AMBASSADOR'S MEETING WITH PM ON 311 DESIGNATIONS

C O N F I D E N T I A L SECTION 01 OF 02 RIGA 000552

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/12/2011
TAGS: EFIN PREL ETRD PHUM KCRM LG
SUBJECT: AMBASSADOR'S MEETING WITH PM ON 311 DESIGNATIONS
AND COCA COLA

REF: RIGA 528

Classified By: Ambassador Catherine Todd Bailey. Reason 1.4 (D)


1. (C) Summary: Latvian Prime Minister Kalvitis greatly
appreciated an advance briefing by Ambassador Bailey July 12
on U.S. Treasury decisions to sanction one Latvian bank for
taking insufficient measures to combat money laundering and
to lift the threat of sanctions on a second bank, bringing
closure to a year long process. Ambassador Bailey stressed
that the decision was balanced and included strong
acknowledgement of the efforts of the GOL on this issue.
Kalvitis and the Ambassador agreed on the need to stay
vigilant in Latvia's financial sector. The Prime Minister
also agreed to help facilitate contacts between the GOL and
Coca Cola on proposed regulations that could harm Coke's
business in Latvia. The PM was a bit more reserved than
normal, after being up late the night before at a marathon,
pre-summer holiday cabinet session. End summary.


2. (U) Ambassador Bailey met with PM Kalvitis the morning of
July 12. Kalvitis was joined by his foreign policy advisor
Peteris Ustubs. Pol/econ chief (notetaker) accompanied
Ambassador Bailey.


3. (C) The Ambassador informed the Prime Minister of the
decision by the U.S. Treasury to bring to a close the process
begun last year when VEF and Multibanka banks had been
designated as institutions of concern for money laundering
under section 311 of the Patriot Act. Upon completion of the
review, Treasury had decided to lift the proposed rule on
Multibanka and to finalize the rule on VEF. This information
would be made public later in the day. The Ambassador
stressed that this was a balanced decision, and a good one
for Latvia. The decisions and accompanying press releases
from both Treasury and the Embassy would note the significant
progress made by the Latvian government to improve the legal
and regulatory framework for the financial sector in Latvia.
The decisions would also note the efforts by both banks to
address the areas of concern. In the end, VEF's ownership
remained an area of particular concern. Ambassador Bailey
stressed the need for the GOL to remain vigilant and to make
active use of the new tools provided in legislation to ensure
that other banks in Latvia could not become conduits for
money laundering or financing of terrorist operations. In
particular, it was important to know where money from
accounts closed at one bank is moving to next. She urged the
PM to make these points to his government and in his public
comments.


4. (C) The Prime Minister expressed his appreciation for the
advance notice and for achieving closure on this issue. He
agreed on the need to remain vigilant and to make full use of
the new legislative authorities granted by Parliament over
the past year. In response to a question from him,
Ambassador Bailey clarified that VEF could apply for a review
of the rule at a future date when they had taken steps to
address our concerns, especially on ownership. Ustubs noted
that both banks had been given the same opportunity to get
out from under the problem and only one appeared to take it.


5. (SBU) Ambassador Bailey, noting our continued frustrations
with Health Minister Berzins on a range of issues, raised the
proposed regulations that would harm Coke's business in
Latvia (reftel). See said that Coke wants to be a good
corporate citizen and shares the GOL's goal of improving the
health of schoolchildren, but cannot even get a meeting at
the Ministry of Health. The Prime Minister, while noting
that the rule in question was not yet final, said he would
talk to "my friend" the Health Minister.


6. (U) On education, the Ambassador stressed the success we
were having in building private-public partnerships to help
get Latvian students to the U.S for college. Four would be
going this year and fifth early in 2007 through one such
program and she appreciated the PM's willingness to meet with
them before they left. She urged Kalvitis to find ways to
increase his government's support for these kinds of efforts.


7. (C) The Prime Minister raised the gay pride march planned
for July 22, which has drawn much negative press and public
comment. He said that the week before the parade would be
"tough" politically and that this was a difficult issue in an
election year. (Comment: One party, currently part of
Kalvitis' coalition, is making opposition to gay rights a
central issue in its election campaign. End comment.) He
said he would be meeting later in the day with the security
services to hear their views on a location and security for
the event. The Ambassador stressed that it was important to
Latvia's efforts to build an inclusive, tolerant society that

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values freedom of speech that the march be allowed to go
forward, with appropriate (i.e. not excessive) security.
Noting that the march was only a small part of a larger
program that included seminars and a film festival, she urged
the Prime Minister to work with local groups to ensure that
this could be become a win for both the groups and the
government and perhaps even build additional opportunities
for tourism in Latvia.


8. (C) Comment: Kalvitis was more reserved than normal.
Ustubs said there was a late night cabinet session the
previous evening on budgetary issues before ministers begin
to head out of Riga for the summer. Nevertheless, the PM was
appreciative of our consultations on the banks. That a
decision would be forthcoming was not a surprise and he
seemed pleased that we highlighted in our public comments
what the GOL was doing right on this issue. Over the last
year, he and his government have taken this issue seriously
as they seek to develop Latvia as a credible regional
financial center. We will need to keep them focused on
making full use of the new regulatory authorities granted in
the aftermath of our original designation of the two banks.
On Coca-Cola, we are cautiously optimistic that the Prime
Minister's involvement will help break the current slow pace
of cooperation from the Health Ministry. End comment.
Bailey