Fear and Loathing in Latvia (or among its media)

Fear and loathing in Latvia? The borrowed phrase from the late Hunter Thompson may be just what fits the situation. Moreover, the “situation” is that nobody in the Latvian media is fully reporting the situation, especially not reporting as it affects them and their own people and, possibly, their sources.

I have already touched on this in an earlier blog, but I will repeat it here. Based on a number of sources and observations, Latvian Television has been visited by the Latvian Security Police because of a news item that was run on September 23 concerning the possible settlement of an investment dispute surrounding the “national airline” air Baltic. The report cited the possibility that former air Baltic CEO Berthold Flick could be awarded as much as LVL 16 million. This was part of a legal risk analysis prepared in connection with the investor claim filed against the Latvian state by Flick.  

It appears that a person involved in preparing the news item, based on a leaked document or documents, burned the source by either giving up the documents or other information that led to the source. All this has been hushed up or only minimally reported, at least the media part.

While the document or information that was leaked was something less critical than Latvia’s nuclear launch codes (well, assuming Latvia had any), the search for those responsible is as intense as if something like that had happened. The Security Police questioned around 12 employees of the Ministry of Justice, which apparently had a significant role in preparing the legal risk analysis. This was, in fact, reported in the Latvian media. However, as far as the apparently critical and decisive Security Police contact with Latvian Television, there is only one line in a LETA story (a story that, of course, could have been picked up by other media and the press). It says: As was determined by the news agency LETA, SP (Security Police) agents have questioned representatives of the mass media.  And that, so far, is all.

One reason may be that some of those involved, for whatever psychological reasons, simply don’t want to talk about it (it seems unlikely that the Latvian Security Police, tried to impose a gag order on anyone like the Lithuanian Special Investigation Service did with some of the journalists it questioned at BNS). But there was enough information available from other sources to see that there was a serious violation of media rights and probably a failure or lack of journalist training.

Once they had the necessary information, the Security Police followed the whole chain of custody  (and of production) of the document, including the aforementioned searches and interrogations at the Ministry of Justice, and by some accounts, at the State Chancellery as well. Apparently, the investigations are continuing. Certainly, state employees have a duty to protect confidential information, but as I said, these were not nuclear launch codes.

There is another possible explanation for the – to put it mildly- vigorous activities by the Security Police to track down leaks. It is that the law-enforcement and investigative agency may be being wittingly or unwittingly  used as a political bludgeon against a new approach to settling investor disputes. In some past cases, Latvia used rather expensive private law firms to litigate these cases – everything from the black humor case of dismantling a derelict Swedish-owned ship to the case brought by TeliaSonera against the shortening of the monopoly granted to telecoms operator Lattelecom (it was ended in 2003 instead of 2013). The new approach has been to handle these cases “in house” and to find a least-risk, least cost way of settling the matters.

The thing is – international disputes based on violation of investment protection treaties are seldom frivolous. Often they involve diplomatic support from the disputant’s nation (to be honest, I don’t know the procedures in detail). In any case, to get your government on your side, you have to have something more than an imaginary or crackpot theory of how your investment was compromised – usually by using the legal system or government action by the country that is accused of a violation.

Indeed, some of the recent cases in Latvia – the attempt to declare the Lithuanian IKI retail chain bankrupt over a small debt – as well as alleged shenanigans around the Estonian-owned Winergy wind farm project – seem to suggest that frivolous or contrived attempts to compromise foreign investments have happened with the assistance of Latvian courts or authorities. If this is the case, then these claims are not  frivolous and the risk to Latvia is significant. This may also have been the case with air Baltic, where the government moved quickly, but perhaps without taking all the necessary legal steps – to take control of the airline from what it perceived as a untrustworthy Flick and other shady interests, including Vladimir Antonov, a Russian businessman blamed for the failure of Lithuania’s Snoras Bank and the Latvian bank Latvijas Krajbanka.

If mistakes have been made by courts or state authorities, then it is not unreasonable to assume that there are significant risks for the Latvian state and that a negotiated settlement may be the least costly and time-consuming way out of the situation, even if it involves “paying off” parties to the case who are less than, as Latvians would say, “white and fuzzy clean”. Under the law, thieves are also protected against theft.

However, if this approach is taken, two sets of interests may suffer. First – those parts of the legal profession in Latvia for whom endless litigation is a source of revenue, regardless of the ethical norm that lawyers represent the best interests of their clients, and it is rarely in anyone’s best interests to have long, dragged out legal or arbitration proceedings with doubtful chances of success.

Secondly, a more forthright approach to settling investor disputes (which generally are not initiated “just for fun”, but instead following local legal actions, such as a crackpot insolvency case and the like) will affect the interests of schemers who exploit foreign companies to “legally extort” money or even to execute takeovers of profitable foreign subsidiaries (nevermind that the local goons put in charge if this succeeds cannot continue profitable operations, it suffices that they can empty the bank accounts). Some of these schemers, so it is said, have friends in high places and political influence – some would even say, some extent of state capture. However, to prove that would require some pretty heavy legwork by local journalists, which most local media cannot afford in terms of staff time and money. And some are simply afraid to do it because if they do, will be visited by the Security Police and no one will say or publish a word about it.