The Emperor's Court Date (Akenfelds on the Issues)

This week, Australian-born Latvian citizen Kris Akenfelds is back for another edition of his "Akenfelds on the Issues" column. Do you remember how we reported about about that Australian guy who flew from Cambodia to Tokyo, Japan to attend the Latvian Embassy in Tokyo so he could vote in the Saeima Elections? That was him, and he's here this week to tackle Latvia's intractable problem with corruption. The opinions expressed in this column are not those of Latvia Weekly's.

Image Credit: SalFalco, via Flickr 

“To violate the law is the same crime in the emperor as in the subject”. 

It’s an old Chinese proverb, certainly to be praised for its wisdom, but its message is one that seems to have been rather slow to reach the Baltic shores of Latvia.

There’s no denying that a re-emergent Latvian nation did not get off to the best start. Having thrown off the shackles of the illegal Soviet occupation regime in 1991, it inherited many of the Soviet system’s woes. That would include its leadership. It would not be reasonable for anybody to expect that Latvians could simply flick a switch and turn their country into an overnight bastion of democracy and rule of law. Reforms always take time and Latvia has been no exception to that fact. Thirteen years after regaining independence, the rating accorded to Latvia by Transparency International in their 2004 Corruption Perceptions Index placed Latvia as the fifth most corrupt country among the current 28 members of the European Union.

Fourteen years after that report, we find the Business Anti-Corruption Portal – a service funded by Sweden, Austria, Germany, Norway, the United Kingdom and the European Commission – stating in their July 2018 update that corruption is a problem for businesses operating in Latvia, and that demands for bribes and other irregular payments are pervasive. The report opines that anti-corruption laws in Latvia are not effectively implemented. The report further alleges that judges in Latvia have expressed significantly more concern than their European peers about threats of disciplinary action based on the way they adjudicate cases, and Latvia has also been criticized for delays in the prosecution of complex criminal cases. This is said to apply in particular to high-level corruption, where only a few cases have been resolved. Meanwhile, convictions in corruption cases have generally been reached in cases involving mid-level to low-level officials and transactions of a modest amount.

Indeed, a cynic might be tempted to conclude that the “emperors” in Latvia have been getting away with an awful lot for a very long time.

Earlier this month, the Latvian media waxed aglimmer with the news of allegations by the Central Anti-Corruption Bureau of Poland that a Polish company had been paying bribes to officials at the Rīga City Council’s transportation company, Rīgas Satiksme. This had been going on ostensibly in order to obtain contracts to sell buses to the city with an unfair advantage over their competitors. Since that news broke, several people have been arrested in both Poland and Latvia. The Vice Mayor of Rīga City Council has dumped his job. Meanwhile the Mayor of Rīga, Mr Nils Ušakovs, seems to be acting as if butter wouldn’t melt in his mouth, as the President of Latvia, Mr Raimonds Vējonis, calls for Ušakovs to resign.

Corruption is an evil snake. There is nothing positive that comes from its fangs. It shakes the foundations of a nation’s legal system, obliterates investor confidence, damages the economy, and – as always – it’s the little people who end up paying for it while bad men and women buy luxury apartments in Monaco. It should be the aim of law enforcement agencies in all countries to hit corruption on the head with an iron mallet every time its ugly face makes an appearance in the light of day.

So why didn’t the Latvian law enforcement authorities tackle the Rīgas Satiksme bribery problem over a decade ago? It was no secret that something funny was going on.

In fact, an American-born Latvian citizen called John Christmas says that he notified Latvian authorities in 2005 that Parex Banka, where he had worked as the head of International Relations, had given a loan equivalent to 30 million euros so that Rīgas Satiksme could purchase buses from a Polish company called Solaris Bus and Coach SA. However, that loan was of such an amount that it violated the bank’s regulatory lending limit as set out by FKTK, Latvia’s Financial and Capital Market Commission, which requires that a bank must not lend an amount exceeding 25% of equity to one borrower group.

John Christmas, Parex Bank whistleblower

Mr Christmas states that the first violation that he became aware of occurred in 2002 in regard to loans made by Parex Banka to Riga City and its subsidiaries. At that time, he claims that the Association of Latvian Commercial Banks was aware of the violation and that it “caused some controversy.” Indeed, the Parex Banka 2003 financial report held at Latvijas Republikas Uzņēmumu Reģistrs (the Company Registrar) reports a loan made to Rīgas Satiksme on 3rd January 2003 that appears to represent 28.1% of equity. Again, on 31st December 2004, that year’s financial report reports a loan that appears to be 30.3% of equity. Mr Christmas goes on to state that Parex Lending Divison ended up splitting the balance of the total loan to Rīgas Satiksme into two smaller loans. This, he believes, was to avoid creditors, investors, and rating agencies from figuring out that Parex was violating the 25% regulation. At that point in time, Mr Christmas had speculated that the loan was most probably funding bribery as there was no other imaginable reason as to why a bank would risk giving false information to ratings agencies in order to facilitate such a large loan in breach of regulations.

