How can powerful states best extract domestic concessions from their junior allies? What are the conditions under which the powerful state is more likely to succeed in inducing such domestic policy change? This article explores the link between US security commitments and Washington’s ability to attain favourable policy outcomes within the allied domestic arena. A claim often found in the scholarly literature suggests that due to its concerns of being seen as a credible security provider to its allies, the US is rather unwilling or unable to use the threat of abandonment to pressure partner governments into changing certain policy positions. In his scholarly work, Barry R. Posen claims that Washington has “proven itself incapable of disciplining” partner governments even in cases where their actions may harm the superpower’s interests (Posen 2014, 44). This, in Posen’s account, can be observed even with respect to small-state allies which are highly dependent on US protection. Likewise, Stephen M. Walt, a prominent realist voice, submits that due to the US government’s insistence that it will come to partner’s aid no matter what, it is unable to discourage some of the allied “adventurist behaviour” (Walt 2013). By zooming in on the same intra-alliance problem, Patrick Porter (2019) observes that US credibility concerns have in effect created reverse leverage—a situation where the US is “reluctant to attempt to impose itself with threats of abandonment or even public criticism” (Porter 2019, 17).

The explored case study in this paper, however, works to illuminate the opposite—a success story on behalf of the US government in “twisting the arms” of one of its treaty allies. The presented evidence illuminates that the US, when seeing its interests badly affected, is not as rigidly incapable of imposing conditions on its security guarantees as assumed by some in the literature. Despite its long-standing official rhetoric about the sacrosanct nature of US alliances and ironclad security guarantees, Washington can still find a way to subtly play its security guarantor card in order to bring about significant policy adjustments in allied countries.

Furthermore, the selected case, examining Latvia’s money laundering activities, is particularly noteworthy due to the fact that the US requested policy reforms pertained to a sovereignty-laden issue area. Simply put, the US demands relating to the Latvian financial sector could be conceived as a profound intrusion into allied domestic affairs, an area that is generally thought to be more guarded even by security-dependent small states. The US security guarantees, the paper contends, provided Washington with the door through which it could enter and shape Latvia’s domestic decision-making space. As such, the presented material speaks to the notion that the USA, by applying coercive pressure, is able to intrude into sensitive allied domestic affairs. In turn, this also allows us to theorize specific conditions under which allies are more willing to sacrifice parts of their sovereignty.

While there is no shortage of valuable scholarship examining the utility of US alliances, relatively scant attention has been paid to how the US protector role facilitates its ability to gain a better foothold in partner governments’ domestic affairs. This paper seeks to fill this void. Using a staunch US treaty ally—Latvia, the presented analysis captures an interplay between the patron’s security assurances and protégé’s favourable policy reciprocation domestically. As such, this study draws attention to the value of security provisions in intra-alliance bargaining situations, and how they can create a pathway for the dominant alliance actor seeking to shape allied policy preferences. The examined case allows us allows us to diversify empirical basis, drawing attention to the nexus between security alliances and domestic policies.

After it was revealed that Latvia, a country of fewer than 2 million people, had served as a key node through which North Korea attempted to evade the sanctions regime, the USA pressured Riga to carry out substantial policy reforms in relation to its financial system. To achieve its desired policy outcomes, the US side made sure to convey to the Latvian authorities that its lax banking regulation threatened to undermine the established security partnership. This approach yielded considerable results. In order to preserve the existing security arrangements with the dominant alliance member, Latvia offered significant policy concessions. As per US government recommendations, Riga carried out a swift overhaul of its financial system, purged banking watchdog leadership and, perhaps most tellingly, embedded a US advisor in Latvia’s Ministry of Finance. As such, this case study attests that the US, in certain instances, can use its security umbrella as a bargaining instrument in order to attain policy goals that are important to it.

The rest of the article proceeds as follows. The next section scrutinizes the theoretical dynamics of asymmetric alliances and the bargaining logic that underpin them. Following that, the paper turns to explore the understudied nexus between security alliances and domestic politics. The section sets forth conditions and strategic context in which allies would be more inclined to compromise their own sovereignty in the name of US security guarantees. After that the analysis proceeds to an empirical examination involving Latvia’s decades-long money laundering activities and their impact on US national interests. By tracing the policy elite decision-making process in Latvia, the article pins down the forces and considerations that drove the implementation of substantial policy changes in relation to Latvia’s financial system. The presented evidence lays bare the fact that Washington, by evoking its security assurances, was able to successfully usher in policy changes in the allied domestic arena. Subsequently, the paper discusses conditions that conditioned the Latvian government’s willingness to offer policy concessions. The conclusion makes a succinct summary of the key findings and connects them to the wider policy debates regarding US security alliances.

