Banks, Financial Services, Latvia, Legislation, Markets and Companies

The government was scheduled to decide today on draft amendments to the Law on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), intended to restrict high-risk financial transactions in the Latvian financial sector.

The finance minister said that the parties concerned support the draft legislation but the government will decide on it next week, because there is one more initiative that has to be included in the bill – it has been proposed to create a platform for cooperation between banks and law enforcement authorities.

“This platform will serve as a basis for sharing information, enabling banks to provide law enforcement authorities information on transactions, their content and particular clients. The law enforcement authorities would share their information as well. At present such cooperation is restricted, which makes probing sophisticated financial crimes more complicated,” the minister explained.

The new legislation will also include a provision banning financial institutions from doing business with shell companies that meet the two following characteristics – the company is registered in a jurisdiction not requiring submission of financial reports and the company is unable to prove its involvement in real commercial activity. “The proposed provisions would make the restrictions tougher,” Reizniece-Ozola said.

When the planned provisions come into effect, banks will have 14 days to inform their high-risk clients that they are ending business with them, and a total ban on any shell company business will take effect within 60 days.

The finance minister noted that the restrictions will not apply to Latvia-registered companies that might correspond the definition of shell companies. This will protect, for instance, some of Latvia’s startup businesses.

The restrictions, Reizniece-Ozola said, will apply not only to banks, but other financial institutions as well, such as payment institutions, electronic money institutions, investment brokerages and other entities serving shell companies.

Initially, it was planned that Saeima would hold the first reading of the draft legislation on April 15, and the second reading was planned for April 26.

As reported, the Finance Sector Development Council chaired by Latvian Prime Minister Maris Kucinskis on March 21 supported banning of shell companies in Latvia. Finance Minister Dana Reizniece-Ozola (Greens/Farmers) said that the purpose of banning shell companies was to make the Latvian finance sector stable, sustainable and safe and to ensure that it offered services driving the economic growth instead of creating risks.