Risks of greylisting: the experience of Latvia

• In Event: Twenty Years of Membership in the EU: Economic Developments in the Baltic states

Abstract

The reliability of the financial sector is one of the important prerequisites for the successful economic growth of any country. Deficiencies referring to money laundering, terrorist financing, and proliferation financing may lead to the inclusion of the country in the grey list of the FATF, posing serious barriers to the further economic development, including restricted access to the international financial markets, decrease in foreign direct investment, increased transaction costs, reputational risks etc. Historically Latvia has been a regional financial center, providing financial services not only to the residents of Latvia, but also to the non-resident customers, mainly from the CIS countries. In 2018, the relatively low assessment from the Moneyval as well as the potential risk of greylisting has led to the considerable changes of the financial sector, including the change of business models of a number of commercial banks in Latvia. Due to the timely actions, Latvia was not greylisted. The aim of the paper is to analyze the experience of Latvia in managing the risks of greylisting. The findings of the paper are important for the policy makers, supervisory authorities, and the financial sector of other countries as a number of countries are currently greylisted or are facing the risk of greylisting.

Authors

• Inna Romānova, University of Latvia

• Jan Körnert, University of Greifswald