Bargaining in asymmetric alliances

How alliances are formed and under what conditions prospective treaty pacts have failed has received substantial scholarly attention (Liska 1962; Walt 1987; Poast 2019). This paper, however, is concerned with allied behaviour after they have entered into a formal treaty alliance. After all, negotiation, cajoling or even coercion is fairly routine even among allied governments. States, in pursuit of national interests, bargain in order to draw as many benefits from the resulting alliance pacts as possible (Bolsinger 2021). In this context, a number of scholars have argued that the USA has a track record of using its security provisions as a bargaining chip vis-à-vis its allies to advance policies favourable to US national interests (Brooks et al. 2012). In her work, Carla Norrlof (2010), for instance, uncovers a link between US security ties and its ability to reach more favourable terms in bilateral trade arrangements. By playing the lead role in NATO, Hal Brands contends, the US can greatly increase its diplomatic sway, which allows it to strike more advantageous policy deals (Brands 2019). Nye (1990: 181) agrees with the premise that the US government uses the provision of protective force in bargaining situations, however with the important caveat that this may not always be publicly acknowledged.

An often found argument in the scholarly literature suggests that the US ability to play its security provider card in furthering its national interests is especially pronounced in asymmetric alliances. As Brooks and Wohlforth (2016, 92) aptly point out, “the unwritten clause in all the alliance relationships is that Washington is the senior partner and provider of security assurance whose preferences tend to prevail when allies differ”. This stems from the minor power’s relative dependence on the great power. Generally speaking, the more militarily-dependent the state is on another, the less bargaining power it will likely hold within that relationship. As a provider of protection, the stronger state will have “considerable leverage to request reciprocation” (Ciorciari 2015: 247).

Such asymmetrical relations, scholars have argued, are likely to function on the basis of a certain autonomy-security trade-off. In his theoretical model, Morrow (1991) proposed that a typical arrangement in asymmetric alliances means that the lesser power receives security while in exchange the great power gets certain autonomy in the form of policy concessions. In this type of trade-off, involved parties derive different benefits from their relationship. According to Morrow, “weaker parties can offer concessions, such as military bases or the coordination of foreign and domestic policies, that can increase a stronger ally’s freedom of action while increasing their protection from external threat” (Morrow 1991: 905). Similarly, Lake’s (2009) work draws attention to the fact that weaker states oftentimes are willing to trade away part of their sovereignty in order to gain benefits pertaining to security or order. As such, he makes the point that sovereignty in practice is actually “a negotiated relationship that states hold in different degrees in different issue areas at different times” (Lake 2009, 175).

An alternative view found in the academic literature, however, would stress that secondary states are not by default powerless vis-à-vis their great power allies. In other words, it is far from given that in each instance the lesser power will just automatically “give in” to the wishes and whims of their patron. In a highly influential work, Robert O. Keohane sought to flip the conventional wisdom on its head by contending that occasionally it is the lesser powers that have managed to lead the superpowers (Keohane 1969). The relatively weaker party can, for example, gain some leverage by “offering or withholding certain assets that are of use to the United States” (William 2021, 3). Weak but strategically valuable allies, according to Blankenship (2021), may hold greater bargaining leverage as they are less prone to fear US abandonment. By studying multiple Latin American countries, Long (2015, 2022) has further persuasively demonstrated that in some instances nations are able to overcome considerable power asymmetries and shape the US policy-making process. This suggests that we should not expect uniform behaviours from all asymmetric relationships, even when a state as powerful as the USA is involved (Long 2022). On the balance, however, it must be noted that small-state actors are generally seen to have a narrower room of manoeuvre in their geopolitical outlook (Jervis 1978, 172–173).

Coming at this issue from a different angle, a group of scholars’ lament that the US has actually grown incapable of imposing discipline on its smaller treaty allies (Walt 2013; Posen 2014; Porter 2019). This unwillingness to play hardball with allied governments, they claim, stems from the notion that threats of abandonment may tarnish its own credibility as a security provider. As a remedy to this problem, Stephen M. Walt has counselled the US government not to bend over “backward to convince the rest of the world that the United States is 100 percent reliable” (Walt 2013). If allies would be less confident that the US will come to their aid no matter what, Walt contends (2015), then this would make them “more attentive to Washington’s wishes”. Similarly, Patrick Porter has urged the US government to restore “what used to be part of its repertoire as a great power-the imposition of conditions on its protection, and the credible threat of abandonment” (Porter 2019, 16). In sum, when it comes to intra-alliance bargaining and coercive leverage, scholars are split between those that emphasize the US ability to achieve desired policy outcomes, those that acknowledge lesser powers’ ability to push back against Washington’s pressure, and those that call into question US willingness and ability to pressure allies due to its broader credibility concerns.

Theorizing US leverage vis-à-vis allied domestic policies

When it comes to asymmetric alliances, scholarly literature has traditionally drawn attention to small-state policy concessions in the form of foreign troop deployments or military basing rights. Actors dependent on US security provisions, research suggests, have been more willing to lend their hand in costly US-led interventions (Jakobsen et al. 2018; Wivel and Crandall 2019). Others have further drawn attention to the fact that in exchange for its security guarantee, Washington is able to gain access to critical foreign air and naval bases (Rapp-Hooper 2020). The explored case study, however, suggests that the US can extract entirely different benefits from its alliance relationships. The payoff for Washington, it is being argued here, can also come in the form of considerable leverage vis-à-vis allied domestic policies. As Moller (2021) points out, despite the fact that “international and domestic politics are immutably intertwined”, when it comes to alliance management, “we know remarkably little about how the two interact” (Moller 2021, 14). This article seeks to redress this neglect in the literature by capturing how the US is able to leverage its security provider role to considerably shape junior allies’ behaviour on the domestic front.

