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How Average Latvians Became Paper Directors in Transactions Worth Millions.

In September 2008, people in Latvia learned that a ship called the Faina had been captured by Somali pirates not far from the Kenyan port of Mombasa.  The ship had departed from Odessa.  The Latvian news media focused attention on this fact because one of the crewmembers of the ship was from Latvia.  At the international level, however, much greater interest was demonstrated in the fact that the ship was carrying a substantial amount of munitions, including 33 T-72 tanks and grenade launchers that were on the deck of the ship.

This was a very tense situation, not just because the pirates gained access to such dangerous equipment, but also because there had been suspicions that Ukraine, from which the ship had departed, was delivering weapons to countries which were facing an arms embargo.  Later it became clear that the weapons were being sent not to Kenya, as was indicated in the ship’s documents, but instead to Sudan, where a battle among tribes was raging and to which arms deliveries were banned

The captivity of the ship lasted for five months, and international investigations focused on the company which owned the Faina.  Officially, the ship belonged to the Panamanian-registered offshore company Waterlux AG.  Typically for offshores, this company belonged to two other companies – Systemo AG and Cascado AG, both of which were run by … Latvians.  The two men in question were not widely known, and they were named Staņislavs Gorins and Ēriks Vanagels.

A deeper investigation showed that this was not the only instance in which offshore companies “run” by Latvians exported weapons from Ukraine to African countries.  According to an investigation by Mike Lewis that was published in 2009 by the Small Arms Survey in Switzerland, the cargo of the Faina represented just one of at least three major Ukrainian maritime arms shipments since September 2007 – shipments which involved anti-aircraft guns, ‘Grad’ rocket systems, T-72 tanks and ammunition, as well as at least five containers of AKM assault rifles.  According to Lewis, the company which chartered the first shipment was the UK-registered Marine Energy Trading Company, Ltd (METCO), with the contract being signed by Erik Vanagels, Stan Gorin and another person with a Latvian name, Voldemar Spatz. (They represented the British Virgin Islands-registered companies Milltown Corporate Services and Ireland and Overseas Acquisition.)

Latvians have been involved in more than just the weapons business.  They have also taken part in the purchase of oil extraction equipment in Ukraine.  This past spring, a state-owned oil company in Ukraine organised a bid for tenders to purchase expensive oil extraction equipment.  The contract, which was worth USD 400 million, was signed by a British-registered company behind which Staņislavs Gorins could be found.  Journalists later determined that the manufacturing price of the equipment was USD 248.5 million, which means that the true owners of the offshore company who were hiding behind Gorins earned a profit of around USD 150 million.

While the Ukrainian news media were raising an alarm about the purchase of expensive oil extraction equipment, a court in the US state of Oregon ordered the “local” company Olden Group LLC to repay USD 60 million to the Ukrainian government in relation to inflated prices of vaccines.  The court ruled that the Olden Group had earned those millions unlawfully, because in 2009 it had sold vaccines to Ukraine which were double more expensive than their true cost.

An investigation conducted by the Ukrainian government found that in 2008 and 2009, Ukrainian government institutions paid USD 40 million for medications and medical equipment, with the money being received by a variety of offshore companies.  Their main goal was to inflate the purchase price in an artificial away.  Once again it has to be said that some of these companies involved Vanagels, Gorins, as well as another Latvian – Juris Vitmanis.

This list could be continued on and on and on, because people from Latvia serve as nominal directors and secretaries for hundreds of companies registered in Panama, New Zealand, the British Virgin Islands, Ireland and England.  The oldest documents which journalists found during an investigation that lasted for half a year are at least 10 years old.

The fact that these people are only nominal corporate officials means that they are directors only on paper.  The truth is that the business of these companies is handled by the true owners, who buy the offshore company complete with its director.  Ever since the 1990s, there have been a number of companies and law firms in Latvia which offer such services – the opportunity to buy companies registered in low-tax countries together with their corporate officials.

