This chapter provides an overview of the findings of key documents pertaining to economic crime investigations and prosecutions in Latvia, with a specific focus on those which contained recommendations on improvements within this area. These were selected as they represent previous assessments of existing challenges pertaining to criminal investigations in Latvia, which ensures this study builds upon the work already done. It also helps to benchmark the progress made since these reports were published. Thus, it serves as an assessment of the known challenges in this area, which this research will explore further in Chapter 4.
Interagency Coordination in Economic Crime Investigations in Latvia
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3. Overview of the Available Literature pertaining to Economic Crime Investigations & Prosecution in Latvia
Abstract
Introduction
Effective investigative and prosecutorial services are crucial in tackling criminality of all guises, with a greater need for experience, competency, and collaboration in more serious crime investigation, such as economic and financial crime. The prioritisation and recognition of the threats posed by economic crime heightened a short number of years ago in Latvia, after the government's designation of Latvia as a regional financial transaction centre in 2019, which resulted in significant transit flows of financial resources into the country, some in the form of deposits from non-residents. This influenced a host of different research reports, for example, those conducted by the OECD Working Group on Bribery in International Business Transactions and the Financial Action Task Force (FATF)-GAFI, and GRECO and Moneyval Report of the Council of Europe, which predominately shared the recommendation that Latvia needed to strengthen performance of their prosecutorial services, in particular in relation to economic and financial crimes. Notwithstanding the steps taken by the Latvian government to control and reduce risks in the financial sector, for example, the withdrawal of licences from several banks, problems were still identified.
In the backdrop of ambitions to become a regional financial hub, Latvia gained increasing attention about its capacity to adequately play such a role. One notable report, which contributed in part as noted by the Finance Ministry in February 2019 to revoking this objective (LSM, 2019[1]), was an evaluation conducted by Moneyval in 2018. This report, amongst others, is reviewed in this chapter, as they serve as an important resource for assessing the current state of play in Latvia and provide insights into why recent changes have been made. To do this, this chapter introduces the core foundational documents to this study, the State Audit Office Report 2017 and 2020, and the OECD’s report on Performance of the Prosecution Services in Latvia: A Comparative Study (2021). A number of additional documents were also used to glean insights into the current state of play pertaining to the police investigation of economic crime and associated risks in Latvia. These include the National Security Strategy of Latvia, the Fifth Round Mutual Evaluation Report by Moneyval (2018), and the OECD’s Working Group Report on Bribery in International Business Transactions (2018). The chapter outlines the core aim of each document, the key findings, recommendations, and the problematic areas highlighted pertaining to economic crime investigations and prosecutions.
Foundation Documents
State Audit Office Report 2017
The State Audit Office of Latvia’s report of 2017 ‘Is pre-trial investigation of the State Police of Latvia effective’ is a foundation document to this study. It holds this position because of its remit and scope. This report was conducted to verify whether sufficient measures had been taken during the previous ten years to achieve the set goal of simplification and efficiency of pre-trial criminal proceedings. Auditing the previous ten-year period was important, as it marked the timeframe since the introduction of the Criminal Procedure Law. This law came into effect in October 2005 and was adopted to amend the shortcomings of the previous regulatory framework, the 1961 Latvian Criminal Procedure Code (State Audit Office of Latvia, 2017[2]). Particular shortcomings identified prior to the implementation of the law that warranted attention included disproportionate lengthy proceedings and complaints about violations of human rights because of reasonable failure to comply with time limits of criminal proceedings (State Audit Office of Latvia, 2017[2]). Both failings were said to be leading to an increasing accumulation of pending cases. Moreover, there was a perceived inability of Latvian law enforcement institutions to operate in accordance with the guidelines of criminal justice of the European Union (EU). Thus, the core aim of the law’s introduction was to ensure an efficient process, to make criminal proceedings more efficient, to reduce the accumulation of pending cases, to speed up the examination of cases and to increase the quality of pre-trial investigations.
