The European Central Bank declared a temporary moratorium on debit operations in all currencies at ABLV Bank, the Baltic country’s third-biggest lender facing U.S. Treasury enforcement action for alleged links to North Korea.
“Temporarily, and until further notice, a prohibition of all payments by ABLV Bank on its financial liabilities has been imposed, and is now in effect,” the ECB said in a statement released on Monday. “A moratorium was considered necessary given that the bank is working with the Latvian central bank and authorities to address the current situation.”
The ECB cited the proposal less than a week ago of the U.S. Treasury to ban ABLV from the American financial system, saying the lender helped process transactions for entities with alleged ties to North Korea’s ballistic missile program. ABLV says the allegations are wrong and misleading. The bank also said it’s working to provide information to the Treasury that would help to overturn the proposal.
“This is a European Central Bank decision, and we have accepted it based on ECB instructions,” Latvian regulator Peters Putnins said in a statement sent in the early hours of Monday following an extraordinary meeting of the watchdog’s board. “The main task of the financial institutions regulator is the overall stability in the sector that has mainly been taken into account when agreeing to this decision.”
Earlier, the Latvian regulator said ABLV had high levels of liquidity and capital, and that some of the allegations contained in the Treasury report were historical as compliance had been tightened since then.
“In recent days, there has been a sharp deterioration of the bank’s financial position,” the ECB said in its statement. ABLV is “exploring ways to address funding shortages.”
The nation’s central bank will lend ABLV 97.5 million euros ($121 million) against collateral of “safe, highly liquid” securities after a request from the lender, the central bank said in an emailed statement. It had bought Latvian government bonds from ABLV on Sunday to help with liquidity. ABLV has about 1.6 billion euros of bonds in its portfolio. Board Chairman Ernests Bernis said earlier that the bank had been facing “certain technical difficulties” in selling some of the securities, while adding the bank’s liquidity and capital adequacy were “on a good level.”
Nasdaq’s Riga bourse, where ABLV’s bonds are traded, decided to suspend the bank’s membership, canceling all active orders, it said in a statement on Monday. Last week, VISA Inc. restricted service for more than 9,000 of the bank’s clients.
Latvian regulators have been cracking down on illicit banking activity, handing out record fines, including to ABLV itself, and tightening rules on foreign cash after a string of money laundering allegations relating to Russia, Moldova and other ex-communist nations. The Baltic country of 2 million people has seen foreign cash held on deposit fall by more than a third since the end of 2015 because of the tighter rules.
The regulator fined three banks for handling some of the $1 billion proceeds of a Moldovan fraud in 2014, equivalent to about an eighth of that nation’s economic output. Five Latvian banks agreed last year to fines for failing to perform adequate due diligence and gather sufficient information on transactions and beneficiaries in deals linked to North Korea.
There have already been casualties in the banking system. Trasta Komercbanka AS, implicated in a scheme involving as much as $20 billion of illicit transfers from Russia, was shut down in March 2016, though it denied wrongdoing.
— With assistance by Alessandro Speciale