Bogus UK firms make up a large part of Latvia's shell company headache

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Companies registered in the United Kingdom but with unclear beneficiaries - so-called "shell companies" - make up a large chunk of the problematic accounts currently held in Latvia's boutique banks, reports LSM's Latvian language service, citing the LETA newswire.

According to the Financial and Capital Market Commission (FKTK), Latvia's financial regulator, 32% of all shell companies in Latvian banks are registered in the United Kingdom.

A further 18.1% are registered in another jurisdiction under UK sovereignty, the British Virgin Islands, which means more than half the shell company accounts in Latvian banks are the UK's responsibility.

The figures are far larger than those of other well-known tax havens: Belize - 7%, Cyprus - 6.8%, Seychelles - 6.6%, Hong Kong - 6.4%, Panama - 6%. Other countries consist 17.2%.

On March 21, Prime Minister Maris Kučinskis, flanked by members of the financial sector, announced a ban on doing business with shell companies with legislation expected to be presented to the cabinet and Saeima within the next two weeks as Latvia scrabbles to shake off a reputation as a global money-laundering hub.

It is envisaged that a company that does not demonstrate a link with actual economic activity or does not create any economic value, as well as companies that do not prepare and submit annual financial statements and only have a mailbox address will be blacklisted.

The legislation could be in force by the end of May as Latvia wants to prove it is clean before the compilation of a crucial MONEYVAL report by the Council of Europe which is due to be released in the fall. A negative report could have a serious impact on the sector.

But as the shell company data shows, a clean-up of the UK's company registry would be just as welcome as a clean-up of Latvia's banks in the battle against international money laundering and terrorist financing. 


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