Despite the Criminal Procedure Law coming into effect in 2005, the Audit report (2017) identified many similar issues at the time of writing to those that the law had been designed to mitigate. It noted that these issues continued to prevent the proper and timely disposal of cases within the pre-trial investigation process. Chief amongst them were, a large accumulation of pending cases in pre-trial investigation institutions and courts, lengthy legal proceedings resulting in complaints regarding violations of human rights. According to the Audit report, despite the introduction of the Criminal Procedure Law, an unsatisfactory number of pre-trial investigations still remained to be dealt with. The report specifically noted that this was evident in the number of decisions revoked by prosecutors, the dynamic of criminal cases returned for further investigation, and the number of prosecutors’ submissions on violations committed in pre-trial criminal proceedings. This in turn was found to have led to an increase in the amount of compensation paid by the State for losses caused as a result of unlawful or unjustified action of the investigating body, the Public Prosecutor’s Office or the court.
Criticisms were also highlighted regarding the quality of pre-trial investigations in the State Police from prosecutors, attorneys and officials from the State Police and the Ministry of the Interior. Moreover, and despite some noted improvements to the regulatory framework by which the State Police conduct their duties, criminal proceedings were still found to be complicated, laborious, and time-consuming. They further noted that the ability of the State Police to conclude criminal proceedings before they were statute-barred had deteriorated, highlighting a year-on-year increase between 2010-2016. In addition, the report noted that of all the criminal proceedings under the record of the State Police at the end of 2016, nearly half (47%) were reported to have been initiated more than five years previous. Overall, this led to an assessment that the State Police’s ability to effectively investigate criminal proceedings had not improved (See Box 3.1).
Box 3.1. Areas of concern identified in State Audit Office Report 2017
‘Is pre-trial investigation of the State Police of Latvia effective?’ pertinent to economic crime investigation and prosecution.
The level and nature of training is not commensurate with the duties to be performed, due in part to the liquidation of the Latvian Police Academy.
The lack of organisation and methodological management of investigative work.
A reduced scope and content of the supervisory prosecutor’s powers in providing instructions, as well as a lack of a common understanding between investigators, their immediate superiors, and prosecutors.
An inability to effectively apply the speed, economy, and efficiency of criminal proceedings.
The lack of an established system to assess the effectiveness of the investigation work of the State Police.
Source: State Audit Office Report, 2017.
The audit report concluded that while some of these existing problems could be addressed with the right legislation, it highlighted that these solutions were not included in the new draft law “Amendments to the Criminal Procedure Law”. The proposed amendment at that time, related to the simplification of suspensions, yet these did not go far enough to provide for suspension or termination, for example, in situations where progress of criminal proceedings is not possible1. Similarly, the report noted that there are no solutions to theft in points of sale where the harm caused is small or the stolen product is returned immediately. Investigating these crimes requires disproportionately large resources to prosecute. The report noted that this approach was not in line with other countries, where some reported that criminal proceedings are not carried out if harm caused as a result of a criminal offence is insignificant or its investigation will require disproportionate costs. Latvia, however, had at that time no legal provision to do this.
The report made 17 recommendations2, the implementation of which was designed, if implemented, to improve the ability of the State Police to investigate criminal proceedings more efficiently and qualitatively. First, they recommended that a comprehensive assessment of the problem be conducted regarding the proper investigation of criminal proceedings in the State Police. Second that a system of review and evaluation of police investigation work be designed, implemented, and regularly assessed, by clearly defining the results to be achieved and the assessment indicators thereof.
In the context of investigations, the report highlighted the need to improve the understanding of investigators as to the importance and application procedure of the instruments provided under the CPL, relating to the simplification of criminal proceedings. This, it was envisaged would, ensure faster and a more economic performance. Within this, the Audit Office recommended that the State Police, together with the State Police College and other experts in the field, determine the set of measures and content (training, exchange of experience, etc.) for improving the qualification of investigators. Moreover, it recommended that the State Police significantly strengthen the methodological management of investigations. Furthermore, the Audit Office highlighted that the State Police had not eliminated problems and incompatibilities regarding the execution of forensic examinations in the Forensics Service Department, issues that had been previously highlighted in 2013 by the Office. As a result, the State Audit Office repeated their recommendation that the Ministry of the Interior ensure that disproportional length of time it takes to appoint experts by investigators is avoided. They also suggested the possibility of establishing a unified forensic expert institution in the state. The rationale for this was that it would allow for a central repository for human and technical resources, which was thought would improve performance of forensic examinations in general3.
