LONDON (AP) — Latvia's top banking official explained the "rules of the game" for successful banking in the small European country. His sidekick sat the owner of Norvik bank down, scribbling the sum on a piece of paper: 100,000 euros ($125,000) a month.
An international complaint filed by Latvian bank Norvik alleges that a "Senior Latvian Official" repeatedly sought "to extort monetary bribes" and retaliated against the bank when its owners refused to pay up. The 39-page claim, filed before a World Bank arbitration body, did not name the Latvian official.
That person is Ilmars Rimsevics, Norvik bank officials told The Associated Press.
Rimsevics, the country's top banking official and a key member of the European Central Bank, was detained Saturday amid swirling accusations of bribery and money laundering schemes in Latvia that reach back to Russia.
He was released on bail Monday, and said he "rejects everything" about the allegations, Latvian state TV reported. The country's anti-corruption agency said it suspects Rimsevics of "seeking a large-scale bribe" and has started a criminal investigation.
The high-stakes drama unfolded Saturday, when Rimsevics was detained upon arriving for questioning at the office of Latvia's anti-corruption agency, and was interviewed for eight hours into the night, his lawyer told state TV. His office and a property were raided, the channel said.
The looming criminal charges against the man who has overseen the country's banking sector since 1992, in the wake of the Soviet collapse, has plunged the small Baltic nation into turmoil.
Rimsevics' detention is particularly sensitive as he sits on the top policy making council of the ECB, Europe's most powerful financial institution, and is privy to the state secrets of Latvia, NATO and the European Union.
Any connections to money laundering would raise concerns of the risk of blackmail from Russia's secret services or organized crime, and come at a time when Latvian security services warn that Russia is actively trying to obtain state secrets from Latvian state officials to weaken the United States and the European Union.
Latvia, a Baltic state of only 2 million people on the eastern fringes of the EU, is trying to cope with the latest development in a history of banking scandals.
The president called a meeting of the National Security Council. The finance minister said Rimsevics should step down from his position for the good of the country while the investigation proceeds, but noted that lawmakers do not have authority to remove him since the central bank is politically independent.
The Bank of Latvia and the ECB declined to comment on Rimsevics' arrest.
Latvia has become infamous for money laundering since the high-profile Magnitsky scandal, in which $230 million in Russian taxpayers' money was siphoned off, largely through Latvian banks, according to U.S. and European authorities. Whistleblower Sergei Magnitsky was imprisoned in Russia in 2008 and allegedly beaten and denied medical care, leading to his death. The U.S. and EU sanctioned Russian individuals over the case.
In 2014, a trove of leaked documents, the so-called Laundromat reports by the Organized Crime and Corruption Reporting Project, detailed how $20 billion were sent from Russia, largely through Latvia, in 2010-2014. Latvian banks then went through an independent audit last year, after which Latvian regulators levied fines against 3 banks for a total of 640,000 euros.
Barely one week later, France fined Latvian bank Rietumu 80 million euros for money laundering. Major global banks, meanwhile, have stopped making dollar transactions with Latvian banks after the Laundromat's leaked documents illustrated how dirty money had reached firms like Deutsche Bank by way of Latvian banks. Last week, the U.S. Treasury singled out one of Latvia's biggest banks, ABLV, for having "institutionalized money laundering" and the ECB on Monday blocked ABLV from making any payments amid concerns about its finances.
All of this happened on the watch of Rimsevics, who has been at the top of Latvia's banking system for about as long as the country has been independent from the Soviet Union. He became chairman in 1992 and then governor, the top policymaking role, in 2001. While everyday oversight of banks is managed by a specific regulator, the FCMC, its chairman is nominated by Rimsevics. The current banking regulator, Peters Putnins, also worked under Rimsevics for years at the central bank, official records show.
So the accusations of extortion by the Latvian bank Norvik hit at the heart of power in Latvia and the ECB.
"The high level official mentioned in our request for arbitration is Rimsevics," the CEO of Norvik bank, Oliver Bramwell, told the AP.
The bank's majority shareholder and chairman, Grigory Guselnikov, confirmed that Rimsevics is the official named in the complaint, which was filed to a unit of the World Bank that manages disputes between investors and states and was obtained by the AP.