Our goal was to find out who was “selling” Vanagels, Gorins and other Latvians.  The information which we have collected suggests that the company operates in Latvia, because it involves Latvians as nominal directors.  The company must be quite influential and have contacts in the territory of the former Soviet Union, because otherwise Vanagels would not have been involved in Ukrainian transactions that were worth millions of dollars.  Another conclusion is that the people who are employed by the company are familiar with banking issues, because many offshore companies had accounts at Latvian banks.  We tried to contact Ēriks Vanagels to seek answers to these questions.

 

Who exactly is Mr Vanagels?

There are statements in the international press which describe Ēriks Vanagels as a “well known Russian banker.”  A virtual Mr Vanagels can be found on the Internet.  Several offshore companies list his E-mail address as a contact point.  On Skype, there is a person called Ēriks Vanagels who is the director of the British Virgin Island-registered company Euromark.  In place of a photograph of himself, Vanagels has posted a smiley face on Skype.  We rang the number, and a man speaking English told us to call him a bit later.  He is online in Skype at least several times a day.

And yet all of this is a myth.  In fact, Ēriks Vanagels himself is largely a myth.  The British Company Register lists two people called Ēriks Vanagels, and they have different birth dates.  The younger one is 44 years old and cannot be found.  It is likely that no such person exists.

Ēriks Vanagels. Photo: Re:Baltica

The second person who is called Ēriks Vanagels has the same address as the younger one, and he is 71 years old.  British registers show him as residing in Matīsa Street in Rīga, but he has not lived there for a long time – this according to a woman who spoke to us from behind a locked door.  She is the daughter of Vanagels’ deceased brother, and she does not want to talk to journalists.

More information was provided to us by a woman called Elvīra who has been the girlfriend of Vanagels for many years.  She lives in a clean but run-down apartment building in the neighbourhood of Vecmīlgrāvis in Rīga.  Elvīra is around 60 years old, and she was very emotional in telling us that Ēriks Vanagels has been without work for a long time.  At some points, tears sprang to her eyes.  Elvīra says that both of them used to work for a factory.  During the Soviet era, Vanagels was a high-class lathe operator, while today the semi-blind pensioner supposedly spends most of his time drinking alcohol.  Elvīra was afraid to give us his phone number, but she managed to contact him herself by phone.

“He will denounce me,” said the tiny woman.  We could hear what was said by the voice of an apparently elderly man on the phone – he would not talk to journalists, and Elvīra should leave him alone.  Then he put down the phone.

The next time that we visited Elvīra, she told us that Vanagels had changed his phone number and that she no longer knew where to find the pensioner.  Elvīra said that Vanagels sometimes turns up on her doorstep to recover from a longer period of boozing, but then he disappears again for an indeterminate period of time.  We asked about the possibility that Vanagels is a banker with millions in assets, and Elvīra began to laugh almost hysterically.  She pointed to the shoddy furnishings and wallpaper in her flat:  “You think that he has millions?”

‘Bomzh direktor’ is a post-Soviet classic to hide the traces of real beneficiaries, but in Vanagels case, it proved surprisingly easy to trace the company incorporation firm using his name. In June 2010, the London High Court of Justice handed down a judgment related to a lawsuit brought by the oil giant Shell against a former employee who was an oil trader from Latvia in relation to wrongful dismissal.  The judgment mentions Erik Vanagels as the Latvian director of the company.  Shell fired the oil trader over allegations of accepting kickbacks.  The court records show that payments were made to the account of a company incorporated in the British Virgin Islands of which Mr Erik Vanagels was the nominee shareholder and director.

In the judgment, the oil trader from Latvia cited the company which “sold” the British Virgin Islands-registered company to him together with Vanagels.  The company is located in Rīga and in Smilšu Street, which is seen as the financial centre of Latvia.  Indeed, it is located right opposite the now-fallen symbol of financial might in Latvia – the Parex Bank.  Right nearby are the Latvian Finance Ministry and the State Revenue Service, both of which are supposed to be engaged in making sure that people pay their taxes fairly.

There is a largish bronze plaque outside the door of the small two-floor office building at Smilšu Street 18.  It reads “International Overseas Services (IOS)”.

 

What is IOS?

Quiet music can be heard in the lobby of the former Latvija Hotel in the centre of Rīga.  It is a late afternoon in August, and guests of the city are talking to local residents over cups of coffee.  One of the people is a representative of the IOS company from London.  He is a Latvian who is called Kaspars Muižnieks.  He called us after we left our contact number with the IOS secretary, who was sitting behind a massive wooden desk.

