Latvia Scandals Pose a Test for European Central Bank

A scandal in Latvia is raising questions about the European Central Bank’s ability to do its job. The details remain murky, but the ECB should move swiftly to reassure investors that its high standards will be upheld throughout the euro zone.

A report by the U.S. Treasury has alleged widespread money laundering at ABLV Bank AS, one of Latvia’s largest lenders. Separately, over the weekend, Latvia’s anti-corruption agency detained Ilmars Rimsevics, governor of the country’s central bank and a member of the ECB’s governing council, on suspicion of securing bribes. He wasn’t charged and was released on bail. He strongly denies the allegations and says they are part of a plot to undermine him.  

It’s unclear whether any of the allegations are well-founded. The story is tangled, and is further complicated by the claim that Russian misinformation is involved. Regardless, the shadow cast over Latvia’s central bank is not something the ECB can afford to ignore.

Latvia has had to contend with several banking scandals in recent years. Yet the ECB’s standing in all this isn’t straightforward. Formally, national authorities are responsible for policing money laundering. And the ECB has no formal say in the selection of central-bank governors, though they’re required to comply with the ECB’s code of conduct.