Rimsevics, Guselnikov says, has regularly demanded bribes through a middleman since 2015, threatening to hit his bank with tougher regulations if he did not comply. These, he was told, were the "rules of the game" in Latvia.
The complaint filed by Norvik and Guselnikov says that "this Senior Latvian Official has taken advantage of the FCMC's regulatory measures as a goad to extort monetary bribes from the Claimants, and has both personally, and through intermediaries, sought repeatedly to extort money from Mr Guselnikov."
Guselnikov grew up in the Russian region of Siberia and began working in banking before moving to London, from where he eventually bought Norvik. He got some attention in London in 2011 when he bought the Rolex luxury watch flagship store at One Hyde Park, an ultra-wealthy address of the British capital.
In a series of interviews with AP, Guselnikov laid out his story.
Guselnikov said he first met Rimsevics in 2015 after he was introduced to a man called Renars Kokins, who was said to know the country's legal and political landscape well. Kokins invited Guselnikov to a meeting in a large villa in the suburbs of the capital surrounded by CCTV cameras. Soon after Guselnikov got there, another man arrived, on foot, and entered the house without knocking: it was Rimsevics, the head of the central bank and the country's top financial official.
He was brief and to the point. He told Guselnikov that he could help him because the nation's financial regulator was loyal to him personally. All he had to do was "cooperate" with Kokins, Guselnikov recalled.
Rimsevics left no more than 10 minutes later and Kokins sat Guselnikov down at a table. He pulled a pen out and wrote on a piece of paper: "100,000 per month."
Kokins did not use the word "payment." He explained to the banker that all Latvian banks "cooperate" in this manner.
After that meeting, Guselnikov, a U.K. and Russian citizen, decided not to pay, fearing that once he paid a bribe he would forever be blackmailed for more cash. And he did not return messages and calls from Kokins.
About a year later, Guselnikov's brother invited him to a new friend's birthday party. Arriving to the party, he found that his brother's new friend was none other than Kokins, who again approached Guselnikov about the need to "cooperate."
In the following weeks, Guselnikov tried to stall but found that every time he refused to pay, his bank would get hit with new regulatory measures. The legal complaint lists these measures as sudden increases in the amount of capital the bank needed to hold, forcing it to write down the value of assets.
These events, the complaint says, "created leverage which the Senior Latvian Official was able to deploy in his attempts to extort money from the Claimants."
Guselnikov says he met with Kokins and Rimsevics a few more times to try to clarify his position and with each meeting, Rimsevics was increasingly impatient and said that if Guselnikov did not cooperate, his bank would be hit with enough regulatory problems to put it out of business.
Rimsevics took great care to not be seen at these meetings, Guselnikov says.
On one occasion, Kokins drove Guselnikov around the Latvian capital, Riga, for almost two hours before parking in front of a Chinese restaurant in the city outskirts. Kokins left the car and minutes later, Rimsevics entered it and sat behind Guselnikov, in the back seat, to speak for a few minutes, Guselnikov said. Another time they met in the restaurant itself, when it was completely empty.
"It was a nightmare for me for years," said Guselnikov, who is 41. "You can't understand how to get out of this dirty environment without reputation damage. That is why I decided to go out publicly and legally with my case. I can lose the bank, my money, but I will never become part of it."
The AP sought to interview about a dozen officials in Latvia's banking and state sector about Rimsevics. None would comment on the record.
THE RUSSIAN CONNECTION
Guselnikov says that Kokins did not only ask him for bribes, he wanted Norvik Bank to launder money. At one meeting, Kokins suggested that Norvik bank allow the transit of $100 million from Russia, and keep $1 million as a payment for the service. He said the transfer would be arranged by a man named German Miloush from Russia.
Kokins and Miloush were partners in business, according to corporate filings that show Kokins worked for Miloush's BMW dealership in Riga, signing annual reports.
Miloush himself is an internationally wanted criminal. He was convicted in 2007 in Latvia for bribing politicians and fled the country. Ten years later, he was arrested on an Interpol warrant upon arriving in Cyprus, an EU member state, from Moscow.
Once again, he fled. He reportedly failed to show up for a Sept. 5 court date in 2017 and has been at large since. Latvia's anti-corruption agency did not reply to repeated requests for comment on Miloush's status.
