EU judges are to rule on Latvia's handling of a bribery fiasco in a test case for eurozone banking supervision.

The European Central Bank (ECB) filed the case at the EU court in Luxembourg on Friday (6 April) after Latvia banned its own central bank chief, Ilmars Rimsevics, from office on bribery allegations last month.

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The ECB brought the case to protect its independence from national politics (Photo: Michal Jarmoluk)

The move is to see the ECB's 25-member governing council meet with an empty chair in Frankfurt in April, but the EU central bank is seeking an injunction to overrule the ban in order to "preserve the normal functioning of its decision-making".

The ECB also asked the EU judges to rule "whether Latvian authorities breached European Union law" in prohibiting Rimsevics from "holding office at the Latvian central bank and exercising his functions as a member of the ECB's governing council".

Latvian authorities have accused Rimsevics of taking up to €100,000 in bribes while in office and while attending ECB meetings.

He denies the allegations and plans to contest his dismissal in the courts.

The ECB brought the case in order to protect its legal independence from national politics in the 19 eurozone states, but the affair cast a harsh light on EU anti-corruption structures.

The empty chair fiasco comes amid two other eurozone banking scandals - the forced liquidation of ABLV, Latvia's third largest lender, and Malta's suspension of Pilates Bank, also last month.

The US said in March that ABLV, which Rimsevics was supposed to oversee, was guilty of "institutionalised money laundering" to help North Korea evade sanctions.

The US accused Pilates Bank of sanctions busting on Iran, amid broader allegations of Maltese government corruption and the assassination of an investigative journalist on the island.

The US announcement on ABLV prompted a bank run and the ECB intervened with liquidity assistance to prevent the lender's collapse, but it pulled the plug after 10 days, forcing the bank into liquidation.

The EU central bank later admitted that its own supervisory structure, the Single Supervisory Mechanism (SSM), had failed to tackle the problem.

The SSM scrutinises business models and governance of eurozone banks, but the EU and the eurozone have no centralised anti-money laundering body, the SSM noted.

"I agree with you it's very embarrassing to depend on the US authorities to do the job," Daniele Nouy, the SSB chairman, told the European Parliament at the time.

"This has to change," she told MEPs at a hearing on 26 March.

Old problem

Revelations in 2017 that Germany's largest lender, Deutsche Bank, had helped Russians to evade sanctions in dodgy financial transfers worth tens billions of euros were similarly brought to light by US authorities.

Meanwhile, allegations of high level money-laundering in Riga and other EU capitals go back well before Latvia joined the eurozone in 2014.

Latvian authorities fined another bank €140,000 in 2013 for its role in handling tens of millions of euros that were embezzled from the Russian tax payer and funnelled back to the inner circle of Russian president Vladimir Putin.

The money trail, which was linked to the death of Russian anti-corruption activist Sergei Magnitsky in 2009, also led to banks in eurozone members Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, and Lithuania, as well non-euro states Denmark and the UK.