IOS was initially known as International Offshore Services, and its office in Latvia was registered in 1998.  The address of the parent company is in the United States, and its representative in Latvia is an American resident.  And yet the investigation by journalists painted an entirely different picture.  The fact is that the senior officials of IOS are much closer – in Ireland and right here in Latvia.

The IOS homepage www.ioserv.com, offers more information.  It shows contact addresses in Rīga, London, Kyiv and Moscow.  At the same time, however, the company also claims to be represented at other major financial centres in the world – Cyprus, Ireland, Panama, New Zealand and the US city of Wilmington, Delaware.  All of these countries (apart from the USA) are classic offshore countries.

Since 1993, IOS has offered consultations to clients in Eastern Europe who wish to register companies in offshore countries.  A price list is available – opening a company and maintaining it for one year in Panama, for instance, costs around LVL 750.  In Cyprus, the cost is nearly LVL 1,500, while in Ireland it is around LVL 2,500.

Elsewhere on the homepage, IOS offers people a chance to open offshore bank accounts in any country which the client indicates.  There is also, however, the recommendation that the accounts be opened in Latvia, which is the financial centre of the Baltic States and has a high level of banking services.  There are good prices for services, it is possible to engage in bank operations from a distance, cash can be held in an account in different currencies, etc.

“Hi!  My name is Kaspars Muižnieks.”  Standing in the hotel lobby is a man who is around 40 years old and wears glasses with massive frames.

Kaspars Muižnieks. Photo: Re:Baltica

Muižnieks records our conversation so that he can report about it to his employer.  He tries to answer questions like an eager schoolboy, but after the meeting, which lasts for more than an hour, he sends us several E-mails to make more precise statements about the things which he said.  He said that among IOS clients, only 2% or so are residents of Latvia.  The lion’s share of the client structure is held by businesspeople from the CIS who engage in business operations at the international level (energy resources, raw materials).  Muižnieks says that these businesspeople prefer Latvia because of its banking system and because people in the country speak Russian.

When the discussion turned to the name of specific nominal directors, Muižnieks refused to comment on them, saying that IOS, like banks, carefully protects its clients.  Later, in relation to the aforementioned judgment by the London court – the one which mentioned Vanagels’ name – Muižnieks had this to say in a letter:

“Vanagels has offered nominal services for many years (..) because that is his standard area of operations.  If we look into the past, then we see that Vanagels was nominated by a former employee of IOS who now works abroad.  The elderly man worked with law firms back then, but he was interested in the provision of legally pure services, as opposed to services of an ambiguous reputation to clients in Latvia – ones which had been proposed to him by others in the past.  After learning about the spectrum of IOS operations and the company’s reputation, Vanagels took a positive decision.”

This letter meant official confirmation of the fact that as a pensioner, Vanagels was “selling” his signature so that offshore companies could be registered, as well as that at least one of the clients of this mystical director was IOS.  At the same time, however, it was clear that Vanagels, who was by no means a homeless person, could find wealthy businesspeople in CIS countries.  These clients had to have a positive reputation and ensure links among businesspeople in the CIS.  It was basketball which provided us with the answer of who exactly these people are.

 

IOS and Parex

Proud men in black uniforms with a logo similar to the imperial crown of the Parex Bank on their lapels smile in a photograph that we have seen.  The men are proud of their victory in a basketball tournament organised by the Latvian Association of Commercial Banks.  The trophy is a bronze sculpture with an incomprehensible appearance, and it is being held by the captain of the Parex team, Gints Poišs (48).

Gints Poišs. Photo: Re:Baltica

Poišs spent many years as chairman of the Parex Bank council, but this is one of very few photographs of him that we found during our investigation.  Lursoft data show that Poišs worked for the Parex Bank, which was once the most influential bank in the Baltic States, beginning in 1992, but he always remained in the shadow of the bank’s public faces and owners – Viktors Krasovickis and Valērijs Kargins.  Poišs did not appear at public events, annual reports did not contain a photograph of him, and even those who are running the Parex Bank now that it has been taken over by the state have been unable to find a precise job description for the man.  We know that at least for two years, from 2004 until 2006, Poišs directed the Laimdota branch of the Parex Bank.

