Latvia deploys financial instruments to fight the sanctions evasion against russia

Latvia wants to improve the implementation of EU sanctions against russia by applying the tools it uses to fight illicit financing. 

The Baltic members of the EU have been among the most vocal in criticizing russia's invasion of Ukraine. But it is difficult for them to control trade flows from the rest of the Union to Central Asian countries, whose goods ultimately end up in russia to support its military machine.

This task will now fall to the Latvian Financial Intelligence Unit, whose mandate will expand from investigating financial crimes to monitoring trade sanctions. The agency will freeze assets belonging to sanctioned persons, create sanctions data pools, publish lists of frozen assets, and maintain a public search engine of organizations and individuals subject to EU restrictions.

Paulis Ilienkovs, deputy director of the Financial Intelligence Unit, said that the tools that have been introduced in the country's financial sector can be used to properly apply sanctions.

The unit received new tools after a series of financial scandals, including the bankruptcy of Latvia's second largest bank, which the US Treasury Department accused of money laundering in 2018. 

According to EU sanctions representative David O'Sullivan, the restrictions have already cost russia about $400 billion in lost revenue.

Nevertheless, sanctioned goods from Europe are still entering russia, often through third countries. Almost a quarter of the 450 million euros ($488 million) of so-called priority goods that entered russia from the EU in the first nine months of 2023 were shipped directly from Europe.

The Baltic states are one of the most vulnerable places in the EU: ports, rail and road connections make their territory a natural stopping point for goods being transported to russia. The deputy director of Latvia's financial intelligence unit said that investigations are primarily aimed at those who manage transportation outside the country.

"Most of the criminal proceedings initiated by our tax and customs services are not directed against Latvian companies, but against other EU-registered companies that use Latvia as a transit country," Ilienkovs said.

Recently, calls to ban the transit of russian grain and manganese ore, which can be used by russia in the production of military goods, have been in the spotlight.

This could ultimately lead to Latvia ceasing trade altogether. Stopping exports would cost the economy about two percentage points of output, said central bank governor Martins Kazaks.

"This will mean no growth or a shallow recession - not painless, but not crazy either. It is necessary to leave the market of the aggressor country," he added.

Source: Bloomberg