While it may not be surprising that the security patron has greater leverage vis-à-vis smaller allies, it is far from given that the lesser power will let the great power dictate its demands pertaining to its domestic arena. Smaller states often perceive such US pressure as an unwarranted imposition on matters of national sovereignty. Domestic politics are generally considered to have a closer association to leader political survival. Therefore, even security-dependent allies will often have a hard time giving up parts of sovereign decision-making that easily. In a seemingly comparable case to the one explored here, Simon (2019), for instance, documents how Hungary defied the expectations of its patron, the USA, and actively pushed back against its intrusion into domestic affairs. In 2014, the US side levelled serious corruption charges against Hungarian officials and “advised the Hungarian government to take measures against corrupt government officials” (Simon 2019, 124). Yet, the Hungarian government managed to stave off pressure from its great power ally and disregard its policy recommendations.

Considering this, why did Latvia, in a comparable sovereignty-laden case, choose to display highly cooperative behaviour towards Washington? Why did it give into the US demands and allowed a profound intrusion into matters of its national sovereignty? Here, it is well-worth reconsidering contextual factors and considerations under which the lesser power would be more willing to cede parts of its sovereignty. In theorizing intra-alliance bargaining, Snyder (1997) in his seminal work linked one’s leverage to relative dependence. As such, he proposed to scrutinize the following: actor’s need for military assistance, the allied ability to provide such assistance and one’s available options for a strategic realignment (Snyder 1997: 167). Indeed, scholars have argued that security providers are better positioned to drive harder bargains vis-à-vis its ally in instances where the latter has fewer partner alternatives (Blankenship 2020).

Crucially, great powers can further attempt to gain the upper hand in intra-alliance negotiation by playing on the weaker party’s fear of abandonment. With the threat of abandonment or substantial commitment reduction hanging over a junior partner, the security provided may use it as bargaining leverage to strike better policy deals (Snyder 1997; Crawford 2003). As Gerzhoy (2015, 102) puts it: “By manipulating the client’s underlying fear of abandonment, the patron can to compel the client into compliance with the patron’s demands”. While there are different avenues through which a patron can shape allied behaviour, “the possibility of leaving or otherwise reducing its commitment to the alliance is its most potent leverage” (Blankenship 2021: 6). Importantly, Blankenship (2021, 693) further notes, allied threats of abandonment “need not be explicit or public; a patron may use threats implicitly or privately”. In certain instances, casting a mere shade on allied relations may be sufficient enough to produce the desired coercive leverage. The presented case study argues that Latvia’s relative security dependence together with the fear of abandonment were crucial factors that allowed Washington to shape its sovereign decision-making process. In order to preserve the existing security arrangements with the dominant alliance power, Riga was willing to accommodate US concerns and trade away some of its sovereignty in this particular issue area.

To substantiate the outlined claims, the paper traces policy change as it pertains to money laundering in Latvia. By zooming in on timing, sequence, and motivation at work, the process-tracing approach allows us to establish “whether there is evidence that a hypothesized causal mechanism is actually present in a given case” (Beach and Pedersen 2011: 8). In terms of data gathering, the study is informed by an in-depth review of available government documents, national security strategies, speeches of US and Latvian policy elites, relevant newspaper accounts and leaked diplomatic cables. Since Washington’s pressure campaign vis-à-vis its Baltic ally took place in the public light, this allowed to gather information with relative ease and validate the theoretical claims advanced in the paper.

Dark money-security nexus in Latvia

Anchored tightly to the West via the European Union and NATO, in the financial realm Latvia for decades attempted to cast itself as a financial bridge between the East and West. In the eyes of the governing elites, Latvia’s geographic proximity to Moscow, widespread command of the Russian language and historical ties to other former Soviet Union countries were all noteworthy comparative advantages that the state should monetize. “We are close to that eastern market. We can speak the same language with them”, the chairman of Latvia’s banking sector regulator had rationalized in 2012 (Tapinsh 2012). Operating with the assumption—no money is bad money, Latvia over the years earned the reputation as Switzerland of the east. The most profitable and equally controversial aspect of Latvia’s developed banking sector was its non-resident dimension. The country stood out among its EU peers due to the large number of non-resident clients that it attracted from countries like Russia, Ukraine, and Kazakhstan. In 2015, it was estimated that 56% of total bank deposits in Latvia belonged to non-residents from the so-called Commonwealth of Independent States (CIS) (Rupeika-Apoga et al. 2020: 237). Numerous local banks deliberately built their business model to cater to wealthy non-residents, a great deal of which, as it later turned out, used Latvia as a key stepping stone for moving “tainted money” into the West.