It is worth highlighting that the 2017 Audit report focused on all pre-trial investigations, with no specific focus on economic crime, but many of the core issues raised are pertinent in that context. Moreover, many of the issues identified in the 2017 State Audit Office report still resonate today, as will be discussed in more detail in the forthcoming chapter.
State Audit report 2020
The second core document is a 2020 report, “Summary of Key Audit Findings and Recommendations - Does the operation of the Prosecutor’s Office of the Republic of Latvia require any improvements?”, also produced by the State Audit Office (State Audit Office of Latvia, 2020[3]). On this occasion, the Audit Office conducted an assessment of the activities of the Prosecutor’s Office of the Republic of Latvia. The audit stemmed, in part, from the findings of the 2017 audit report, and the opinion that the Prosecutor’s Office might not have sufficient capacity to ensure the proper investigation and prosecution of cases. A secondary element of this audit, pertinent to this study, relates to its focus on the “Effectiveness of investigations and trials of the criminal offences in the economic and financial area” (2).
The report had both positive and negative findings. First, the statistics analysed indicated that Latvia did not lag behind other countries in terms of prosecutorial resources, yet at the same time it was found it had still not been able to solve significant problems related to investigating crimes. Second, while the audit report found that there were no obstacles in the laws and regulations to the effective operation of the Prosecutor’s Office, they noted that a significant change in the understanding of independence of the Prosecutor’s Office and a modern approach to the implementation of management functions was required. It was suggested that this would result in greater capacity within the Prosecutor’s Office to perform its core functions and facilitate the efficient use of the resources at its disposal. Third, the audit assessed that the regulation of the Prosecutor’s Office Law contained the necessary standards for the independence of both the Prosecutor’s Office and prosecutors. However, it did note that the concept is interpreted more broadly in Latvia, which limits the possibility of holding the prosecution service accountable for its work and gives the impression that it is not subject to oversight and good governance similar to other public institutions. In addition, it noted that this perception of absolute independence had isolated it from reforms.
Within this context the report highlighted that change was required and that the Prosecutor’s Office must take the leading role in influencing law enforcement practices and in management and supervision of the investigators’ work, particularly in the event of complicated cases, which may affect the public interest. In short, the Audit Office assessed that the Prosecutor’s Office, as an institution, was not managed in the manner to ensure it was capable of performing its functions efficiently and effectively. The audit also noted that the prosecutor’s Office did not conduct a risk assessment, even in crucial areas such as integrity, corruption, and conflict of interest in prosecutors’ activities.
The Audit culminated in 20 recommendations4 to the Prosecutor’s Office for improving operational efficiency. One pertinent recommendation here relates to training, and the need to establish a training system for prosecutors, which includes regular training throughout a prosecutor’s career. They highlighted that this needs to be informed by a process that can identify training needs and is supported by professional performance evaluations. Moreover, it also noted the need for improvements for “professional skills of prosecutors in drafting indictments by developing the curriculum further and assessing the need for other measures at the same time (for instance, by providing the elaboration of guidelines, summaries of best practices, or document templates)” (State Audit Office of Latvia, 2020[3]).
More pertinent still are the insights and findings in relation to the prosecution of financial crime. It was noted that, since 2017, improvements had been made in the Prosecutor’s Office, particularly regarding the supervision of these types of investigation. Two specialised prosecutor’s offices now provide specialised service in relation to the investigation of organised and economic crime offences. It was also highlighted that the prosecutors of the Division of Investigation of Especially Serious Cases, within the Office of General Prosecutor, provide greater supervision with respect to the investigation of the most complicated economic crimes. The audit assessed that, without this specialisation of prosecutors, some prosecutors are likely to face challenges in dealing with complicated cases, specifically noting investigations relating to financial and economic crime.
