Deutsche Bank Said to End Latvian Lenders’ Dollar Accounts

  • Some banks to lose ability to clear transactions directly
  • Baltic nation has faced criticism over money laundering

Some Latvian lenders’ ability to process U.S. dollar transactions directly is in jeopardy as Deutsche Bank AG prepares to sever ties with them, according to people familiar with the plans of Germany’s biggest bank.

Deutsche Bank has warned some of its local banking clients that direct access to dollar-clearing facilities will be cut off, said the people, who asked not to be identified as the discussions are confidential. The move won’t affect Citadele Banka AS, Rietumu Banka AS and Baltic International Bank AS, or the Nordic lenders that operate in the Baltic nation, they said. Local banks will have to use other lenders that have relationships with a dollar clearer for transactions in the U.S. currency, according to the people.

The development hits a key resource for many Latvian banks, whose services focus on handling transfers-- mostly dollars -- from clients in the ex-Soviet universe. Some lenders in the Baltic nation of 2 million people have come under fire for links to money laundering from countries including Russia and Moldova. JPMorgan Chase & Co. stopped offering dollar clearing in Latvia as it suspended accounts at 500 banks worldwide following regulatory fines and tighter regulations.

“In line with the bank’s strategy 2020, the bank is reviewing client relationships,” Frank Hartmann, a Frankfurt-based spokesman for Deutsche Bank, said by e-mail. He declined to comment on access by specific banks in Latvia.

Now-defunct lender Trasta lost its correspondent account with Deutsche Bank  
in September 2015. The people couldn’t confirm the names of the banks currently at risk. 

Latvia became a financial hub for the former Soviet republics in the 1990s, when Parex Banka, seized by the state in 2008, said it got the USSR’s first private foreign-exchange license. Deutsche Bank is currently the only lender to provide direct access to the U.S. market for Latvian banks through its New York subsidiary.

Latvia’s chief bank regulator, Peters Putnins, has repeatedly said maintaining access to dollar correspondent accounts was a priority. 

“There are still concerns that some Latvian banks may see their correspondent accounts to directly execute settlements in U.S. dollars closed,” Putnins said in the regulator’s 2015 annual report, published this month.

Related: The Era of Global Empires Is Over for Big Banks

Since taking charge in February, he’s handed out record fines, mandated an unprecedented audit of 14 Latvian banks’ compliance systems and boosted staff to monitor money laundering. The tougher regulatory regime led to January’s closure by the European Central Bank of Trasta Komercbanka AS, Latvia’s 14th-biggest bank by assets, for offenses including money laundering. Trasta denies the charges.

Correspondent banking relationships are used around the globe to allow lenders to take deposits or make payments on behalf of foreign institutions. Access to correspondent banking has become tougher in many parts of the world as global banks close accounts or reduce access amid higher capital standards, falling profitability, record fines and a tighter regulatory environment, according to the International Monetary Fund.

“Large banks are withdrawing from smaller countries,” Christine Lagarde, the IMF’s managing director, said this month in a speech at the New York Federal Reserve. “This is perhaps most evident in the decline of correspondent banking relationships -- a serious concern for those countries that have few avenues for participating in the global payment and settlement systems.”

Latvian officials including Finance Minister Dana Reizniece-Ozola met with Barclays Plc, Citigroup Inc., JPMorgan Chase & Co. and other banks in the U.S. in April to discuss cooperation in the financial sector.

“It’s important that banks are able to introduce new correspondent relationships as soon as possible,” Reizniece-Ozola said by e-mail. “In order to do that, banks would have to consistently continue work to strengthen the industry’s long-term reputation and credibility.”

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