Trasta Lawyer Says He'll Challenge ECB Closure of Baltic Bank

  • Bank closed in `politically motivated' action, lawyer says
  • Latvian regulator denies allegations of Trasta attorney

Trasta Komercbanka AS, the Latvian lender shut down by the European Central Bank after money-laundering allegations, will sue over its closure, which violated regulatory procedures, its lawyer said.
Okko Behrends, a lawyer at DLA Piper in Frankfurt, said his client told him to challenge the ECB decision in a European Union court. Latvia’s Financial and Capital Market Commission, a regulator known as the FCMC, made incorrect statements about the bank’s status and supplied a wrong incorrect translation of documents when asking the ECB to shut down Trasta, he said. The Latvian regulator’s moves were “politically motivated,” he said, adding that he uncovered these flaws before the ECB made its final decision.
"There’re indications that the FCMC used Trasta to discipline Latvian banks generally and that in doing so it violated the law," Behrends said. "The FCMC didn’t deny that it used a number of very material factual inaccuracies to support its case against Trasta. The FCMC withdrew these false statements but never explained their causes and who was responsible for them."
Latvia, a haven for cash from the former Soviet Union that’s been racked by years of banking scandals, has been facing growing pressure from the U.S. and the Organization for Economic Cooperation and Development to improve financial oversight of firms. The ECB on March 3 revoked the license for Trasta, the Baltic nation’s 13th-biggest lender by assets. For the first time since taking over banking supervision in the euro zone in 2014, the ECB used money laundering as one of the reasons to close an institution.

ECB Translation

The step was taken to please the OECD and the U.S., and proper procedures were set aside to bring about the desired result, Behrends said. In January, when the FCMC ordered restrictions on Trasta, the regulator said a shutdown wasn’t appropriate because the bank could work on its deficiencies and was solvent, according to the lawyer.

After a change in the regulator’s leadership, the FCMC asked the ECB to close Trasta by Feb. 14, Behrends said. The Latvian regulator provided the ECB with an English translation of its Jan. 22 order that omitted “crucial” sections, including the part saying the bank’s license shouldn’t be revoked, he said. Even after the national regulator submitted a revised, corrected file, the ECB issued its shutdown order.  

Unfounded Claims

The events raise “the question of how the actions of the FCMC can be reconciled with basic values of good administration, namely honesty, integrity, impartiality as well as the independence from political influence that are guaranteed by” EU banking supervisory rules, Behrends said. "We agree that banks should strictly comply with all laws and regulations. However, it is equally important -- and arguably even more important -- that regulatory authorities comply with the law."

A FCMC spokesman said Behrends’s claims were unfounded and all his objections to the decisions will be discussed in court.

The ECB withdrew the authorization at the request of the Latvian supervisor, an ECB spokesman said, adding that the ECB declines to comment on any of the other matters.

Trasta was implicated in 2014 in an investigation by the non-profit Organized Crime and Corruption Reporting Project into illicit transfers of as much as $20 billion from Russia. The lender denied it broke any laws. The bank said in December that it was investigating two employees detained on suspicion of money laundering.
Peters Putnins took over as head of the FCMC following the resignation of his predecessor in January, weeks after lawmakers revealed that the U.S. was seeking stricter supervision of transactions from the former Soviet Union. In response, the regulator is expanding its anti-money-laundering department and has brought in two American companies to examine compliance among non-resident banks, which account for more than half of the nation’s deposits, according to Putnins.

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