RIGA - One of Latvia biggest banks was forced to seek emergency help on Monday after it was destabilised by money laundering allegations, hours after the separate detention of the central bank governor on suspicion of soliciting bribes.

The financial sector in Latvia, a small euro zone state that shares a border with Russia, has come under wider scrutiny for being a conduit for illicit financial activities.

ABLV Bank, the country's third biggest lender, was on Monday ordered by the European Central Bank to stop all payments as its liquidity position had deteriorated sharply since the U.S. Treasury accused it of money laundering.

The U.S. Treasury sought sanctions against ABLV last week, accusing it of allowing clients to conduct business with North Korea, with bank executives and management bribing Latvian officials to cover up the activities. 

"ABLV has institutionalized money laundering as a pillar of the bank's business practices," the Treasury's Financial Crimes Enforcement Network (FCEN) said in a statement linking some of the alleged activities to North Korea's ballistic missiles program.

The bank has said the U.S. accusations were based on unfounded and misleading information.

The Latvian central bank said it had agreed to provide 97.5 million euros worth of funding to ABLV but details of the deal still need to be worked out and the bank has yet to receive the funding.

ABLV said it had ample collateral so was not seeking a bailout, just temporary liquidity support.

The economy in Latvia, which gained independence from the Soviet Union in 1991, has boomed in recent years. Its commercial banking sector is dominated by Nordic banks alongside a number of privately-owned local lenders.

In its document detailing the allegations against ABLV, the FCEN said the reliance of the Latvian banking system on non-resident deposits for capital exposed it to increased illicit finance risk. It said such deposits amounted to roughly $13 billion.

"Non-resident banking in Latvia allows offshore companies, including shell companies, to hold accounts and transact through Latvian banks," it said, adding criminal groups and corrupt officials may use such schemes to hide true beneficiaries or create fraudulent business transactions.

"(Former Soviet Union) actors often transfer their capital via Latvia, frequently through complex and interconnected legal structures, to various banking locales in order to reduce scrutiny of transactions and lower the transactions' risk rating."



In a separate development, Latvia's anti-corruption authority said it had detained central bank governor Ilmars Rimsevics, an ECB policymaker, over the weekend for demanding a bribe.

It said its investigation was not connected to the probe into ABLV.

"(Rimsevics' arrest)... is about demanding a bribe of no less than 100,000 euros," Jekabs Straume, the head of Latvia's Corruption Prevention and Combating Bureau told reporters at a news conference.

Rimsevics' lawyer on Sunday declined to comment on what he was being investigated for but said the detention was unlawful.

Latvia's government increased pressure on the central bank boss to quit.

"I can't imagine that a governor of the Bank of Latvia detained over such a serious accusation could work," Prime Minister Maris Kucinskis said on Monday.

After joining the European Union in 2003, Latvia adopted the euro as its currency at the start of 2014, a move which gave its central bank governor a seat on the currency bloc's top policymaking council.

Rimsevics was arrested on Saturday after police searched his office and home. He can be held for 48 hours, a period which is due to expire late on Monday.

The European Commission said on Monday that Rimsevics' detention was a matter for Latvian authorities.

(Reporting by Gederts Gelzis in RIGA and Balazs Koranyi in FRANKFURT; Additional reporting by Simon Johnson in STOCKHOLM, Silvia Aloisi in LONDON and Jan Strupczewski and Alissa de Carbonne in BRUSSELS; Editing by Toby Chopra) ((Balazs.Koranyi@thomsonreuters.com; +49 69 7565 1244; Reuters Messaging: balazs.koranyi.thomsonreuters.com@reuters.net))