The State Audit Office noted in this audit concerns with prosecutor workloads, suggesting that this should be looked at further, as it may help to better understand why only a relatively small number of cases under prosecution are brought to court. This resonates with an observation in the 2017 State Audit Office report, which highlighted a large backlog of cases per officer of the criminal police unit of the State Police. Both these observations are likely to have influenced the finding in the 2020 report that half of criminal proceedings had been initiated more than five years previously. See Box 3.2 for specific recommendations to address the backlogs of economic crime cases identified in the State Audit Office Report 2020.
Box 3.2. Specific recommendations to address the backlogs of economic crime cases
The State Audit Office recommended that “the Prosecutor’s Office should (1) evaluate and determine criteria for the assessment of the backlog of supervised criminal proceedings, and (2) carry out evaluations in cooperation with investigative agencies. The Audit Office made an insightful observation as to why this was important, not only to speed up the cases and clear the backlog but also to determine “what part of them are “minor” offences, what part of them are “dark” cases, particularly complicated criminal proceedings, criminal proceedings especially infringing national interests, or cases whose investigation and completion require solving any specific problems characteristic of a particular type of crime (for instance, numerous criminal proceedings initiated for offences of one type that are not finished for a long time), etc. Such an assessment would make prioritisation of criminal proceedings and deciding on the necessary long-term action possible (State Audit Office of Latvia, 2020[3]).
Source: State Audit Office Report, 2020.
While many of the issues raised in the State Audit Office Report of 2017 pertaining to prosecutors were found to have been addressed in the 2020 Audit Report, it is also evident that some were not and continued to negatively affect the proper prosecution of serious crime cases.
OECD Report - Performance of the Prosecution Services in Latvia: A Comparative Study
During a similar timeframe to the 2020 Audit Report, the Organisation for Economic Cooperation and Development (OECD) prepared an independent assessment (OECD, 2021[1]). This is a pertinent document here, as it served as a source of recommendations for the 2020 audit report. The study, while reviewing the status quo in Latvia regarding public prosecutions, also benchmarked a selection of OECD member countries (Czech Republic, Denmark, Finland, France, Italy, Ireland, Netherlands, New Zealand, Portugal, and Sweden). This sought to identify recommendations that could support Latvia’s ongoing efforts for improvement. Similar to the Audit Report, it did not focus on economic crime, but it does make one targeted recommendation in this area, which was also made in the State Audit Office Report 2020, relating to “enhance specialisation in financial, economic and corruption crimes” (16). To provide context to this recommendation, the OECD report assessed that they found that “there are no special requirements for prosecutors supervising such investigations (e.g., in terms of skills, experience, knowledge or selection procedure), with the expectation that necessary expertise will be acquired through in-service practising” (16). Furthermore, they reiterated the findings of the 2020 State Audit Office report, noting a lack of capacity for prosecuting complex, financial, corruption, or cyber-crimes. Based on this latter observation, the authors identified that “focused specialisation of certain groups of prosecutors and associated specialised training for them could serve as a necessary capacity building exercise in Latvia to enable prosecution in the most effective manner” (16).
Several areas not specific to economic crime are also worth exemplifying further in the context of this study. The first relates to training, which reinforces the recommendation made in the 2020 State Audit Office Report. Although not specific to economic crime, the OECD report also noted the need to “scale up and tailor training for integrity activities” (19). This recommendation was also combined with one that suggested the need for enhanced specialisation in financial, economic, and anti-corruption, a recommendation which was also echoed in the State Audit Office Report. It is worth highlighting that this approach was also echoed in the Prosecutor General Office’s operational strategy 2017-2021, which identified the need (as a priority) for effective and high-quality performances by the functions of the Prosecutor’s Office in the fight against financial and economic crime. Three specific areas this strategy notes relate to:
Ensuring control of the work of prosecutors in pre-trial criminal proceedings
The imposition of proportionate penalties for financial and economic crimes
Training and knowledge acquisition.