Russian border records obtained by the AP show that Kokins flew from Moscow to Cyprus just before Miloush dodged his extradition hearing. The data, which could not be independently verified by the AP, also show Kokins has been travelling about once a month to Russia, sometimes only for a few hours, since at least 2010.
The data also show Rimsevics has visited Russia regularly in recent years — making at least 8 trips since 2010. Most of those were before Latvia was allowed into the EU's currency union, the euro, in 2014 and before the invasion of the Crimean Peninsula that triggered Western sanctions against Russia. After that, the data show Rimsevics visited Russia via Belarus, a neighboring Russian ally that shares border data with Moscow.
On one trip, in 2010, Rimsevics went on what appears to be a hunting trip, according to photos obtained by the AP. In one of the photos, he is pictured with Dmitry Pilshchikov, who was then the head of the Research Institute of Information Technology, a Russia-owned military tech company later sanctioned by the U.S.
The photo suggests a friendly gathering in a wood cabin: conversation and laughter around a meal, a bottle of liquor and instant coffee. A guitar lies on the table and an assault rifle hangs on the wall.
Pilshchikov's boss at the time of the photo was Sergey Chemezov, an old-time ally and friend of Vladimir Putin since the 1980s. After the Crimean invasion, the company was sanctioned by the U.S. Chemezov continues to run Russia's main arms conglomerate, Rostec.
Mark Galeotti, a senior research fellow at the Institute of International Relations Prague and an expert on Russian financial crime, says that the optics of the trip aren't good for someone in Rimsevics' position.
"It's not the same as if he were running a taxi company," Galeotti said.
The risk of blackmail is particularly high in the case of Russia, which he says actively tries to leverage foreign officials through corruption. Putin has in recent years sought to re-impose Russian influence in Eastern Europe, where countries like Latvia and Ukraine have tried to shake off Moscow's power and align themselves more closely with the EU and U.S.
"They regard corruption as a way of exerting influence," Galeotti says of Russia and its secret services, which he says largely controls the business of money laundering out of Russia.
In the case of Rimsevics, the risk is also high given the state secrets he has access to. As a member of the ECB's governing council, he is privy to market-moving data and shapes decisions at the central bank, which sets monetary policy for the 19 EU countries that use the euro. The way the governing council is set up, Rimsevics, as the Latvian member, has one vote on policy matters like interest rates or monetary stimulus programs — the same as officials from the biggest nations like Germany or France.
And as a top official in Latvia he has access to confidential NATO and EU information, such as war preparation plans, secret services' reports and the state of vital infrastructure.
Latvia's own secret services said in its last annual review that Russia is targeting the country's state officials and is after state secrets. In particular, they say that "Russia's security services will increase their focus on residents of Latvia making private or official visits to Russia or who have contacts with Russian subjects."
A STRING OF SCANDALS
Faced with insistent demands for payoffs and retaliation for not "cooperating", Guselnikov said he felt he had no choice but to resort to international legal action because the problems in Latvia seemed insurmountable.
The Magnitsky case of 2008 was the first of many scandals to rock Latvia and its economy.
Shortly after Magnitsky was imprisoned, a Latvian bank called Parex became a funnel for money laundering and easy cash for politically-connected individuals, according to documents in the so-called Panama Papers, a global investigative series. Among many murky deals was a $100 million loan, against no collateral, to Zhan Khudainatov, the CEO of Russian gas company Severneft, and his brother Eduard, deputy CEO and later CEO of Russian state oil company Rosneft. The Khudainatovs defaulted on $78 million to Parex despite selling assets for $403 million in 2012, according to the OCCRP.
This defaulted loan, on top of others, contributed to Parex bank's failure in 2008. The Latvian state rescued the bank at a cost of about $1 billion dollars, a colossal sum for Latvia. It was one of the biggest costs in a national financial crisis that increased Latvia's national debt burden six-fold, required a bailout from the International Monetary Fund and ultimately saw a tenth of the population emigrate in search of a better life.
John Christmas, a former employee of Parex bank, said he alerted Rimsevics as far back as 2005, detailing how Parex was operating illegally and not carrying out proper checks on its loans.
"They refused to talk to me," he says. Instead, he says he began receiving death threats and had to flee the country.
"Latvia isn't fighting against money laundering," Christmas said. "Latvia is doing the opposite, fighting to protect the money launderers."