1. Investigation and Prosecution of Economic Crime in Latvia: Framing the Problem and Existing Challenges
This chapter introduces the context in which this report is situated and outlines the importance of a professional and robust investigation and prosecution process into economic crime in Latvia. It sets this context by framing the problem and challenges that currently exist in Latvia at present, before briefly outlining the background to the study, the methodology and approach taken. The chapter also sets out how the gap analysis was conducted, benchmarking standards against extant literature and good practices identified pertaining to economic crime investigations.
The Latvian Parliament prioritise economic crime investigations in Latvia at the official state level, as evident in the National Security Strategy 2019, recognising the threats posed by the exposure to economic crimes for the national economy (Government of Latvia, 2019[1]). This influenced, in part, a recognition of the need to strengthen the capacity of law enforcement institutions to detect and investigate economic and financial crimes. This has been an impetus to this report, which serves to support the Latvian State Police in this area by identifying the gaps in the criminal justice system (CJS) where they pertain to the successful investigation and prosecution of financial crimes. It does this by reviewing the current state of play in Latvia and in the broader landscape relating to the investigation and prosecution of economic crime more generally, drawing extensively from previous reports that explored this topic over the last ten years in Latvia and elsewhere.
In early 2021, the State Audit Office of Latvia highlighted that the investigation and prosecution of economic crime required greater attention, specifically calling on the investigating institutions and the Prosecutor’s Office to cooperate more closely in relation to the efficient investigation and prosecution of financial and economic crime (State Audit Office of Latvia, 2021[2]). They further noted that the “quickest and most efficient investigation and prosecution of financial and economic crimes depend mainly on the effectiveness of pre-trial investigations and the quality of public charges brought to court” (State Audit Office of Latvia, 2021[2]). This observation reiterated what was identified in previous audit reports, and other reports directly or indirectly examining the investigation and prosecution of economic crime in Latvia that had previously been conducted. Observations made in other reports, but reiterated in the 2021 report, included challenges such as excessive workloads of investigators and prosecutors, lengthy investigations and trials, the lack of a common understanding of law enforcement, uncertainty about the most important circumstances that needed to be proved, and the set of evidence necessary for proving the guilt for various types of criminal offenses (State Audit Office of Latvia, 2021[2]).
On a positive note, and at a similar time as the State Audit Office made its recommendations, long overdue amendments were made to the Law on Criminal Proceeding, which were adopted in November 2020, and came into force in January 2021. Much of these amendments focused on facilitating the investigation of money laundering cases and speeding up related criminal trials (Vaisla and Petrov, 2020[3]). These amendments, in part, were a response to criticism made in previous reports that examined this area, such as the State Audit Office report 2017, the OECD Report–Performance of the Prosecution Services in Latvia (2021, and the Fifth Round Mutual Evaluation Report (2018) and were based on a perception that there was an apparent lack of significant successful prosecutions relating to economic crime (State Audit Office of Latvia, 2017[4]; OECD, 2021[5]; Moneyval, 2018[6]). For example,
“According to the data provided by the State Police to the State Audit Office (Latvia State Police, 2019), in 2018, less than 13% of the criminal proceedings in the records of the Economic Crime Combating Board of the State Police (i.e., 74 criminal proceedings out of 587 pending criminal cases) were sent for prosecution, 10% in 2017, and 13% in 2016 (Latvia Court Administration). The Ministry of the Interior has pointed out the problem in its submissions to the government that only 12 out of 399 money laundering criminal cases were prosecuted between 2013 and 2016, and judges often criticise even those cases that go to court because there is a lack of sufficient evidence to reach a judgement of conviction at the same time (Ministry of Interior, 2018). Research by the State Audit Office suggests that an insignificant number of criminal cases have been initiated in courts for money laundering during the last decade, namely, 95 cases, of which 57 cases (or 60%) have been resolved. There was a judgement of conviction given in 39.5% of cases and a judgement of acquittal given in 7% of cases (Ministry of Interior, 2018)” in (OECD, 2021[5]).