Poišs himself presented us with an explanation of why so little is known about him.  After we looked for the man for a long time, he contacted us just a few days before we were planning to publish this article and told us that he wanted to meet with us.  He refused to allow us to film the meeting at a wine restaurant in the centre of Rīga, but he did allow us to record the audio.  It was a dark afternoon on November 18, when the people of Rīga were already celebrating Independence Day, and at the restaurant, Poišs behaved as if he had known us for a long time.  He ordered green tea and a bottle of Champagne.  During our conversation, his eyes were mostly shifty, and his upper lip was sweaty.

Poišs entered the banking sector by accident.  On the eve of the collapse of the Soviet Union, Poišs received a degree in forestry from the Latvian Agricultural Academy, after which he was given a job at the laboratory of the Silava forestry institute in Salaspils.  Poišs did not particularly enjoy this profession, and so he applied for a job at the Bank of Latvia, which was looking for an assistant for its then president, Pāvils Sakss.  The bank needed someone who spoke English and could serve as a translator in contacts with foreign specialists.  With a dictionary in his lap, Poišs got the job.

Poišs joined the Parex Bank in an equally accidental way.  The founders of the Parex Group, Valērijs Kargins and Viktors Krasovickis, wanted to obtain a license for their bank.  Before that could happen, the bank needed a director who had experience in the banking sector.  The two men with the initials VK invited Poišs to join the bank, even though his knowledge about the banking sector was only on paper.

Poišs says that his duties at the bank changed.  For awhile he was partly responsible for preventing money laundering, but all in all, he had lots of free time.  During his free time, he played basketball, which he loved.

Photo: Re:Baltica

Poišs was a member of two basketball teams, both of which are linked to offshore companies.  Each spring, the Parex Bank team mobilised itself for the tournament of the Association of Commercial Banks.  Squatting at the front of the aforementioned photograph is Uldis Feldmanis (No. 8), who was an assistant to Poišs at Parex and had sold offshore companies from an office in Krišjāņa Barona Street for several years.

Behind Poišs, wearing the number 22, is a broad-shouldered man called Juris Vitmanis.  A person with that surname is a director on paper for at least 200 companies which are registered in England.

If we look further back in time and review the members of Parex Bank basketball teams in the past, then we find several other nominal directors, all of whom are linked to Poišs.  The Rauda family is most important here.  In 1996, the team included Parex Bank expert Mārtiņš Rauda, as well as the director of the Parex sports club, Pēteris Rauda – father and son.  The truth is, however, that only Mārtiņš worked for Parex.  His father was a minor private businessman who was a great fan of basketball.

Pēteris’ daughter, Vija Rauda, also worked for Parex and was married to Gints Poišs.  The entire Rauda family – the father, brother, sister and their mother, Ligita – are all listed as officials in at least one offshore company.

Poišs did not seem to be surprised when talking about his brother-in-law, Mārtiņš Rauda.  He said that he was a big man who could do whatever he wanted to do.  At the same time, however, he demanded evidence about the participation of his in-laws in offshore companies:  “Are you serious about what you’re saying right now?”  Poišs shook his head in a disbelieving way.  “Ligita Rauda is a homemaker.  She sits at home, watches TV, and does nothing else.  She has two children, Vija and Mārtiņš.  [Husband] Pēteris died seven years ago.”

For many years, Poišs played basketball for another team – that of IOS, which establishes offshore companies.  He ensured that IOS paid for the team’s uniforms.  Poišs does not remember who exactly provided that money at IOS:  “You can kill me, but I do not remember.  Sorry, but that was eight or nine years ago.”

Who is behind IOS?

What was your relationship with IOS?  Asked this question, Poišs nervously scratched his nose.  “I am very prepared for this question.  I will not deny that a few times I told clients to visit the company if they wanted to do something.  I have been there…” – Poišs gets confused in his further explanations and believes that false information about him was leaked to us.

