Russian investment in the Baltics -- by "whitelist" only

It's beginning to look like 1995 all over again. That was the year that Banka Baltija, Latvia's largest bank at the time, was destroyed by economic crime. In fact, looking back, the whole bank was the economic crime. It was probably never intended to be anything else. The case with Latvijas Krājbanka or the The Latvian Savings Bank, is not identical. For one thing, Krājbanka has historically been around since 1924. During the Soviet era, it was one of the few institutions where private persons could keep their money on deposit. After Latvian independence, it was privatized in 2003 and in 2005 Krājbanka was acquired by Lithuania's Snoras Bank. Snoras Bank, in turn, was owned by Vladimir Antonov, a Russian “investor” now suspected of looting both Snoras and Krājbanka, who also attempted to buy Sweden's Saab.

Like Banka Baltija, Krājbanka's customers were mostly private persons. On its home page, the bank says it is (was now) one of the largest providers of financial services to private persons. When Banka Baltija crashed, tens of thousands of Latvians lost their often meager savings, which they had been criminally lured into depositing with the bank. Krājbanka's customers entrusted their money in good faith to a bank that had, in fact, worked as some kind of functioning bank for over 80 years. In short, the bank did what it promised its customers, up to some as yet indeterminate point at which Antonov started influencing the operations of Snoras and Krājbanka with criminal intent.

Whatever the sequence of events, the effects of deliberate looting and deception are being felt – thousands of customers have had their savings thrust into limbo (theoretically, they are covered up to EUR 100 000, but the payout will take time) and hundreds of businesses and government and municipal institutions. The total cost to society will be in hundreds of millons of LVL, including businesses ruined by the crash, small municipalities losing most of their funds and further unemployment triggered by all of this.

In some cases, the losses have been staggering. The Latvian State Radio and Television Center had more than LVL 24 million on deposit at Krājbanka, having chosen the bank as offering the best and safest terms for holding this amount of money. This is now lost, especially as Krājbanka is likely to be liquidated. The famous Latvian composer and musician Raimonds Pauls has lost most of his savings of some LVL 700 000 on deposit with Krājbanka. It also looks like significant funds – something like LVL 70 000 may have been put on deposit by the Latvian Filmmaker's Union.

Recriminations are already starting, just as they did when Banka Baltija fell apart. The Financial and Capital Markets Commission, Latvia's banking watchdog, is being blamed for missing the signs (or looking the other way) when it should have seen the shady deal in August that plundered Krājbanka of funds, diverted, it is said, to Antonov's private projects, including his attempts to buy Saab.

All things considered, though, it is impossible for any regulator or watchdog, no matter what resources it commands (such as the Securities Exchange Commission/SEC in the US) to double check on everyone, especially when criminals ar lying. Banka Baltija founder Aleksandrs Lavents and his managers lied systematically to auditors, who had neither the duty nor the capability to test every number and assertion offered by the bank with a lie detector. The Krājbanka case was different, but at some point, most likely due to the actions of Antonov, the bank turned into a fraud against its customer.

Moreover, Antonov's behavior seems to fit into a pattern of criminality and fraud by Russian so-called investors, who have either earned their money by some form of crime at home, investing the spoils of plundering and corrupting Russia into relatively benign Western businesses, or who are simply taking the worst of so-called Russian business practices into the West, like a gang of Wild West bandits riding into town on money bags rather than horses.

Antonov seems to fit into the latter pattern, making destructive “investments” in Lithuania and Latvia, attempting to get a foot in the door at Saab (hindered, at least, by the Swedish authorities who were aware of his possible organized crime connection). Antonov's father Alexander survived a shooting, an incident that casts light on what his lines of business were and possibly still are.

At the end of the day, the impact of the Krājbanka collapse will probably be less dramatic than Banka Baltija and far less than Parex Bank's collapse in 2008, which cost the government around LVL 1 billion in bailout spending and almost made the country an international basket case (when the basket says IMF on it, it is just a temporary resting place until your limbs grow back). Parex Bank's collapse also has elements of criminal sleaze, but it was done by locals and perhaps with a bit more sophistication. There is a difference between getting rich owning a bank that earns money serving shady characters and doing for them (as well as its other customers) what it promises to do, rather than breaching its trust to depositors and customers and simply stealing or squandering their money. In any case, the full story of Parex and various criminal and semi-criminal activities may yet emerge.

What all this suggest that with the Baltic countries being of particular interest to Russian based criminal “investors” such as Antonov, it is time to take targetted action. To be sure, there are examples of Western fraudsters and financial criminals, from the people running Enron to Bernie Madoff. But these guys eventually go to jail in the US and other Western countries, they do not move to London and buy football (soccer) clubs when rival gangs in Russia star breathing down their neck, or when their gang falls out of favor with the Russian political elite and the secret services.

I would suggest that Russian investment in the Baltic countries be allowed on a “whitelist only” basis – that is, to put you money into any project in these countries (and why not the US as a whole), any person whose investment capital was accumulated in Russia (meaning any wealthy Russian citizen) shall be barred from significant investment in any enterprise except if he or she is on a “white list” of investors who have been thoroughly background checked and vetted to be as clean as possible of any criminal or Russian secret service ties.

Whitelisting would be fair to Russians who want to put largely honestly earned funds into legitimate businesses in the Baltics, but it would create a presumption borne out by events, that the Russian post-Soviet super-rich are not to be trusted and probably, by conscious intent or instinct, engage in barbarous business practices. It may be the only way to prevent a Banka Baltija 3.0, now that Krājbanka may prove to be a Banka Baltija 2.0 (Not So ) Lite.