While these figures look very concerning from the point of view of mitigating the risks of such crimes on the economy of Latvia and on its people, nuance is often required when interpreting such numbers. The report seeks to provide this level of refinement and insight exploring the ongoing challenges regarding the proper and effective investigation and prosecution of economic crime. Building on what has been written on this topic in Latvia to date, it aims to conduct this gap analysis within the backdrop of a growing recognition that economic crimes are amongst the fastest growing criminal threat in Europe and are often some of the most difficult to prosecute (Europol, 2020[7]). The European Council also noted this, stating that “many investigations come to a dead end because of failure to secure timely, accurate and comprehensive access to the relevant financial data” (European Commission, 2018[8]), which reflects the extant literature (Ligeti and Franssen, 2017[9]). The number of prosecutions and convictions for such crimes globally, are, in fact, low (Ligeti and Franssen, 2017[9]). Understanding the broader context in which economic and financial crime is committed and the drivers behind it is important in understanding the current challenges presenting in Latvia.
Economic and financial crimes are often highly complex and pose a significant threat to the economy and financial sectors and have routinely been committed in tandem with other criminal activities. The financial aspects often range from simple fraud to more large scale and highly sophisticated operations, often combining licit and illicit financial transactions. This confluence of legal and illegal activities and actors results in complex and challenging conditions for investigations and subsequent prosecutions to take place. Moreover, through the exploitation of legitimate business opportunities, these crimes often go undetected. It is this, coupled with the complexity and sophistication of these crimes, and growing level of technical innovation and digitalisation within them, that can make them both hard to detect and investigate, for Latvia and other nations.
Europol noted in 2020 that “despite all measures taken to combat economic and financial crimes, opportunities for these types of crimes have increased as the market for legal financial services has diversified and technology continues to change the way and speed of how financial transactions occur” (5). These elements present a very conducive environment for economic crimes to be committed with limited chance of detection, never mind prosecution. As a result, they are what many see as low risk and high profit. An interesting observation in the literature in this regard is that “the capacity of the criminal justice system to control crime may be diluted by an increase in crime rates, which then causes a reduction in the likelihood or severity of punishment–resulting in further increases in crime” (Machin and Marie, 2014[10]). Thus, in the backdrop of increasing rates of economic crime across the world, the recent reported increase of economic crime cases reported in Latvia may in fact be directly reducing the likelihood of prosecution, rather than the direct result of mal or improper practices. Not that improvements to existing challenges in Latvia would have no impact, rather it may help to understand why, despite implementation of many of the recommendations of previous reports in this area, only a limited impact has been achieved.
This presents an immense challenge for law enforcement in Latvia, and across the world, especially post COVID-19, in which Europol asserts that there will be a continued increase in the number of cases involving economic crime (Europol, 2020[7]). To respond, Europol note that “successful law enforcement actions against these complex schemes require close international cooperation across several jurisdictions, often involving non-cooperative offshore tax havens, as criminals operate without regard for international borders” (Europol, 2020[11]). The ability to work well with the international law enforcement community is therefore very pertinent in Latvia, given that many of their cases have a cross border dimension (Moneyval, 2018[6]; OECD, 2018[12]).
It is within this backdrop that this report positions itself, one which requires careful attention as to the distinction between challenges that are specific to Latvia as they pertain to economic crime investigation and prosecution, and those influenced by the nature and characteristics of economic crime more generally. It builds on the State Audits Office’s recommendations and those made in the other aforementioned reports, the legislative changes, the desire of the State Police of Latvia to increase the number of successful prosecutions relating to economic crime (See Box 1.1), whilst being mindful of the broader context in which these cases emerge.
Strategy of the Ministry of the Interior State Police for 2020-2022. 3.3. Sector of action: Prevention of and fight against crime - Decrease level of crime (including economic crime); State Police Action and Development Strategy for 2021-2022. Fight against crime. Purpose of the activity: Improve the speed and quality of pre-trial investigations in the fight against crime. (Including economic crime)
Source: Provided by the State Police to the author.
The report also seeks to provide insights into why many of these long-standing issues remain despite numerous reports referencing their existence, and significant action taken to address them, with a view of generating recommendations to support sustainable improvements in both the investigation and prosecution of economic crime in Latvia. It is time for a new approach if real change is desired, however, as Braga and Dusseault proclaimed, “it is time for a period of innovation in the work of criminal investigators that develops their potential for controlling crime rather than handling only the cases that come their way.” (Braga and Dusseault, 2016[13]).