He denies any links to IOS.  If Poišs admitted to selling offshore companies, then that would be a violation of the law, because he was not allowed to do so as chairman of the bank’s council.  At the same time, however, Poišs did more than just support the IOS basketball team.  He was also very well informed about the company’s operations.

Poišs says that IOS operates on the basis of franchising and probably does not have any single owner.  Poišs is very familiar with the man who has represented IOS in Latvia for many years, the Irish resident Phillip Burwell.  He says that they met at Kargins’ office and at one time even established a company called Westwork to find jobs for Latvians in Ireland.  He says that the business failed.

Filips Burvels. Photo: Re:Baltica

“He was a solid gentleman in a suit,” recalls the former bank employee.  “He looked like a typical British attorney.”  Burwell attended the events as a representative of IOS, but on an everyday basis, Hansabanka worked with other people from the IOS office.  The accustomed process was this, said the employee:  If a bank client needed an offshore company, then the bank rang the IOS office, and a “ready” offshore company was delivered by courier.

It seems that several Latvian banks used IOS services, because for many years, the company was one of the largest and most trustworthy sellers of offshore companies in Latvia.  That was true at least until 2005, when the United States declared that Latvian banks were being used to “launder” major amounts of illegal funds and demanded that a stricter bank oversight system be implemented.  After this, Scandinavian banks became far more demanding, while others hired US lobbyists to ensure Latvia’s elimination from the blacklist.

The first bank to hire US lobbyists was the Parex Bank, with which Burwell had very close links.  Parex was located on the opposite side of the street from the IOS office in the heart of Old Rīga, and from the very beginning, the bank’s business was largely focused on services rendered to non-residents.  Representatives of the current management of Parex confirmed to investigators that Burwell was a partner of the bank.  He provided new clients and often served as a nominal director himself.  This means that Burwell knew and offered guarantees about the true owners of offshore companies.

In an interview in Dublin, Burwell admitted to investigators that he was close to the former management of the Parex Bank.  He said that he has known Gints Poišs for at least 20 years, but also that Poišs was not involved in IOS.  Burwell claimed that he met most of the nominal directors, Vanagels included, in Rīga, and saw them signing documents.  He admitted that the “directors” worked for IOs, but not on exclusive terms.  The same people could have “rented” themselves to other companies for cash payments.  Burwell said that nominal officials in Latvia are unimportant players.  “They are not criminals, but they are unimaginably stupid” – that is what Burwell said in an interview this summer.

Phillip Burwell claims that he left IOS, the company which establishes offshore companies, in 2003, but documents which we have suggest that he is still active in this area of business.  One document that we found during our investigation is a bill from his business partner in Dublin.  The bill is addressed to the IOSG Secretaries company, which is registered in Panama, and it relates to several companies that were registered in England last year.  Burwell’s E-mail address is shown as the contact address for the Panamanian company.  Some of these companies have already submitted annual reports to the British Company Register.  The documents show that all of them are owned by two other offshore companies which for many years were platforms from which Burwell established other offshores (Milltown Corporate Services; Ireland and Overseas Acquisitions).  The nominal representatives of both companies are the Latvians Vanagels and Gorins.

 

Looking for directors

During our investigation, we found three “paper” directors and contacted them.  “I know nothing.  That is not my signature” – that is what insurance broker Staņislavs Gorins told us this summer when we found him at his office in an internal yard in Dzirnavu Street.  The man, who is around 35 years old, was surprised and disgusted about our questions, but it seemed that his surprise related not to his own signature on the documents, but instead to “impolite” journalists who were posing questions to him.  It is unlikely that Gorins truly does not know how he became a director of offshore companies.  The Latvian Financial Police confirmed to us that both Gorins and Vanagels appeared as “paper” directors in a criminal case related to tax fraud which was launched in Latvia in 2008.  The case is still being investigated, and the police decline to disclose details about it, but we know that both gentlemen testified that they “sold” their signatures to the IOS company.

“I have no comment, and you should not be interested in this” – that was a more concrete statement from Elmārs Zaļlapa, who is tall enough to be a basketball player, is around 30 years old, and lives in Vecāķi.  During a brief conversation at the gate of a small private home he said:  “That was long ago, when I was a student.  I was young.”  That was all that he said.  Zaļlapa has served as the director of at least 30 offshore companies registered in Ireland and several that are registered in Panama.