In his work on money laundering, Casey Michel (2021:13) points out that wealth accumulated through illicit means has certain built-in inertia: “Money emerges dirty and inevitably heads straight to the cleaners. It needs to get washed clean. It needs to become legitimate.” In this context, Latvia served as a top “laundromat” turning illicit gains into seemingly legitimate ones (OCCRP 2014). According to reputable investigative journalists, US intelligence agencies at one point had even concluded that Vladimir Putin’s own daughters held secret bank accounts in Latvia (Isikoff and Corn 2018). By carving out this type of non-resident banking space, the Republic of Latvia profited along the way. At one point, it was estimated that such banking services had contributed somewhere between 0.8%–1.5% to Latvia’s GDP (Bershidsky 2018).

Latvia, as a possible conduit for illicit funds, was under the US government’s radar for a long time. According to the former US Assistant Secretary for Terrorist Financing at the Treasury, the US authorities had at first hoped that Latvia’s financial institutions would somehow “self-clean” through the EU accession process (LSM 2022). That, however, never materialized, forcing direct involvement by the US government. Washington’s concerns regarding Latvia’s banking sector and its potential for abuse by foreign actors first came to public light in 2005. After blacklisting two Latvian banks in 2005, the US Department of the Treasury report insinuated that Latvia had acquired a reputation for “permissive bank secrecy laws and lax enforcement” (US Department of the Treasury 2005a, b). Upon his visit to Riga a few months later, the US Acting Assistant Secretary for Terrorist Financing and Financial Crimes remarked that due to Latvia’s geographic locale—“at the crossroads between east and west”, it was bound to become an important financial hub (US Department of the Treasury 2005a). However, with such an opportunity, he further stressed, also came responsibility. He warned that for many the Latvian capital Riga came across as an attractive money laundering hub. Furthermore, the Baltic nation figured prominently in a 2016 report issued by the US Treasury, which identified it as a linchpin for corrupt capital flows (US Department of the Treasury 2006).

Leaked diplomatic cables further attest that American officials had their eyes trained closely on Latvia’s banking system. In 2010, US Treasury Department officials expressed their unease to their Latvian counterparts by flagging Iran’s potential interest in using its financial system as a vehicle to circumvent international sanctions. The diplomatic cable noted that while there is minimal connection between the two parties, Latvia’s developed banking model had sparked interest from the Iranians (US Embassy in Latvia 2010). Subsequently, the Latvian authorities moved to block some of the Iran-related transactions and the matter was closed thereafter. The key takeaway here, however, was that even the Iranian regime evidently perceived Latvia as a country through which it could move money in order to sidestep the international sanctions regime (Bowen and Galeotti 2014: 91).

Time and again, US representatives conveyed to Latvian officials that substantial non-resident money flows may have a sinister side to them. In 2016, the head of Latvia’s parliamentary Defence Committee publically rehashed his personal conversation with the US Treasury’s leadership: “Although your country is small […] the amount of dollars going through your financial system is 1% of all US dollar transactions in the world. That’s hundreds and hundreds of millions” (Jemberga and Puriņa 2016). The vision of Latvia as an East–West financial bridge finally collapsed in 2018 when the US government accused its third-largest bank of institutionalized money laundering practices (Billingslea 2018). Among other things, the blacklisted bank had served as a vehicle for North Korea in its attempts to evade sanctions. In light of this, Washington made it clear that it was unwilling to tolerate a close NATO partner operating as a chronic illicit money laundering centre.

Pyongyang-Riga: the odd backchannel

While over the years the USA had repeatedly telegraphed its displeasure regarding Latvia’s lax banking system, the most damning fact to emerge was the latter’s revealed connection to the North Korean ballistic rocket programme. In 2017, Latvia’s finance authority, after receiving tips from the US Federal Bureau of Investigation (FBI), fined three local banks used by North Korea as part of a larger scheme to launder money and bypass the international sanctions regime (Financial and Capital Market Commission 2017a, b; Reuters 2017a, b). Just a month later, the ongoing cooperation with the FBI detected that two more Latvian banks had been involved in the same sophisticated scheme directed by the North Korean regime. As a result of this, involved entities were charged with more than one-million euro fees (Financial and Capital Market Commission 2017a; Reuters 2017a).

The North Korean connection arose afresh in February 2018. On this occasion, however, the US Department of Treasury took forceful action against Latvia’s third-largest bank. By evoking Section 311 of the USA PATRIOT Act, the US authorities imposed sanctions against ABLV bank. In a damning report, US officials accused the ABLV bank of institutionalized money laundering “as a pillar of the bank’s business practices” (US Department of the Treasury 2018: 6987). The US side insisted that some of its transactions were linked to parties involved in “North Korea’s procurement or export of ballistic missiles” (Ibid). In this context, US Treasury Secretary Steven Mnuchin was quoted in the press saying that Washington will “continue to take action against foreign banks that disregard anti-money laundering safeguards and become conduits for widespread illicit activity” (Reuters 2018). For the USA, ABLV’s exposure as a backchannel for sanctions evasion was a critical inflection point after which it began to exert concentrated pressure upon the Latvian authorities to overhaul its banking system.