According to Mr Christmas, in 2005 he notified the Latvian General Prosecutor, Jānis Maizītis, the Governor of the Bank of Latvia, Ilmārs Rimšēvičs, the Minister of Defence, Einars Repše, and the Minister of the Economy, Krišjānis Kariņš. His original letter was thereafter forwarded on to FKTK, the Latvian State Police, and the State Revenue Service (VID).

Mr Christmas also provided details of the alleged fraud to Dienas Bizness, who eventually published his allegations in October 2007. No investigations were conducted into the allegations of fraud, and the police did not seek to interview Mr Christmas.

Why did information like this, provided by a Parex Banka insider, not send bells ringing and amber lights flashing in the corridors of Latvian law enforcement? 

If the Latvian Police weren’t interested, the United States Federal Bureau of Investigation was. John Christmas was interviewed by FBI agents in London about the fraud allegations against Parex Banka. That’s what law enforcement agencies do when serious allegations are made: they get the allegations on the record. Mr Christmas would eventually go on to be interviewed again about Parex Banka in Chicago by the FBI’s most senior investigator into Russian oligarch crime, Ms Karen Greenaway.

The question remains, why didn’t the Latvian police interview John Christmas?

If the information he had provided in 2005 wasn’t enough to motivate the Latvian police to get onto the job, they sure had their opportunity to swing into action in March 2010 when a document filed by the United States Department of Justice to the United States District Court for the District of Columbia on the 22nd of that month referenced the very same fraud allegations. That document made reference to information that was available as early as August 2000 that officials at Rīga City Council were demanding “under the table” payments from bus suppliers in return for large contracts being issued for inflated prices. According to the Department of Justice, these “commissions” were being paid by Solaris and the German multinational company Daimler AG in the form of sham consultancy fees, paid through two intermediary companies in the United States. The Department of Justice submission indicated some payments were going to their recipients in Rīga via Oldenburgh Financial Corporation incorporated in Delaware and some payments passed through the coffers of United Petrol Group LLP incorporated in Oregon. The implication is that some of the people who were paid these improper payments were members of the political party that controlled the Rīga City Council.

It is almost amusing to note that around that time, the “Nekā personīgi” show on TV3 in Rīga interviewed the then head of Latvia’s Crime Prevention and Combatting Unit (KNAB), Mr Normunds Vilnītis. He was asked by the interviewer about United States FBI revelations into bribes being paid to Rīga City Council officials. In the words of a freelance journalist, Mr Juris Kaža, who commented about that episode of the show, “(Vilnītis) was completely clueless about the matter”. 

Normunds Vilnītis, former director of KNAB

via KNAB's website

It would be difficult not to find oneself as perplexed as Kaža, who raised a valid question on his Thoughts from Latvia website: “How can an American law enforcement agency know more about corruption in Latvia than KNAB, the institution specifically charged with investigating… nothing else but corruption?”

Indeed, how was that possible?

What could have been holding back Latvia’s anti-corruption investigators by that point in time? The contents of the documentation served in the United States District Court was consistent with the allegations that had been made by Mr John Christmas five years earlier. That is to say nothing of how damning the evidence was. Notwithstanding, the authorities didn’t seek evidence from Christmas and took no action in regard to the bribery allegations served in court by the Department of Justice in the United States.

Given that the FBI maintains an office in Rīga, it is difficult to imagine that Latvia’s law enforcement agencies didn’t receive so much as a peep out of that office about the crimes that were allegedly being committed under the umbrella of the Rīga City Council.

This writer has sought comment from the Department of Justice in the United States as well as the Federal Bureau of Investigation and, at the time of writing, awaits their reply.

It wasn’t until 2017 that KNAB commenced an investigation into this matter in conjunction with Poland’s Central Anti-Corruption Bureau (CBA). Since then, several individuals have been arrested in Latvia and Poland, most of whom have been placed in detention. Better late than never, I guess. It is, indeed, encouraging that the current leadership of KNAB have decided not to sit this one out, as was done in the past. As to where this investigation leads will remain to be seen. 

To be sure, every dog must be entitled to their day in Court, and the onus falls fair and square upon the authorities to prove their case against the accused beyond reasonable doubt. As in any developed justice system, the accused will rightfully be afforded appeals before the people and the presumption of innocence must be upheld until such a time as a just verdict can be reached. If everybody does their job properly, staunchly maintaining their independence and impartiality, the truth should come out. 

It is high time that the Latvian “emperors” who commit financial crimes be delivered up before the guardians of justice without undue delay. Almost three decades of relentless graft and corruption has cost the average Latvian citizen untold amounts of money. Latvians are sick of it. They are absolutely fed up with it. The backlash against the mainstream parties in the Saeima elections in October this year would appear to be testimony to that.

I cannot name a single country that has been reported among the most corrupt in the world where the average person enjoys a high standard of living. On the other hand, if you take a look at Transparency International’s 2017 Corruption Perception Index, the top ten least corrupt countries reads like a "who’s who" of very desirable countries to live in, especially if you are just Joe Average. We can only hope that Latvia can one day enter that Top Ten.

If it is to be, KNAB, the State Police, FKTK, the General Prosecutors Office, and the Latvian judiciary will need to have something to do with that. 

Kristofers Akenfelds is an occasional columnist for Latvia Weekly. He hates pineapple on pizza, oligarchs, and corruption.

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