The OECD report also highlighted a number of more general concerns about the effectiveness and performance of the Latvian prosecution service, particularly in relation to the investigation and prosecution of economic and financial crimes that are worth mentioning. They echoed the findings of the State Audit Office Report regarding the difficulties in bringing and holding charges before the courts. They also noted, and similar to the audit report, the length of pre-trial proceedings and asserted that this is having a negative influence within the system. On a more positive note, in relation to outstanding issues with the CPL as highlighted in the 2017 Audit report, the OECD noted that prosecutors of the Methodology Division had participated in the process to develop amendments to the law, especially to promote the proper investigation of financial and economic crimes. 5
Other issues they highlighted, included “insufficient qualification of the involved parties, relatively negative attitude of prosecutors to providing instructions to investigators, unclear distribution of roles of the officials participating in criminal proceedings, and the heterogeneous understanding of the criminal procedures by investigators and prosecutors” (OECD, 2021[4]). Unpacking this further, the report indicated investigators and their immediate superiors maintain that some supervising prosecutors are not sufficiently knowledgeable about the specifics of economic and financial crimes, which affect the decisions made about the nature and type of evidence needed for investigation or arraignment. To alleviate this, the OECD report found that many of the stakeholders highlighted the need for more joint training of investigators, prosecutors, and judges as well as the creation of informal venues that facilitate the exchange of information and experience, which would help to build a shared understanding of substantial and procedural issues. This echoed calls in the 2017 State Audit Office Report, which proposed an enhanced co-operation between police and prosecutors, especially in financial crimes, specifically highlighting it in the context of them being very sophisticated and complex.
In relation to the specifics of investigations and time delays, the report also noted that interview results indicated some prosecutors make additional requests of investigators to carry out additional investigative actions late in the process, which often result in unnecessary delay of the pre-trial investigation. Uncoupling this further, it was noted that this may be the result of differences or discrepancies between what prosecutors and investigators view as sufficient evidence. It was alleged that this negatively affects the performance of the criminal justice system (CJS). This may have explained why there is such a ratio between cases brought to court by prosecutors, in comparison to those being investigated in the past.
The OECD noted that the Parliament and the Prosecutor's Office has prioritised combating financial and economic crimes and actively sought to ensure effective and high-quality prosecution in this area. The report echoed the observations of the Audit report regarding the lack of specific specialisation of prosecutors in Latvia, although recognising the establishment of five specialised Prosecutor’s Offices established in the Prosecutor’s Office.
These three documents serve to illustrate the research, oversight and recommendations made in regard to the investigation and prosecution of crime in Latvia, with specificity in parts to that pertaining to economic crime. These reports, while recognising the threat associated, do not however come from a position of viewing economic crime from the perspective of a national security threat. As a result, a number of additional documents have been reviewed that demonstrate recognition of the severity of the threat posed to Latvia, and also of an awareness that more needs to be done, despite existing efforts.
Additional Reports
National Strategy
The National Security Strategy 2019 revealed the prioritisation of economic crime investigations in Latvia at the official state level, because of the recognition of the threats posed by the exposure to economic crimes for the national economy. This is important, as this document and positioning has already influenced in part a recognition of the need to strengthen the capacity of law enforcement institutions in detecting and investigating economic and financial crimes, and also to include this prioritisation within the national security strategy. The National Security Concept document (information section) of Latvia 2019 was “prepared on the basis of the analysis of threat to the State specifying the basic strategic principles and priorities for the prevention of threat to the State to be taken into account upon development of new policy planning documents, legal acts, and action plans in the field of national security” (Government of Latvia, 2019[5]). It notes, in the context of the Provision of Stable Economic Environment, that “the responsible State authorities should continue implementation of measures to restrict the negative impact caused by the underground economy on the national economy and State budget revenues” (Government of Latvia, 2019[5]). In the context of providing a stable economic environment, the Concept noted the need for strengthening the control and tax collection measures in these sectors, it highlighted that “concurrently adequate abilities of the law enforcement authorities (LEAs) and authorities responsible for corruption in discovering and investigation of economic and financial crimes should be ensured, while efficiency of the operations of the judicial system in trying such crimes should be improved. It is necessary to define and lay down the requirements for the continuity of operation of the services that are critical to the functioning of national economy, determining the minimum amount in which such critical services should be ensured in case of threat to the State” (Government of Latvia, 2019[5]). The Concept also made the “Implementation of Control of External Economic Policy and Foreign Investments” a priority. In making Latvia an attractive location for foreign investments and promotion of export, the concept highlighted the need to “ensure a control mechanism in order to prevent the possibilities of taking control over undertakings or sectors of strategic significance with the intermediation of investments, thus causing threat to national security” (Government of Latvia, 2019[5]).