US security guarantees as a pressure point

In order to increase coercive leverage and attain desired policy objectives, senior US officials in their public pronouncements did not hesitate to tie together Latvia’s banking system and broader alliance security matters. This notion was expressed by the US side repeatedly. When in December 2018 senior members of the Latvian parliament attended a Washington-hosted forum devoted to counter-terrorism financing, US officials conveyed that putting an end to Latvia’s shadowy money flows was of utmost importance to them. One senior Latvian representative described the visit as follows: “Americans don’t have other conversation topics. Three times I have been talked to about it. I can only imagine how many times already they’ve been to the [Latvian] prime minister” (Jemberga 2019). Another member of the Latvian Parliament referred to the talks with the Americans as the “most direct conversation” in his diplomatic experience (Ibid).

The US embassy in Latvia did its part to compel policy change. In a rather unorthodox diplomatic move, the US ambassador to Latvia weighed in on this matter by publishing a statement in which she urged the authorities to step up efforts to counter money laundering and corruption in the nation. In her published remarks, she stresses that Latvia was “a proud, strong, and valued partner in NATO, the EU, and the OECD” (US Embassy in Latvia 2018a, b). That stipulated, she then proceeded to warn that money laundering carried the risk of undermining the nation’s independence as well as weakening “economic and security ties” (Ibid). In conclusion, the US ambassador laid out a list of policy action points that Riga ought to implement in order to stem the tide of corruption and illicit money flows.

Her successor continued to push for domestic policy change. During a US Senate hearing to become the next US Ambassador to Latvia, John Carwile explicitly declared that if confirmed, he personally would “press the Latvian government to develop, enact, and implement reforms addressing critical corruption and money laundering threats that persist in the country” (Carwile 2019). Reacting to this public hearing, the Chairman of Latvia’s Foreign Affairs Committee subsequently attempted to play down this statement by suggesting that the new US ambassador had merely chosen awkward wording and that he could not have possibly meant “any kind of interference in Latvia’s internal affairs” (LSM 2019). The presented evidence here, however, suggests otherwise. Inserting itself into sovereign decision-making processes which would allow shaping Latvian financial policies was precisely the objective that Washington sought to attain.

Taking the lead on this particular matter was Marshall Billingslea, the Assistant Secretary for Terrorist Financing at the US Department of Treasury. He visited the region on numerous occasions and publically made the case that Latvia as a NATO member, and equally a recipient of US defence guarantees, had certain duties towards its principal protector. In an interview with the Latvian media, Billingslea stressed: “First and foremost, because Latvia is a close NATO ally […] we have absolutely every ounce of determination to support our ally in this banking issue. But make no mistake about it: it is fundamentally a national security issue. It’s a security issue for Latvia itself as we see hostile actors penetrating Latvia via the banking sector […] and it’s fundamentally a NATO security issue as well, if it’s affecting not just Latvia but its neighbours and possibly the United States as well” (Collier 2018).

A year later, addressing an international security forum, Billingslea, who referred to his own role as the “US Treasury’s pit-bull”, reinforced the money laundering-security nexus: “This topic of kleptocracy and money laundering is absolutely and unquestionably a security issue. In the case of Latvia and the United States, it’s an alliance issue. In its worst manifestation, something that threatens international peace and stability” (Billingslea 2019). Reflecting on these developments already after leaving his post, Billingslea pointed out that early in the Trump administration US officials had come to the conclusion that on their own, the Latvian government “did not have the political will to make hard decisions” (LTV 2022). Thus, some more coercive measures were needed.

In sum, together with the US Treasury’s sanctions against Latvian banks, the US side communicated to the Latvian government that the lax regulation of its banking sector, cast a long shadow over Washington-Riga alliance ties. Through its public pressure campaign, the US side made it clear to the Latvian government that there are some conditions attached to this partnership. It did not hesitate to signal that in order to keep receiving first-class security insurance from the US, Latvia needs to “get its own house in order”. Moreover, the mere backdrop of the Trump presidency itself, as argued in the next section, managed to stoke plenty of fears of abandonment among US allies.

The Trump factor

In the context of the explored case study, it is also worth taking note of the broader alliance politics climate during this particular stretch of time. While US President Donald Trump was not directly involved in this case, it is still highly likely that his personal treatment of traditional allies did leave an imprint on how the Latvian authorities approached the demands of the US side. As a presidential candidate running for the office, Trump had openly questioned if he would come to defence of the Baltic states in case of an external attack. In an interview, he had conditioned such military assistance upon the premise of them [the Baltics] fulfilling “their obligations to us” (Sanger and Haberman 2016). In 2018, already as the incumbent President, Trump yet again surprised the Baltic governments by suggesting that he would not rule out halting US-led exercises in the Baltic states (Cohen 2018). The backdrop of the Trump presidency clearly added to the worries of small and militarily exposed states like Latvia.