Daniels Bangers, who lives a few blocks away in Vecāķi, was more aggressive.  A person called Danny Banger appears in documents from the British Company Register as the director of more than 400 companies.  At first glance, that does not appear to be a Latvian name, but the documents also state his nationality (Latvian) and his birth date (May 21, 1980).  Daniels Bangers, who lives in Vecāķi, was born on the same day.

Bangers also comes from the banking environment.  There are photographs to show that in 2007 he was a member of the Latvijas Krājbanka team in the tournament of the Association of Commercial Banks.  Nominal directors from Parex also took part in the tournament.  At least for the past three years, Bangers has been an equally enthusiastic basketball player on the team of his current employer – the DNB Bank.

Daniels Bangers. Photo: Re:Baltica

The DNB Bank declined to discuss the relationship between its employee and offshore companies, saying that this was a private matter with which the bank had nothing at all to do.  Information from the Internet shows that Bangers is responsible for brokerage services at the bank.

Bangers appeared to be very surprised about the facts which investigators collected.  He did not want to look at the available documents, saying that there may be several people in the world who are called Danny Banger.  This is not an acceptable argument, however, because in July of this year, documents appeared in the British Company Register in which the name Danny Banger was re-registered as Daniels Bangers.

Later Bangers sent us an E-mail to say that he has petitioned the British Company Register to remove all information that relates to him from its files.  He has also approached the Latvian State Data Inspectorate to ask for an evaluation of whether his data might have been utilised unlawfully.  Bangers’ worries are understandable, because the publication of such information might threaten his career in the banking sector.  He warned several times that the journalists who were involved in this investigation would face “legal consequences” if he lost his job after the article was published.  “That would destroy my reputation,” said Bangers.

The man believes that someone maliciously misused his personal data and forged his signature.  That is possible in theoretical terms, because the documents which are necessary to establish a company are submitted to the British Company Register in electronic form, and they do not require a notarised signature.  The authenticity of a signature is the responsibility of the agent or company which registers the offshore firm.

There are several other facts which indicate forged data.  A Cypriot-registered company has documents which show the passport number of Bangers and an address in Rīga – Stacijas Square 2.  That is the address of the former central office of the Latvian Postal Service – one at which offshore companies traditionally leased mailboxes to receive mail.  As far as Bangers’ passport number is concerned, the DNB Bank later told us that “if we compare the passport data cited in the documentation of offshores registered in 2005 to the passport data that are in force for the bank employee at this time, then we must conclude that the passport data which were cited in registers at that time were not correct.”

A third bit of evidence about the possibility of fraud here is that the signatures of the same people who signed documents to register offshore companies differ from document to document.  It may be that in some cases “Latvians” sold their signatures for cash, but there have also been cases in which someone else signed documents in their place.

Offices still open

“No law firm which plans to engage in long-term and stable operations will found companies on the basis of fake or non-existing individuals.  In such cases, of course, it would be easier to find the people who are involved in the violation, and the law firm would have to shut its doors” – that is what Kaspars Muižnieks, the representative of IOS in London, was telling us in August in an E-mail.  Lursoft data show that on the very next day after the E-mail was sent, August 23, the IOS company shut down its offices at Smilšu Street 18 in Latvia, where the office had been located.  The name of the company was also removed from the plaque outside the building’s door.

A similar fate beset the IOS office in Kyiv.  In mid-October, we visited an apartment building in which the company had offices in a single flat.  The plaque on the door was gone, and the door was locked.  An elderly gentleman from a neighbouring flat told us that the neighbours had moved out of the flat a week or so before our visit.  He added that there was not much activity there even while IOS was still in operation.  “All kinds of peculiar young people appeared there,” the neighbour said while shaking his head.

The IOS office in Kyiv was at a distance of a five-minute walk from the Ukrainian parliament.  In the other direction, a five-minute walk will take you to a skyscraper in which the Aizkraukle Bank (ABLV) has its office in Ukraine.  A few years ago, the ABLV phone number in Kyiv was the same as that of IOS in that city.