A second area worth mentioning within the context of providing a stable economic environment related to the improvement of the Supervision of the Financial Sector. The Concept highlights the need to continue improvement of supervisory mechanisms of the financial sector in order to reduce the proportion of the amount of high-risk investments of non-residents in credit institutions in Latvia. This was influenced in part by its prioritisation in the Moneyval report (discussed below) to ensure further progress in the prevention of money laundering and terrorism and proliferation financing. In the specific context of money laundering investigations, the Concept notes that “it is important to define investigation of money laundering as one of the priorities of the responsible law enforcement authorities, increasing their capacity in the field of investigation and analysis accordingly, as well as developing unified guidelines for investigation of such cases (Government of Latvia, 2019[5]).
Several other pertinent threats were identified in the Concept that relate to this area, for example, those relating to the recognition of cyber threats. The priority threats identified included:
Efficient Implementation of the Cybersecurity Policy
Strengthening of the Ability to Identify and Respond to Threats
Strengthening of Security of the Critical Infrastructure of Information Technologies
Risk Assessment of the Infrastructure Equipment and Services Received
Improvement of Inter-institutional and International Cooperation.
In reviewing this document, it is evident that the Latvian Government recognises the growing threat of economic crime on national security and is prepared at least at the strategic level to prioritise it as an area for increased attention and management.
Fifth Round Mutual Evaluation Report
In 2018, Moneyval published a report in which they highlighted the risks associated with financial crime in Latvia, rating the country's risk to money laundering as “medium high”. It further noted that the main sources of criminal proceeds, which were reportedly generated abroad, include activities relating to corruption, bribery, tax offences, fraud, and smuggling. The report also highlighted risks associated with the influence of international organised crime groups and indicated a significant shadow economy at play, estimating it to be between 20-25% of GDP. This may indicate a relatively stable shadow economy in Latvia, given that Putniņš and Sauka noted that in 2013, the Latvian shadow economy was the equivalent of 23.8% of GDP (Putniņš, Sauka and Sauka, 2014[6]). The Moneyval report noted that economic crimes were more common than other crime types (for example, drug trafficking) in regard to generating finances. The report also analysed the level of compliance with the Financial Action Task Force (FATF) 40 recommendations and the level of effectiveness of Latvia’s Anti-Money Laundering / Countering the Financial of Terrorism (AML/CFT) system. It used this information to inform recommendations on how the system could be strengthened, while acknowledging that steps had been taken to improve its AML/CTF framework. The report assessed that “since 2012 the Law on the Prevention of Money Laundering and Terrorism Financing (AML/CFT Law) has been amended several times to widen the definition of politically exposed persons (PEPs), financial institutions (FIs), and financing terrorism (FT); the regulation was updated regarding the identification of UBOs; and a set of other normative Financial Capital Market Commission (FCMC) regulations were executed to achieve significant compliance with the FATF recommendations. The Latvian authorities also made amendments to the legal framework of Latvia in order to implement the 4th European Union (EU) Directive.” (Moneyval, 2018[7]). See Box 3.3 for the key areas pertinent to Economic Crime in Fifth Round Mutual Evaluation Report (2018).
