entered into administrative agreements that stipulates banks pay the monetary fine. The FCMC also publicly disclosed the findings and provided comprehensive information.

"Cross-border cooperation offers to the FCMC more opportunities to investigate in depth such complicated cases as the circumvention of sanctions against North Korea. I would also like to thank U.S. Department of Treasury’s Financial Crimes Enforcement (FinCEN) and FBI for cooperation. The measures taken in this case is a lesson to all the banks in Latvia not to be used for suspicious deals. The banks have to reassess their AML/CTF internal control systems as well as ensure international sanctions compliance accordingly to global risks. Today’s announcement confirms that Latvia is a stable and safe jurisdiction and only with such countries that sort of cooperation is possible,” FCMC Chairman Pēters Putniņš points out.

In addition to targeted inspections about mentioned transactions of circumventing international sanctions requirements in JSC “NORVIK BANKA” and JSC “Rietumu Banka”, the FCMC also carried out the planned onsite inspections. They covered a broader scope of banks' internal control programs. The FCMC identified that JSC “NORVIK BANKA” and JSC “Rietumu Banka” failed to ensure effective functioning internal control system to the exposed risks of their operations. 

Both mentioned banks are cooperating with the FCMC and have admitted the identified weaknesses. FCMC has entered into administrative agreements with the banks that most effectively enable the banks to ensure taking immediate measures, and to act in line with the procedures defined in laws and regulations. Conditions of the agreements stipulate that the banks pay the monetary fine in the total amount of 2 891 271 euro into the national budget. The monetary fine has been calculated by taking into account detected violations in targeted inspections and also planned onsite inspections. FCMC will monitor the fulfilment of the banks’ commitments under the predefined time schedules and scope. The banks are committed to improving the AML/CTF internal control systems and ensuring external testing, and other measures. 

Monetary fines and measures applied to banks: 

Credit institution

Type of the offence

Fine to be paid to national budget

Further obligations to bank

JSC “NORVIK BANKA”

1)    Breaches of AML/CTF law and FCMC regulatory requirements: weaknesses in customer due diligence and transaction monitoring that led to the situation that bank had been used to circumvent international sanctions requirements imposed against North Korea;

2)    Failure to ensure effective functioning of internal control system.

EUR

1 324 667

 

 

 

Obligation to assess its AML/CTF internal control system and take the necessary measures to improve its functioning and effectiveness in line with the action plan, to perform external testing by external audit company.

 

 

JSC “Rietumu Banka”

1)    Breaches of AML/CTF law and FCMC regulatory requirements: weaknesses in customer due diligence and transaction monitoring that led to the situation that bank had been used to circumvent international sanctions requirements imposed against North Korea;

2)    Failure to ensure effective functioning of internal control system.

EUR 1 566 604

 

 

Obligation to assess its AML/CTF internal control system and take the necessary measures to improve its functioning and effectiveness in line with the action plan, to perform external testing by external audit company.

 

 

FBI information on circumventing international sanctions against North Korea 

As earlier reported, based in part on information provided by FBI’s Counterproliferation Center, during the period from 2009 to 2016, foreign nationals organised schemes of criminal transactions in order to circumvent the international sanctions regime concerning North Korea and its program of ballistic missiles and conventional weapons, including export of goods and equipment related to this program. According to the information provided by FIB, financial services of the above-mentioned Latvian commercial banks were used at several stages of these schemes, where a number of transactions through the current accounts of customers were performed in the interests of sanctioned North Korean entities. The offshore companies holding accounts at the banks did not transact directly with entities appearing on EU, UN, or US sanctions lists at the time the transactions occurred, but instead used a network of intermediaries to circumvent those sanctions.  Those intermediaries conducted transactions on behalf of EU, UN, and US-sanctioned entities.  As North Korean financial institutions and other North Korean entities are subject to financial sanctions and face several international trade restrictions, North Korean entities must rely on vulnerable financial institutions to execute transactions through complex transactional networks.  Oftentimes these transactions are conducted in such a manner as to not directly touch a sanctioned entity or North Korean interest. However, these concealment techniques used by North Korean front companies often contain red flags, which have been detected and reported extensively over the years by a variety of entities, including the United Nations and non-governmental organizations. Those red flags include offshore companies sharing the same officers and located at the same addresses cycling payments to the same beneficiary. Banks that cater more to offshore customers and lack adequate know your customer, customer due diligence, and transaction monitoring and screening procedures are especially vulnerable to facilitating this type of deceptive financial activity. Therefore, the financial market participants of Latvia must conduct additional due diligence on offshore customers and their transactional counterparties.  Although North Korea is geographically far from the region, Latvian financial institutions may be used to circumvent international sanctions, specifically through the use of offshore companies.

Investigation in this case is on-going, and FCMC continues to cooperate with the FBI and other partners.     

 

To reduce the risk of being used for circumvention or violation of international sanctions, Latvian financial institutions must pay the most attention to:  

Financial service providers usually ensure international sanctions compliance through their AML/CTF internal control systems which is not sufficient in all cases. However, additional control systems have been already imposed on part of market participants.

It would be inadmissible to reduce the sanctions compliance to the screening of special sanctions lists. Each market participant must determine and be aware of the risk profile of its financial services and customer base and associated specific risks of sanction infringements. In line with those risks additional regulatory and technological solutions must be developed and implemented enabling application of sufficient, effective and timely sanctions infringement control mechanisms. 

The geographical risk factor, as well as the risks arising from transactions in export/import of goods and provision of transportation services should be particularly highlighted, where the possible supply of dual-use goods to the sanctioned persons or countries must be identified.

 

Further information:

Agnese Līcīte

Public Relations Specialist 

Communications Division/FCMC

Phone: +371 67774808, +371 29467009

Email: Agnese.Licite@fktk.lv 

 

www.fktk.lv, Twitter.com/FKTK_LV