One can, of course, argue that nations wrapped in Article 5 guarantees, the bedrock of NATO’s founding treaty, should not worry about US abandonment. While it is true that outright abandonment in security alliances is considered to be rare, abandonment concerns itself are actually “endemic to alliance politics” (Lanoszka 2022, 76). As put by Snyder (1984, 466) in his classical work, “alliances are never absolutely firm, whatever the text of the written agreement; therefore, the fear of being abandoned by one’s ally is ever-present”. The key point here is that from the vantage point of Latvia, even slight hints coming out of Washington that it may moderate its commitment to the alliance will drive a certain sense of anxiety among its political establishment. According to the Chair of the Latvian Foreign Affairs Committee, the country felt an immediate unease about the Trump presidency as his personal stance on alliances brought “greater uncertainty” (Milne 2016). In this instance, the lesser power’s inherent fear of US abandonment can act as an important shaping force in allied bargaining encounters.

Tellingly, with the Trump presidency in the rear-view mirror, Latvian lawmakers were willing to concede that his heavy-handed treatment of allies did prompt them to pay closer attention to Washington’s policy preferences. For instance, during Trump’s time in office, Latvia significantly increased its spending on defence, reaching the 2% on GDP goal in 2018. In 2021, the long-serving foreign minister of Latvia openly acknowledged that “to some extent-the pressure from his [Trump’s] administration”, led the country to increase defence spending (Brennan 2021). Similarly, Latvia’s Minister of Defence noted that Trump had been the chief trigger for Europeans to take defence budgets more seriously (Pabriks 2019). By their own admission, senior Latvian officials conceded that the Trump administration’s coercive-style approach to allies, forced them to offer greater concessions to their patron. In sum, while one has to be careful in drawing a straight line between Trump personally and the dynamics played out in this case, the nature of his presidency, with its hard-line towards allies, cannot be completely divorced from the explored case study. Trump’s propensity to threaten alliance exit, surely affected the Latvian government’s calculations and willingness to accommodate its chief security provider regarding its policy concerns.

Salvaging trustworthy ally credentials

A flurry of statements by Latvian officials attests that they received the message in the fashion the USA had intended to. They feared that left further unchecked, the banking industry would damage carefully cultivated security ties with the USA. In 2018, the long-serving Latvian Minister of Foreign Affairs in his remarks stressed that the situation must be viewed not only in reference to the financial sector but much broader—“through the prism of our national security, NATO and our allied security” (Rinkēvičs 2018). In another instance, he further highlighted the linkage between illicit money flows via Latvia and international peace and stability. “Although the matters of money laundering and sanctions are the primary concern of financial institutions, they have an immediate effect on national security”, he declared at a conference gathering in 2020 (Rinkēvičs 2020). The Head of the Latvian Parliament Foreign Affairs Committee concurred by suggesting that the issue of weak banking regulation has reverberated in other issue areas. “It goes beyond the economy; it’s a security issue,” he was quoted by the international press (Milne 2018).

Acknowledging the gravity of the situation, another high-ranking Latvian official implied that allies may not forgive the country in case Riga continued to have financial dealings with odious regimes like Pyongyang. “There are things that should be considered as the red line, and North Korea is that red line”, he stated (LETA 2018). On another occasion, he further remarked that the US is not going to joke with those that directly or indirectly support pariah states like North Korea (Pabriks 2018). The Head of the Latvian Parliament Defence Committee summarized the predicament as follows: “You have to be crazy to do business with the prime enemy of our strategic partner” (Jemberga 2018). Likewise, Latvia’s Prime Minister underscored that given the geopolitical realities of the region, Latvia as a NATO member state should not be allowing massive volumes of risky money to flow through its banking system (Eglitis 2018).

Echoing this point, Latvia’s Finance Minister underlined that the issue had turned into “a matter of the reputation of the country” and addressing it was the number one priority for the ruling coalition (Ewing 2019). In order to showcase just how seriously the Latvian authorities viewed the issue, money laundering and terrorism financing were subsequently included as prominent subject matters in the newly adopted National Security Concept in 2019 (Parliament of Latvia 2019a, b). In short, the country’s leadership, in justifying the need for a substantial overhaul of the banking system, repeatedly cited Latvia’s obligations towards its principal treaty ally—the USA. Washington’s warnings had clearly resonated among Latvian decision-makers as they moved swiftly to salvage the country’s trustworthy ally reputation. As the following section indicates, Latvia, in the name of maintaining good working relations with its key strategic partner, was willing to engage in a certain trade-off between sovereignty and security.

Embedding American power into allied domestic affairs

The presented evidence here clearly speaks to the notion of Washington being the primary driving force behind the substantial clean-up of Latvia’s financial sector. On several occasions, US officials met with their Latvian counterparts and reiterated the need for swift and substantial reforms in order to root out illicit international money flows (US Embassy in Latvia 2018a). Responding to the pressure, the Latvian government rushed through the parliament and subsequently passed legislative amendments that its security partner had advised (Parliament of Latvia 2019a). In his remarks at a US-based conference devoted to countering money laundering, Latvia’s ambassador to Washington acknowledged publicly that the government of Latvia had “cooperated very closely with the American partners in developing legislation” regarding money laundering and terrorism financing laws (Teikmanis 2018).