Box 3.3. Fifth Round Mutual Evaluation Report (2018) keys areas pertinent to Economic Crime
Three other areas highlighted in the report are worth noting in relation to the specific role of the State Police and their response to economic crime, and they relate to risk, financial crime investigation and international cooperation. In respect of risk, the report findings observed, “Large financial flows passing through Latvia as a regional financial centre pose a significant threat. Certain authorities, such as the Control Service (FIU) and the Financial Capital Market Commission (FCMC), demonstrated a rather broad understanding of the risks within the AML/CFT system. However, there is uneven and overall inadequate appreciation of the potentially ML-related cross-border flows of funds passing through Latvia” (Moneyval, 2018: 1). The report recognised the nation-wide efforts aimed at effective implementation of AML/CFT measures through the 2017-2019 Action Plan but reported that it was inadequate with respect to providing specific targeted measures to address, amongst other things, the Money Laundering (ML) threat emanating from the high concentration of the foreign customer base of the credit institutions and the related large cross-border movements of funds.
Source: Author.
An area not widely observed in other reports relates to the private sector. The Moneyval report noted that there appeared to be little, if any, interest in the sector, using results of the risk assessment to inform their policies, procedures, and controls. It was acknowledged that this might be due “to the lack of previously unidentified threats, vulnerabilities and residual risks articulated in the 2017 NRA Report, and partly to the disagreement with its analysis and conclusions” (Moneyval, 2018[6]). Furthermore, it may be because of their limited involvement in the process. The report noted that the NRA appeared to conduct most of the analysis, with other competent authorities in the NRA process providing information, although limited involvement in the analytical process or in drafting the conclusions. In short, this led to the assessment that “the appreciation of ML/FT risk in the financial sector is not commensurate with the factual exposure of financial institutions (FIs) in general, and banks in particular, to the risk of being misused for ML and FT” (Moneyval, 2018[6]).
The report highlighted international cooperation as a positive area, whilst noting that it constitutes a critical component of the country’s AML/CFT system. It assessed that “Latvia demonstrates many of the characteristics of an effective system in that area. Overall, the Latvian authorities proactively cooperate with foreign counterparts, effectively providing and seeking not only mutual legal assistance (MLA) but also exchanging financial intelligence and engaging in joint investigations and cooperation meetings with positive results,” (Moneyval, 2018[6]). In relation to financial Intelligence the report noted that all competent authorities claimed they had good access to and make use of the available sources of material to support their analytical and investigative activities. However, the quality of Financial Intelligence Unit (FIU) analysis was deemed unsatisfactory by some law enforcement authorities (LEAs).
The report noted that Latvia had a sound legal system and institutional framework for the investigation and prosecution of Money Laundering (ML). It was acknowledged, however, that while it had a sound and broad legal system for confiscation of criminal proceeds, it was noted that non-conviction-based confiscations are more encouraging than those based on conviction6. In individual cases, Latvia can demonstrate effective repatriation of large amounts of confiscated proceeds of crime to third states, as well as, in a domestic context, the restitution of victims of economic crime. Another area where confiscation is difficult relates to the confiscation of undeclared or falsely declared cross-border movement of currency and bearer negotiable instruments (BNIs). The former being identified as an area of concern, given that smuggling was identified as one of the main ML risks in Latvia.
OECD Working Group on Bribery in International Business Transactions 2019
The Phase 3 report on Latvia by the OECD Working Group on Bribery is also pertinent here, as it evaluated and made recommendations on Latvia’s implementation and enforcement of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and related instruments. Within this report, the working group highlighted the risks of economic and financial crimes in Latvia, highlighting how shell companies are often used to move illegal funds through Latvian banks into the international financial system. The working group made a pertinent observation that “Latvia’s enforcement results should be more commensurate with the country’s exposure to foreign bribery and subsequent money laundering risks” (OECD, 2018[12]). They reported that “none of the foreign bribery allegations that surfaced to date have reached the prosecutorial stage in Latvia” (OECD, 2018[12]) 7. The allegations involve both Latvian individuals and companies paying bribes to foreign public officials and cases where Latvian banks and other corporate entities have been used by non-Latvian companies to channel bribe payments and subsequently to launder them.
