ABLV Bank, with its headquarters in the Latvian capital of Riga, is one of the largest private banks in the Baltic states. The US Treasury and the European Central Bank have driven it towards bankruptcy, perhaps with the political aim of hurting its HNW Russian customers, but the courts of Luxembourg are not co-operating and have reprieved its largest subsidiary.

In the US Federal Register on 16 February, the US Treasury's Financial Crimes Enforcement Network (FinCEN) labelled the bank as a "primary money-laundering concern" and levelled several accusations against it. The comment period closes on 17 April. If all goes to plan, Congress will pass the new rule, invoking s311 Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act 2001 to ban the use of correspondent accounts in the United States on the bank's behalf.

This has been on the cards for some time and has caused the bank to haemorrhage business recently. ABLV is the second largest bank in Latvia by assets, with roughly US$4.6 billion or €3.74 billion as of 31 March 2017. It is also Latvia’s largest non-resident deposit bank by assets. Most of its customers are shell companies registered outside Latvia. The bank does not have correspondent accounts at US banks, but instead accesses the US financial system through nested US dollar correspondent relationships with other financial institutions. Those financial institutions are the ones that hold correspondent accounts at US banks, and the new rule is designed to disrupt the chain.

Money-laundering concerns in the New World and the old

Information available to FinCEN - but not available to the reader - states that the ABLV management 'orchestrated' the bank and its employees to engage in money-laundering schemes and sought to obstruct the enforcement of AML rules. Also, throughout 2017, FinCEN thinks that ABLV executives and managers used bribery to influence Latvian officials "when challenging enforcement actions and perceived threats to their high-risk business." It goes on to say that the bank proactively advertised money laundering and regulatory circumvention schemes to its client base and ensured that fraudulent documents produced to support financial schemes, some of which came from the bank's employees themselves, were of the highest quality.

In 2014, according to FinCEN, ABLV was involved in the theft of more than $1 billion in assets from three Moldovan banks (BC Unibank, Banca Sociala, and Banca de Economii). In this scheme, criminals allegedly took the banks over using an opaque ownership structure which they partly financed by loans from offshore entities that banked with ABLV.

FinCEN also accuses ABLV of systematically helping customers to circumvent the foreign currency controls of at least one (unnamed) country, in which the bank allegedly disguised illegal currency trades as international trading transactions using fraudulent documents and shell company accounts. Needless to say, FinCEN is very disparaging about ABLV's know-your-customer (KYC) checks, transaction monitorinng and other AML controls.

One story has ABLV receiving hefty funds from a Russia-based bank "in a manner consistent with an illicit transfer of assets." FinCEN thinks that ABLV should have known that the shell companies that received the Russian bank-sourced funds in their ABLV accounts "in a pattern that is a hallmark of asset-stripping" were related to the ultimate beneficial owners of the Russia-based bank and, in all likelihood, it probably thinks that it did know that and waved the transactions through anyway. It also makes much of the "corrupt" Ukrainian tycoon Serhiy Kurchenko funnelling billions of dollars through his ABLV shell company accounts in 2014. The next year, the US Treasury’s Office of Foreign Assets Control accused him of misappropriating various assets.

In May 2016, Latvia's financial regulator, the Financial and Capital Markets Commission or FCMC, fined ABLV more than €3 million and issued a reprimand against a board member that it held responsible for anti-money-laundering activities at the bank. Between May and November last year the bank conducted an inspection after being accused of circumventing sanctions against North Korea. In November, the FCMC and ABLV concluded another administrative agreement, in which the parties agreed to dismiss the matter without drafting an administrative act, imposing any monetary fines or applying any other sanctions. The FCMC subsequently instructed ABLV to carry on improving its internal control system. Last month, Latvian Foreign Minister Edgars Rinkevics told Yonhap News Agency that his country was investigating America's allegations about ABLV's illegal trading related to North Korea's weapons system.

Looming bankruptcy

The bank's financial situation deteriorated rapidly. On 19 February the FCMC obeyed a request by the European Central Bank and imposed a moratorium on ABLV Bank with the aim of "stabilising outflows" and giving it time to deal with its funding shortages. This meant that temporarily, and until further notice, it had prohibited all payments by ABLV Bank towards its financial liabilities.

On 23 February, the ECB told the public that ABLV Bank was "failing or likely to fail," in accordance with its duties that spring from the EU's Single Resolution Mechanism Regulation. The ECB also stated that ABLV Bank Luxembourg, the bank's large subsidiary, was in the same predicament. The EU's Single Resolution Board (a central crisis-management body) then decided that "resolution action" was not necessary. As a consequence, the winding-up of the bank and its Luxembourg subsidiary was scheduled to take place under the laws of Latvia and Luxembourg.

In order to protect the interests of its clients and creditors, ABLV Bank then held an extraordinary general shareholders’ meeting on 26 February and came to a momentous decision: to go into voluntary liquidation. The subsequent press release stated: "Taking into account the insolvency and liquidation procedures that had taken place in Latvia before, we believe that this is the best option we could have made after the statement of the European Central Bank regarding commencement of winding-up procedures. On 5 March, ABLV Bank submitted a draft voluntary liquidation plan application to the [Latvian] Financial and Capital Market Commission."

Eligible deposits at ABLV Bank are protected by up to €100,000 in accordance with Latvia's deposit guarantee fund (that country's equivalent of the UK's Financial Services Compensation Scheme). Customers can contact either the bank or the FCMC, which is the fund's administrator.

Insubordination in Luxembourg

By the end of last month, then, ABLV's head was on the executioner's block. The Americans' accusations had frozen it out of all US dollar-denominated financial markets and the Commission de Surveillance du Secteur Financier (CSSF) had been made a temporary administrator of the bank with the task of liquidating its branch in Luxembourg. It looked as though the combined efforts of the regulators on both sides of the Atlantic were going to drive every part of the group out of business.

Disaster struck for the CSSF, however, on 9 March when the Luxembourg Commercial Court (Tribunal de Commerce de Luxembourg) turned down its request to place ABLV Bank Luxembourg in liquidation. The court found the branch's finances to be sound. The CSSF ceased to be the branch's temporary administrator and, instead, the court appointed two external administrators who will work at the bank in the next six months to help it find new investors. Its payments to creditors are still suspended - a comforting source of breathing space.

This is something of a defeat for the ham-fisted ECB, which seems to have taken its decisions for all entities in the ABLV group en bloc, regardless of their different circumstances. According to ABLV's head office in Riga, potential investors have already expressed interest in the Luxembourg subsidiary. On top of this, two weeks ago ABLV Bank Luxembourg showed that it was still able to mobilise enough cash to meet all requests for external transfers.

The request introduced by the CSSF to the Luxembourg court was an automatic consequence of the instructions of the ECB not to lift any restrictions to be imposed on ABLV Bank, which consequently led to the decision to liquidate all banking entities in the ABLV group.

American regulators have always fought shy of driving home-grown banks into liquidation, the only known exception to this rule being the scandal-struck Riggs Bank, which PNC Financial bought in 2005. The US authorities have been far more willing to jeopardise the solvency of European banks, however, and many commentators from the EU have accused them of using FinCEN and OFAC as protectionist weapons against rival banking nations. Meanwhile, the US enforcement campaign - and the ABLV saga as a whole - continues.