What is more, the US was not merely a bystander when it came to the selection of the leadership of Latvia’s financial regulator. Behind closed doors, US officials pushed its preferred candidate for the top banking oversight position. In light of the new money laundering scandals, the US had made it clear it had lost confidence in the current bank regulator in Latvia. Shortly after a personal visit to Latvia by the US Assistant Secretary for Terrorist Financing, during which he had privately conveyed to the lawmakers that “the Treasury doesn’t trust the regulator”, Latvian parliament initiated and passed legislation that allowed for leadership change at the banking watchdog (Milne 2019; Eglitis 2019). After being ousted from his position, the former regulator cited external pressure as the key reason for his departure from the post (Ibid). This speaks to the degree to which the US managed to insert itself in Latvia’s domestic scene and effectively micromanage its various policy steps.

Soon after the passing of the financial reform package, the Latvian Prime Minister paid a visit to Washington during which he attempted to assure high-ranking US representatives that Riga had managed to undertake “capital improvements” in relation to its banking sector (Cabinet of Ministers Republic of Latvia 2019a, b). Tellingly, in the released statement, the Prime Minister further emphasized that after the talk about financial reforms, he had received personal “assurances that the United States will further support our security”, effectively hinting that policy concessions have not been in vain (Ibid). On the US side, Treasury Secretary Steven Mnuchin praised Latvia’s progress and strenuous efforts in the fight against money laundering and terrorism financing (US Department of the Treasury 2019; Mnuchin 2019).

The available data on illicit money flows further attest that the Latvian government did deliver on its promises. In 2019, Latvia issued 440 freezing orders to suspect cash in the amount of 429 million euros (Financial Intelligence Unit of Latvia 2020: 32). For comparison, in 2015, it had frozen a mere 21 million in suspicious assets. Moreover, in 2019, the number of criminal proceedings as it pertains to money laundering attempts had increased by 158% when compared to 2017 (Cabinet of Ministers Republic of Latvia 2019a). The non-EU foreign deposits, once representing more than half of Latvia’s total banking deposits, had slipped to 5.2% in 2020 (European Banking Federation 2021). These efforts did not go unnoticed in Washington. The US side applauded Latvia’s efforts and emphasized the fruitful cooperation in confronting the threats posed by transnational crime and money laundering (US Department of State 2021).

Lastly, and perhaps most revealingly, the string of scandals rocking the Latvian financial system resulted in a signed agreement between Latvia and the US, as a result of which the US Treasury embedded an advisor in Latvia’s Ministry of Finance. Commenting on the signed terms of reference between the two countries, the US Ambassador to Latvia noted: “This agreement to embed a US Department of Treasury advisor with the Ministry of Finance strengthens our collaboration in the fight against money laundering and conveys our steadfast commitment to rooting out the serious financial crimes that threaten our economies, stability, and common security” (Latvia’s Ministry of Finance 2020). In this context, a local journalist later pressed Latvia’s anti-money laundering chief by posing the following set of questions: “Why Latvia should allow a foreign country to interfere in its internal financial affairs? Why do we have US consultants at the Ministry of Finance? They represent the interests of the United States, not Latvia, why is this happening?” (Vīksne 2021). In response, the senior official, while acknowledging the presence of a US consultant, downplayed its significance, whilst equally adding that “by no means can I agree that we are any servants of the Americans or anything like that” (Ibid).

It should not, of course, come as a surprise that government officials are eager to maintain the veneer of true equality between close allies. As Ciorciari (2015: 248) notes in his work: “No government wishes to forfeit policy independence and be cast as a ‘lackey’ or ‘satellite’”. This holds true even in the case of small states. Nevertheless, the presented case does support the contention found in the scholarly literature that in asymmetric alliance relations, the junior partner, in furtherance of its security interests, willingly trades away part of its sovereignty thus sacrificing “some of its freedom of action” (Morrow 2000: 65). As one leading Latvian political scientist observed: “It is hard to imagine the situation where the ambassador of some other country would recommend working out and implementing anti-corruption and anti-money laundering reforms. But with the US the situation is different. Latvian lawmakers and decision-makers realize very well that the US is our strategic partner” (Baltic Times 2019). In sum, Latvia’s reaction to the US-stated interests together with implemented policies speak to the notion of the weaker party trading away some aspects of its sovereignty in exchange for the continued ability to shelter under Washington’s protective security umbrella.

Why did Latvia comply?

The preceding sections speak to the notion of the USA engaging in a pressure campaign with regard to one of its junior treaty allies. The US security guarantees, the paper has argued, provided Washington with the door through which it could pressure, enter and successfully shape Latvia’s domestic decision-making space. Briefly, it is worth exploring the broader strategic conditions which made Riga’s compliance more likely. Contextualizing Latvia’s taken stance allows us to better understand why small states do not exhibit uniform behaviours when it comes to coercion by their larger treaty allies. As demonstrated by Simon (2019), other NATO alliance members have been less inclined to accommodate the US agenda and have successfully pushed back against its intervention in domestic affairs. Why did Latvian authorities then, in this particular instance, cede so much sovereignty to its great power ally?

