U.S. says has "full confidence" in Latvia to handle banking storm

RIGA, Feb 21 (Reuters) - The United States said it has full confidence in Latvia's ability to deal with a string of corruption claims and counter-claims that have rocked the financial sector of the Baltic euro zone state.

Latvia's defence ministry said on Tuesday the allegations, which briefly led to the detention of the central bank governor, may be part of a disinformation campaign by unknown parties abroad to damage the country and disrupt its October election.

"The United States has full confidence that the Government of Latvia will take the necessary steps to uphold the integrity of its banking and financial sector," said Heather Nauert, spokeswoman for the U.S. State Department.

Washington has "for many years ... been working together with Latvia to combat corruption, money laundering and other threats to international security" and will continue to do so, Nauert said in a statement released late on Tuesday.

The United States turned the spotlight on Latvia's banks earlier this month, saying the country's third-largest lender, ABLV Bank, had engaged in money laundering and helped breach sanctions on North Korea.

Just a week later, Latvia's anti-corruption authority detained central bank chief Ilmars Rimsevics, who sits on the rate-setting council of the European Central Bank, over bribery allegations.

The anti-corruption agency said the cases were not related.

ABLV rejected the allegations, but has had to apply for emergency liquidity assistance from the central bank while the ECB has blocked its payments until it comes up with a crisis plan.

Rimsevics said after his release from custody that he had not taken bribes and was the victim of a conspiracy to discredit Latvian authorities and get him removed from office.

International authorities have long worried about a number of small banks in Latvia who hold funds for foreign clients, mostly in Russia and other former Soviet republics.

The U.S. Treasury's Financial Crimes Enforcement Network has said non-resident banking increases the risk that criminals could use the banks to conduct fraudulent transactions.

A number of small Latvian banks have been fined in recent years over breaches of money-laundering and financing of terrorism rules. (Reporting by Gederts Gelzis in Riga and Simon Johnson in Stockholm; writing by Simon Johnson; Editing by Gareth Jones)