The Cabinet of Ministers upheld the draft amendments to the Law on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) aimed at strengthening the Latvian finance system by reducing the number of risky transactions with high-risk customers that meet the definition of a shell company. The bill is also intended to increase the exchange of information between the financial institutions and the law enforcement agencies.
A new article would be added to the AML/CFT Law, banning the financial institutions from cooperation with the entities that show the signs of being a shell company.
Under the draft law, the shell company is defined as an entity that fits one or several of the following three criteria. Firstly, there is no actual economic activity and no documentary proof to the contrary. Secondly, the entity is registered in a jurisdiction where companies are not required to submit to the authorities their financial statements. Thirdly, the entity has no place of business in its country of domicile.
In opinion of the Finance Ministry, the first two criteria are decisive in determining the AML/CFT risks related to shell companies. Therefore the ministry proposes that the ban to do business with shell companies would apply to the entities that meet both those of criteria at once.
The proposed ban will not extend to the legal entities registered in Latvia because the Latvian law requires them to prepare financial statements, including annual financial reports, and to submit them to the government authorities.
The bill seeks to limit the possibility of using the Latvian finance system for moving the dirty money around. The financial institutions will also have to take steps to reduce their risk profile.
The bill has been labeled as urgent which means that it would take effect on the very next day after its promulgation. The Latvian parliament is yet to vote on adoption of the proposed legislative amendments.