The OECD is currently implementing a project on increasing effectiveness and quality of the economic crime investigations in Latvia. This research is conducted to support the implementation of this project, motivated by a desire to better advise the State Police of Latvia on how to increase the number of successfully prosecuted economic crimes. The research takes the form of a gap analysis, which will inform recommendations and specific actions to improve cooperation and coordination mechanisms in Latvia among the State Police departments (Economic Crime Enforcement Department, Forensic Service Department, and regional departments), involved in economic crime investigation, and also between the State Police and other institutions (Prosecution Office, Corruption Prevention and Combating Bureau of Latvia, State Revenue Service).
To do this, it considered the level and quality of cooperation and coordination on investigations and handling of evidence for such crimes as the circulation of illegal goods and illegal circulation of excise goods, and economic crimes that have a direct negative impact on the business environment in Latvia. In doing so, it aims to identify the process by which investigations within the State Police are triggered, investigated, and sent forward for prosecution, with the view to identifying opportunities along this process to increase the number of successfully prosecuted economic crime cases. It also explores the internal regulations and practices in place both in the police and prosecutors and identifies challenges and practical factors that impede economic crime cases either being transferred for prosecution or terminated.
The information considered for this study stemmed from two key sources, available literature, including reports and interviews. First, a review of literature on economic crime investigation pertaining to Latvia was conducted. A systematic approach was used to assess the quality and relevance of the literature found. Similar to expectation only limited academic journal articles relevant to this study were discovered, most which did not specifically relate to economic crime in Latvia. To supplement this, grey literature, such as reports, policy documents, oversight assessments, were also included in this review1. A variety of documents were deemed relevant and were included in the analysis, as set out in Chapter 2.
Second, and to further enhance the robustness of this report, 21 interviews were conducted with a range of experts involved in economic crime investigations in Latvia. A purposeful sampling method was used to identify suitable interviewees, who were selected primarily based on their expertise and knowledge in the area. These interviews were used to gain first-hand insights into the current state of play in economic crime investigation and prosecution. The interviews were conducted remotely throughout the period of June and October 2021, via Zoom or Microsoft Teams. Based on the information provided in the interviews, several special requests were made for supplementary information after the interview. This material was used to support the assertions made throughout the interviews and to explore some identified challenges as set out in the key reports. These requests predominately pertained to statistical information and clarification on factual material.
Once the documents were reviewed and interviews conducted, an analysis of the information was carried out to determine the extent of the existing gaps in coordination and cooperation regarding the investigation of economic crime cases. Based on these findings, additional interviews were conducted with representatives from peer countries to assess the current state of play in Latvia vis-à-vis their own national experience2. This information was then used to further assess the extent of the gap in Latvia at present. The time and information provided by all was very much appreciated as it provided substance and context to this report. There was a good gender balance to the interviewees (approximately 50%) but also across the institutions represented and positions held. Not only is this positive for the research but serves also to show the representation of women in the investigation and prosecution of economic crime cases in Latvia. Quality control activities were conducted during this report. Once an agreed draft was reached, this was shared with several key individuals for their critique and feedback. Their suggestions and comments were assessed and added to the final version of the report, where appropriate.
The report is structured as follows: first, it brings together the key recommendations made on the information analysed throughout the report in an Assessment and Recommendations section, which sets out a range of specific, actionable recommendations, which are offered to further improve the performance of the Latvian State Police regarding economic crime investigation. These are based on conclusions drawn from the research conducted. It then begins with an overview of the investigation and prosecution process into economic crimes in Latvia, exploring the actors, processes and practices pertaining to such investigations, and the nature and type of crimes that are most commonly associated with economic crime investigations in Latvia. It also provides a brief statistical overview of the extent of the problem.
The third chapter provides a high-level synopsis of key documents that include previous assessments of existing challenges pertaining to criminal investigations in Latvia. Some are general to all crimes, while others are more targeted at economic crime, but equally provide an important context to this study. The chapter summarises the key findings of these reports and the relevant recommendations made.