A young secretary at the bank explained to us that IOS were “our agents.  That means a law firm which registers companies and help clients to open accounts.”  Her colleague, Oļegs, emerged from a room next door and told us that the bank works with the office in Rīga, not Kyiv, and that everything has been fine and dandy.

The closed IOS offices show that something has changed.  One reason for this may be that journalists have been devoting excessive attention to the company during the last few months.  The point is that publicity about companies which register offshore firms is harmful to them, not beneficial.  Clients who wish to be unnoticed are even less interested in attracting media attention.

It is unlikely that IOS closed down because it was afraid of law enforcement institutions in Latvia.  The commander of the police unit which is focused on preventing money laundering, Viesturs Burkāns, told us that the number of criminal cases launched by the police in Latvia in relation to international crimes can be counted up on one hand.  The priority for law enforcement institutions in Latvia is to focus on tax fraud and money laundering.  Burkāns says that Latvia was not harmed by the aforementioned cases in which offshore companies with Latvian directors are involved in fraudulent procurements by Ukrainian government institutions.

It is also true, however, that in late September, the militia in Ukraine asked the Latvian Financial Police to find Vanagals and Gorins in relation to major tax fraud.  By early November, the Financial Police had not managed to find Vanagals, with officials suggesting either that the pensioner was hiding or that someone else was hiding him.

If the IOS company departs from the Latvian market, that will not mean a vacuum.  Non-resident account services are a very important source of income for Latvian banks.  This year non-resident deposit at Latvian banks made up nearly one-half of all deposits.  According to data from the Finance and Capital Markets commission, the largest number of non-residents involved in this process came from England and Cyprus.  In official terms, these are not seen as offshore companies, but they have specific tax policies which lead many people to use them specifically for such purposes.  Cyprus in particular is very popular among Russian businesspeople who are often forced to hide their business from the Russian regime.  Next on the list as classical offshore countries – Panama and the British Virgin Islands.

Viesturs Burkāns believes that the media have exaggerated the situation by republishing articles from the foreign press about yet another bank in Latvia which has been used as a transit facility for illegally obtained monies.  He feels that such “dirty” money represents only a small share of the total amount of money which passes through our banks.  There are no comparative data which would prove this, but at the same the time the truth that Latvia is an important transit country for the transmission of money is evidenced by the fact that 70% of non-residents are allowed to withdraw their money at any time.  At this writing, the sum of money amounts to LVL 3.3 billion (73%).

Our investigation has allowed us to reveal at least 10 cases in which Latvian banks were used to transfer between tens of millions and as much as one billion dollars.  Several banks were involved in these transactions – the Parex Bank (before it was taken over by the state), the Trasta Commercial Bank, the Baltic International Bank, the Rietumu Bank, the Regional Investment Bank and the Multibanka Bank.  The latest questionable transactions occurred quite recently – in 2010.

The larger the transaction, the greater the bank’s profits and, accordingly, the greater the benefits for the Latvian economy.  That is exactly why investigators got the impression that people from law enforcement and bank oversight institutions try to avoid this issue as an unpleasant twist in the road.  On the one hand, everyone understands that the negative aspects of the process of providing services to non-residents cast a shadow on Latvia’s entire banking system in the international arena.  On the other hand, our banks and the national economy needs this money.

During an unofficial conversation with a law enforcement institution, he made a joke which seemed to be expressed accidentally:  “We already have very few sectors which are profitable.  Please don’t destroy this one.”

AUTHORS

Inga Spriņģe, Re:Baltica Baltic journalism research centre
Graham Stack, independent journalist, Ukraine

ALSO PARTICIPATING IN THE PREPARATION OF THE MATERIAL:

Arta Ģiga, “Nothing Personal,” TV3
Gunita Gailāne, Re:Baltica Baltic journalism research centre
Uldis Leiterts, infogram
Jānis Elmeris, infogram

THE AUTHORS WOULD LIKE TO THANK:

Guntis Bojārs, Diena
Kārlis Dagilis, Radio 101
Raivis Vilūns, Faculty of Social Sciences, University of Latvia

This article was written under the framework of the OCCRP project THE PROXY PLATFORM.

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