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Riga (AFP)

Latvian Prime Minister Janis Kucinskis said Wednesday the Baltic state would overhaul its banking sector to prohibit dealing with shell companies, a practice behind money laundering allegations that felled one of its top lenders.

"We have reached an agreement to prohibit the use of shell companies in Latvia," Kucinskis told reporters, adding that the parliament would vote on the matter next month.

Peteris Putnins, the head of Latvia's financial regulator, said at the press conference that there are more than 26,000 shell companies among the clients of the country's banks.

The banking sector overhaul "will be swift and rapid," added the chairman of the Finance and Capital Markets Commission.

Shell companies, which exist only on paper and have no office or employees, may be used for legitimate business purposes as a vehicle for a transaction or to hold an asset. However, they can also be used to launder money and obscure ownership.

Latvia has a number of banks which operate primarily with foreign clients including shell companies.

Last month, shareholders decided to liquidate the country's third largest bank, ABLV, after Washington accused it of money laundering and connections to North Korea's weapons development programme.

Other Latvian banks are now facing increased scrutiny from authorities.

The banking sector was also hit by bribery allegations against longtime central bank chief Ilmars Rimsevics by anti-corruption authorities. He denies the claims.

Rimsevics has refused to resign, but has been barred from carrying out his duties at both the Bank of Latvia and the board of the European Central Bank.

"We are aiming to make the financial sector in Latvia stable, sustainable and safe," said Finance Minister Dana Reizniece-Ozola.

"The central goal is to reduce substantially the number of risky clients in Latvia's banking industry," she added alongside Kucinskis and Putnins.

© 2018 AFP