The assessment also found that while the Latvian authorities are handling a larger number of money laundering cases, the conviction rate is yet to follow this increasing trend. It further noted that there were legislative deficiencies regarding the foreign bribery offence. Like the previous assessment discussed above, this report also reported the lack of resources, especially within the Public Prosecution Office and the State Police, and assessed that more training was required. The report acknowledged that efforts have been made to enhance the FIU’s operational capacity and typologies and that legislation had been enhanced, alongside improvements in the regulatory framework, to prevent money laundering in the financial sector. In the context of international cooperation, the report noted Latvia’s positive role in providing timely mutual legal assistance to foreign countries in foreign bribery cases and in upgrading of the confiscation regime.
While these latter three documents largely come from the perspective of the threat and implications of economic crime in Latvia, they demonstrate consistency in relation to the foundation documents in regard to some of the continued challenges that exist in relation to economic crime investigation, for example around issues such as, lack of expertise, resources, training, an increased number of cases but yet to be seen in increased conviction, and an increasing cross border dimension too many of the cases. These issues will be further discussed in the next chapter.
Conclusion
This chapter summarised the key documents available pertaining to the investigation and prosecution of economic crimes in Latvia, and the threat they pose to national security and the economy. On a positive note, and when viewing the reports chronologically, it is evident to see that some recommendations of previous reports have been implemented. In contrast, however, some core issues continue to be highlighted despite being mentioned in whole or in part consistently in the myriad of reports. It is also worth noting a limitation of these documents is that despite criticism and benchmarking, there is limited, if any, detail provided about the Latvia metrics of what is deemed good or bad in the national context. This is significant in a gap analysis, as it is difficult to determine the parameters between acceptable or unacceptable. The next chapter in presenting the findings from the interviews aims to provide more nuance in this regard, not by providing the metrics of such assessments, but by framing the assessment and ongoing challenges better in the context of economic crime investigation more broadly, to better calibrate the recommendations with context.
References
[5] Government of Latvia (2019), The National Security Concept (informative section), https://www.mod.gov.lv/sites/mod/files/document/NDK_ENG_final.pdf (accessed on 27 April 2022).
[1] LSM (2019), “Latvia abandons “regional financial hub” aspiration / Article”, https://eng.lsm.lv/article/economy/banks/latvia-abandons-regional-financial-hub-aspiration.a309655/ (accessed on 25 April 2022).
[7] Moneyval (2018), Anti-money laundering and counter-terrorist financing measures. Latvia Fifth Round Mutual Evaluation Report, https://rm.coe.int/moneyval-2018-8-5th-round-mer-latvia/16808ce61b (accessed on 25 April 2022).
[4] OECD (2021), Performance of the Prosecution Services in Latvia: A Comparative Study, OECD Publishing, Paris, https://doi.org/10.1787/c0113907-en.
[8] OECD (2018), Implementing the OECD Anti-Bribery Convention–Phase 3 Report Latvia, https://www.oecd.org/daf/anti-bribery/latvia-oecdanti-briberyconvention.htm (accessed on 25 April 2022).
[6] Putniņš, T., A. Sauka and A. Sauka (2014), “Measuring the shadow economy using company managers”, Journal of Comparative Economics, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2423253 (accessed on 25 April 2022).
[3] State Audit Office of Latvia (2020), Summary of Key Audit Findings and Recommendations. Does the operation of the Prosecutor’s Office of the Republic of Latvia require any improvements?.
[2] State Audit Office of Latvia (2017), Is pre-trial investigation of the State Police of Latvia effective?.
Notes
← 1. An amendment to allow for termination has been made to the Criminal Procedure Law, coming into effect in January 2021.
← 2. Not all recommendations are discussed herein.
← 3. At present, some forensic services are provided at the regional level, but others are only available at the central level.
← 4. Not all recommendations are discussed herein.
← 5. These were included in the amendments that came into effect in January 2021.
← 6. Interview No. 17.
← 7. Three foreign bribery investigations were ongoing at the time the report was being written.