Chapter four builds on these by drawing insights from the interviews to give a more up-to-date picture of the current state of play, specific to the investigation and prosecution of economic crimes in Latvia.
Chapter five draws further on the previous chapters and extant literature highlighting a selection of gaps that require attention and that may benefit from improvements. A small selection of international cases is used to contextualise examples of good practice but are not an exhaustive list. The selection of good practices was based on the assessment of the existing challenges pertaining to the proper investigation of economic crime cases in Latvia and known examples that may help address these. The characteristics of the problems identified were used to assess the merits of the approaches exemplified. This was conducted to ensure the mechanism behind the success of the recommended actions addressed the problems highlighted during the study.
References
[13] Braga, A. and D. Dusseault (2016), “Can Homicide Detectives Improve Homicide Clearance Rates?:”, https://doi.org/10.1177/0011128716679164, Vol. 64/3, pp. 283-315, https://doi.org/10.1177/0011128716679164.
[8] European Commission (2018), Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL laying down rules facilitating the use of financial and other information for the prevention, detection, investigation or prosecution of certain criminal offences and repealing Council Decision 2000/642/JHA {SWD(2018) 114 final}-{SWD(2018) 115 final}, https://www.europol.europa.eu/newsroom/news/does-crime-still-pay (accessed on 27 April 2022).
[11] Europol (2020), Economic Crime, https://www.europol.europa.eu/crime-areas-and-statistics/crime-areas/economic-crime (accessed on 25 April 2022).
[7] Europol (2020), Enterprising criminals Europe’s fight against the global networks of financial and economic crime EFECC European Financial and Economic Crime Centre, Europol, https://www.europol.europa.eu/cms/sites/default/files/documents/efecc_-_enterprising_criminals_-_europes_fight_against_the_global_networks_of_financial_and_economic_crime_.pdf (accessed on 25 April 2022).
[1] Government of Latvia (2019), The National Security Concept (informative section).
[9] Ligeti, K. and V. Franssen (2017), Challenges in the Field of Economic and Financial Crime in Europe and the US, Hart Publishing, https://doi.org/10.5040/9781509908066.
[10] Machin, S. and O. Marie (2014), Lessons from the economics of crime | VOX, CEPR Policy Portal, https://voxeu.org/article/lessons-economics-crime (accessed on 25 April 2022).
[6] 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).
[5] OECD (2021), Performance of the Prosecution Services in Latvia: A Comparative Study, OECD Publishing, Paris, https://doi.org/10.1787/c0113907-en.
[12] 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).
[2] State Audit Office of Latvia (2021), The State Audit Office calls on the investigating institutions and the Prosecutor’s Office to cooperate closely | Valsts Kontrole, https://www.lrvk.gov.lv/en/news/the-state-audit-office-calls-on-the-investigating-institutions-and-the-prosecutors-office-to-cooperate-closely (accessed on 27 April 2022).
[14] 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?.
[4] State Audit Office of Latvia (2017), Is pre-trial investigation of the State Police of Latvia effective?.
[3] Vaisla, E. and S. Petrov (2020), AML cases in Latvia: fragile balance between facilitation of the proceedings and the rights of the person | NJORD Law Firm, https://www.njordlaw.com/aml-cases-latvia-fragile-balance-between-facilitation-proceedings-and-rights-person (accessed on 25 April 2022).
Notes
← 1. The inclusion of this material, whilst informative, also mitigates the risks or disadvantages associated with an over reliance on one particular source of information. For example, academic journals which are often subjected to ‘publication bias’, timeliness and relevance. The time to complete the publication cycle for such articles can mean the documents do not stay pace with trends and patterns. With economic crime, this is a limitation, as the evolution of this crime type continues to evolve at a pace which the relating literature has not maintained. In contrast, an overreliance on the grey literature, governmental or non-governmental open-source material, for example, can also be problematic. These documents often lack the analytical rigour of academic research, which can make it difficult to determine the level of confidence one can have in the findings. Thus, including a wide range of documents helps to mitigate many, although not all, of the limitations of depending on either as a single source.
← 2. Interviews were held with individuals from the US and United Kingdom.