European Ombudsman releases decision on Latvian sanctions banking query

The European Ombudsman released a decision on July 27 with relevance to the imposition of sanctions against a high-profile individual in Latvia, namely long-time Ventspils mayor and influential political fixer Aivars Lembergs, referred to by U.S. authorities and others as one of Latvia's top "oligarchs".

Following the imposition of U.S, sanctions against Lembergs which froze his financial assets and bank accounts, he protested that his life would become difficult as he was unable to make essential payments, citing the purchase of sausages as an example.

However, Latvia's financial regulator quickly explained that despite the unprecedented imposition of sanctions, "considering the fact that respect for fundamental rights requires a person to be able to satisfy his/her primary needs, with regard to the sanctioned person A. Lembergs it is permissible to make payments necessary to meet primary needs (benefits, pension, payment of taxes and State fees, payment for food products, lease or mortgage, public utilities, expenses related to legal services etc.). In such a situation enhanced due diligence also should be performed, and the provision of new financial services should not be allowed."

Nevertheless at the end of April the Latvian rights ombudsman sought EU-level clarification about what rights a sanctioned individual should retain with regard to access to basic financial services. According to a letter, the Latvian Ombudsman wanted to know "whether banks are obliged to refuse to open accounts with basic features on the basis of non-compliance with the Anti-Money Laundering Directive. If so, based on which provisions of that Directive?"

According to recital 47 of the EU's Payment Accounts Directive (PAD), credit institutions should refuse to open, or should terminate a contract for a payment account with basic features, only in specific circumstances, such as non-compliance with the legislation on money laundering and terrorist financing or on the prevention and investigation of crimes.

In its decision, the European Ombudsman said

"In its reply of 20 July 2020, the Commission was of the opinion that there is no contradiction between recital 47 and article 1(7) of the PAD. According to the Commission, both clearly set out that no provisions in the PAD can allow an infringement of the provisions of the AMLD (Anti- money laundering Directive). The Commission also noted that recital 47 of the PAD is in line with the AMLD, which requires an obliged entity to refrain from establishing a business relationship when it is unable to comply with the customer due diligence requirements. Thus, recital 47 of the PAD only clarifies the limited scope, under AMLD rules, to refuse opening a bank account, including one with basic features.

"The Commission also stated that it is not aware of any EU legal mechanism that would allow consumers, who cannot open a bank account with basic features due to non-compliance with the AMLD, to undertake essential payment transactions."

The full decision can be read at: https://www.ombudsman.europa.eu/en/decision/en/130750

The European Ombudsman is an independent body that holds the EU’s institutions and agencies to account, and promotes good administration. The Ombudsman investigates complaints about maladministration by EU institutions and bodies, but also by looking into broader systemic issues.

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