Here, the discussion about the variation in allied response needs to revert back to conditions under which the dominant alliance partner is likely to gain leverage over lesser powers. Broadly stated, Riga’s compliance can be explained on the ground of the US centrality with regard to Latvia’s security landscape. What made Latvian lawmakers more receptive towards fulfilling the demands of their patron is the sober notion that the US is the key security guarantor in the region. Latvia, together with other Baltic republics—due to their size, negligible power attributes and close proximity to a local hegemon, are commonly considered to be amongst the most vulnerable NATO members. Latvia, for example, does not possess its own combat aircraft and is completely reliant upon outside assistance for patrolling its skies. It is a long-standing assumption among Latvian policymakers that Washington’s presence in the region is what keeps its Eastern neighbour, Russia, at bay. As summed up by Latvia’s Minister of Foreign Affairs: “Strong strategic partnership with the US is an indispensable element of Latvia’s security policy” (Latvian Ministry of Foreign Affairs 2019).

Moreover, Latvian officials do not see any plausible realignment options on the horizon. Riga, together with Tallinn and Vilnius, has been among the most vocal sceptics when it comes to Europe’s stated desire to act in a more autonomous or independent manner. They see European lead nations as woefully unprepared to assume a security guarantor role in the region and have resoundingly rejected the proposition of some kind of de-linking from Washington. In short, the Baltic nation does not see any viable alternatives to what the US can offer, thus further limiting its possible bargaining position. Summarizing its geopolitical thinking, the Latvian Defence Minister put it as follows: “If the Americans will be out of the continent, then we might run into problems […] That is why we are struggling with all our hands and minds to keep the Americans in Europe (Pabriks 2022).

In sum, Latvia was willing to surrender parts of its autonomy or freedom of action simply because it valued Washington’s protective abilities more. From Riga’s vantage point, policy concession allowed to keep the patron invested in the relationship. In an essay examining the Trump administration years, Kelly and Poast (2022) have argued that while this time was particularly hard for traditional US allies, it also illuminated important truths about US partner governments. One of the key lessons, the authors note, is that “the USA can pressure its allies far more than anyone imagined it could (Kelly and Poast 2022). In the authors’ view, this is because “the benefits of a world-class security guarantee and access to the world’s leading economy vastly outweigh the humiliations of Trump’s browbeating or the political costs of occasionally being pressed into unwanted foreign policy ventures […]”. This resonates strongly in the context of the presented case study. While no sovereign nation likes meddling in its domestic affairs, for a small state like Latvia the benefits of remaining under the US security umbrella still outweigh sovereignty-related concerns.


This article has sought to scrutinize the link between US security guarantees and Washington’s ability to shape policy outcomes within the allied domestic arena. The presented evidence bears out the fact that Washington is willing and able to put allied governments under considerable discomfort by “playing around the edges” of its security commitments, and as such inducing behaviour change in the target country. The selected case study examining Latvia’s money laundering activities can be seen as particularly significant due to the fact that the US demands vis-à-vis its ally related to its domestic financial sector, an area that generally is seen as closely guarded even by small states. However, the paper demonstrates that the security guarantor role in effect provides the USA with a certain pathway through which it can enter and influence allied domestic decision-making processes.

While touring Eastern Europe in 2017, US Vice President Mike Pence publicly declared: “America has no small allies, only strong allies” (Keith 2017). It may have been a well-intentioned diplomatic line, but in reality, one that did not reflect the relational dynamics among allies. The empirical material presented in this paper illuminates that when the US sees its national interests sufficiently threatened, it can use its security guarantor card to bring a restraining influence over its junior treaty allies. Aware of the security dependency of its ally, the US took a conscious effort to frame the topic of money laundering as a test for Riga’s reliability as a NATO partner. Reluctant to compromise valuable security ties, the Latvian government responded favourably to US policy expectations. This demonstrates that, contrary to what some sceptics have argued, arm-twisting and coercive measures are in fact part of America’s alliance management strategy. Latvia’s willingness to accommodate its patron, of course, ought to be seen in the context of its broader strategic predicament, namely its inherent weakness as a small state and lack of realignment options. While Riga, given the centrality of US security guarantees, sought to avoid a row with its patron at all costs and acceded to its pressure, other alliance members may be less inclined to do so. Put differently, the template Washington used in the explored case may not yield the same results in other alliance bargaining instances.

In conclusion, it must be noted, that alliances, of course, are not set in stone but are subject to change. New political leadership, shifting material capabilities, or changing threat environments can have an effect on relational dynamics among allied governments. If, for instance, the EU were to develop into a respectable power player capable of assuming the security guarantor role for Eastern Europe, then this would likely work to decrease the US bargaining leverage vis-à-vis countries like Latvia. In such a scenario, small states may be less inclined to fall in line with Washington’s stated policy preferences. As observed by Blankenship (2020, 1020), in the long term allies are able to “reclaim some autonomy, diminishing the patron’s control over them”. At present, however, with the US playing the dominant security role in the region, this appears unlikely.