The scandals rocking Latvia's banking system are the latest in a series of crises for the former Soviet state.
Latvia's third-largest lender was left facing rapidly mounting problems Monday, after the U.S. Treasury accused it of money laundering and defying Western sanctions. Not only this, the head of the country's central bank was held in custody over the weekend, accused of soliciting a bribe by Riga's anti-corruption agency.
"The two issues are confluent in their timeline but appear to be unrelated," Otilia Dhand, an analyst at Teneo Intelligence, told CNBC Tuesday.
Latvian authorities also say the scandals are unconnected.
Nonetheless, the dramatic headlines came as a shock to a country which has long-advertised itself as somewhat of a financial bridge between Europe's west and east.
'Two parallels of banking systems'
The European Central Bank (ECB) moved to stop all payments by AVLB bank at the start of the week, after its liquidity position collapsed in the wake of allegations from U.S. authorities.
Last week, the U.S. Treasury accused ABLV bank of "institutionalized money laundering," including allowing its clients to conduct business with parties connected to North Korea. This would be in violation of sanctions imposed by the United Nations following Pyongyang's nuclear weapons program.
In response, ABLV said the accusations were based on unfounded and misleading information. ABLV is based in Riga but also has an office in Luxembourg as well as a subsidiary in the U.S.
The fundamental role of ABLV as a non-resident bank is to shift money around the world, Dhand said. And while the funds have tended to originate from Russian sources, the latest reports alleged some of ABLV's transactions were linked to North Korea.
"Latvia, for a long time, has had two parallels of banking systems … The resident banks that deal with normal retail operations and the non-resident banks which are actually a majority in Latvia. This problem is not new," Dhand said.
A number of banks in Latvia have been subject to investigations regarding improper business practices in recent months. Last year, two lenders were fined for allowing clients to bypass international sanctions preventing payments to North Korea.
'Smear campaign'
Meanwhile, the home and offices of Latvia's central bank chief, who also sits on the ECB's rate-setting committee, were raided by officers from Latvia's Corruption Prevention Bureau on Saturday.
Ilmars Rimsevics, who denies any wrongdoing, claimed he was the victim of a smear campaign on Tuesday.
"I have not demanded or received any bribes," Rimsevics told reporters at a press conference.
"I have become the target of some Latvian commercial banks to destroy Latvia's reputation," he added.
Both the anti-corruption authority and the police are yet to provide details of the alleged request for a bribe by the central bank governor.
In a statement on Tuesday, Latvian Prime Minister Maris Kucinskis said he was not able to rule out the possibility that the bribery allegations were an attempt to damage the image of the state.
Why does this matter for Europe?
A string of scandals relating to Latvia's banking system has been a cause for concern for Europe for some time. And Latvia's pursuit to adopt the euro was nearly delayed after France flagged problems with the country's banks in 2014.
Teneo Intelligence's Dhand said Tuesday that prominent attention from U.S. authorities, as well as a looming general election, would most likely prompt Latvian lawmakers to finally address the ongoing crisis.
"With so much pressure, we may just see some positive changes in the Latvian financial sector coming forward," she said.