Of the many long-simmering scandals that have surfaced so far this year, the story of the collapse of an obscure Latvian bank after its history of aiding the world's criminals was laid bare by the Treasury, which imposed sanctions against the bank on Feb. 13, precipitating its collapse.

A month after the chief of the country's central bank - also an ECB governing council member - was arrested by anti-corruption authorities on suspicion of accepting a bribe worth more than 100,000 euros, triggering a banking crisis in the tiny post-Soviet state, the Wall Street Journal has published a comprehensive account of how ABLV emerged following the collapse of the Soviet Union and developed into a haven for criminals trying to move illicit money into and out of Europe.

So as not to understate the threat posed by the bank, WSJ explains how rare it is for the Treasury Department to pursue sanctions against a fellow NATO member.

ABLV, Latvia’s third-largest lender by assets, is based in Riga but has an office in Luxembourg and a subsidiary in the U.S. It is also supervised directly by the ECB under a new system of eurozone bank supervision introduced during the region’s recent financial crisis, under which national authorities remain responsible for enforcing money-laundering laws.

That the U.S. invoked a rare sanction in a fellow NATO member-country shows the scale of the threat it perceives from this small corner of the European Union. A parade of American diplomats have visited Latvia in recent years saying that lax regulation allowed criminal or sanctioned entities to sneak ill-gotten fortunes into Europe. "It’s a national security issue," U.S. Deputy Secretary of State John Sullivan told Latvian reporters in February, during a visit to Riga days after the U.S. sanctioned ABLV. "Security threats can take many forms, including corruption and efforts to undermine the integrity of the financial system," he said.

ABLV is accused of working with shell companies linked to North Korea's nuclear weapons program, as well as functioning as a clearinghouse for the ill-gotten fortunes of post-Soviet kleptocrats.

Before it collapsed, the bank denied the charges with its last gasp, saying they were "inaccurate in important respects" and pledged to work "quickly and cooperatively with US regulators to resolve their concerns." Of course, that's not happening; instead the ECB has opted to dissolve the bank.

And the ECB should handle it, because it's a problem that was inadvertently created by the EU when it deliberately ignored flagrant AML vulnerabilities endemic to Latvia's banking system when it was evaluating the Baltic state for EU membership, which Latvia received in 2004.

In 1998, as the EU was becoming a cogent force, Latvia created a regulator to combat money laundering, knowing it would be a membership requirement. The regulator set modest fines for money laundering: a maximum of €142,000 for the bank, and €350 for the employee involved, according to the Organization for Economic Cooperation and Development. Yet no national law explicitly banned opening bank accounts in fake names. Foreigners who'd never set foot in the country could open accounts with ease at foreign bank branches.

After a 2000 inspection lasting three days, an EU anti-money-laundering team vetting Latvia’s application to join the bloc praised the country for "a very comprehensive structure for the protection of the financial system." By the time Latvia joined the EU four years later, the assets held by its banks were slightly larger than the country’s entire economy thanks to a profusion of foreign business conducted mostly through anonymous shell companies. ABLV, whose founder was by now one of the country's richest men, set about trying to win clients in its post-Soviet neighbors. It was successful. And even its legitimate foreign customers generally sent their money to Latvia via third-party nations that allowed them to easily disguise the source. Soon, more than 80% of the bank’s clients were based outside of Latvia, with nearly 90% using shell companies, according to the country’s Financial Intelligence Unit.

Still, bankers insisted they possessed the tools to root out money laundering.

In an interview in February, ABLV’s Chief Executive Vadims Reinfelds said the bank believed it had the cultural know-how to separate criminal clients from the ones who merely wanted to legally get their money out of Russia. "We know when Russians are lying," he said. He added that "there is no recommendation that we have not implemented...to combat money laundering," he said.

ABLV became a correspondent bank for 49 lenders, including Deutsche Bank and JPMorgan, opening a secure path to the West for its clients. In 2001, the bank helped a Colombian cocaine baron move $697,000, according to U.S. prosecutors charging the Colombian man. The bank says it couldn’t have known the transfer was connected to criminal activity. Later, authorities uncovered a child pornography ring that routed money through the bank.

All the while, the EU praised the country's banking standards, even as the US became increasingly wary.

A 2004 report found Latvia compliant with all EU anti-money laundering standards, as US intelligence agencies warned about possible links with North Korea.

In 2004, shortly after Latvia joined NATO, the US offered the country military aid, but insisted that Latvia allow US auditors to examine the country's banks.

Daniel Glaser, then the U.S. Treasury’s No. 2 terror-finance official, flew to Riga to oversee the work. In 2005, he declared two Latvian banks money launderers, and restricted them from dealing with American banks. Still, that didn't put a stop to the problem.

At this point, Latvian banks were reporting tens of thousands of suspicious transactions a year. Regulators could barely afford to follow up on a fraction of those. By this time, the European banking crisis was in full swing, and regulators shifted their attention away from money laundering.

That only encouraged the problem to fester.

In one incident, a US probe into a Ukrainian gas tycoon allied with former President Yanukovich prompted ABLV to drop the client.

The bank said it had hired 109 anti-money-laundering specialists to sift through its client list by 2017, and trimmed a fifth of its customers by the end of that year. It also hired Glaser to review its finances, and declared a "zero tolerance" policy toward North Korea.

But that wasn't enough to stop the US from dropping the hammer.

Latvia’s regulators tried to keep the bank afloat, and spent days considering a $590 million emergency loan. But the ECB announced that ABLV would be liquidated. Most depositors will receive no more than €100,000.

The fallout from the scandal is hardly over. Prosecutors are looking into claims of extortion and bribery involving local officials. Meanwhile, the country's prime minister continues to nervously reassure his constituents that the country isn't vulnerable to a banking crisis, following a series of vicious bank runs.

For now, at least, the house of cards that is the country's banking system remains intact.