Latvian plywood producer objects to publishing company owner identity

A case has been brought before the Constitutional Court that may affect Latvia's progress towards transparency in the business environment in recent years. By July 1 this year all joint stock companies must disclose their owners to the Enterprise Registry, which publishes the shareholder lists on its information portal. However, several shareholders of "Latvijas finieris" have appealed to the Constitutional Court, Latvian Television's De Facto reported March 3.

For several years now, all companies have been required to register their beneficial owners – the persons at the end of the ownership chain. This is necessary so that business partners can make sure that they are not breaching sanctions or engaging in money laundering schemes.

However, the true beneficiary cannot always be identified or the information is incomplete. That is why two years ago the Parliament passed a law requiring public limited companies to submit information on all their shareholders to the Enterprise, and the information must be public. Until now, information on the owners was only available to the shareholding company itself.

Indra Aužule, Head of the Legal Department of the Enterprise Registry, said: "This is not a completely new regulation, because, for example, limited liability companies have always had this obligation [to disclose owners] in principle. [...] So at this point, it is just a matter of adjusting it so that it is the same for everyone."

The website of the registry already shows the owners of many large public limited companies. The transitional period during which shareholders must be disclosed will end on July 1.

If the owners are not disclosed, the registry will start liquidating the company. The Registry's spokeswoman points out that there will be several warnings first, and the overall procedure could take about six months in each case. At present, 159 out of 911 joint stock companies have disclosed their owners, or slightly less than a fifth.

There were no significant objections to shareholder disclosure in the Saeima. The Latvian Employers' Confederation (LDDK) also gave its approval, although it was concerned about the bureaucratic burden, as information on owners must now be updated whenever there are changes, and information must also be provided on the smallest shareholders.

Although there was no major opposition to the amendments at the time of their adoption, the disclosure of shareholders will now have to be assessed by the Constitutional Court. 17 persons have applied to the court because, in their opinion, the amendments to the law violate their right to respect for private life guaranteed by the Constitution.

The identity of the applicants has not been disclosed, but Latvian Television has established that they are individual shareholders of Latvijas finieris, the largest plywood producer. This was confirmed by Uldis Biķis, Chairman of the Supervisory Board of the company.

"Latvijas finieris is one of the largest companies which has not disclosed its owners and for which it is not possible to identify the true beneficiaries. The applicants' objection is not to the fact that the shareholders will be disclosed to the Register, but to the fact that they will be visible to everyone.

"Is the protection of this minority shareholder really balanced, and are all the risks and consequences that may arise understood? What will happen to the data once it is public and therefore what actions may follow from any third parties?" Biķis asked.

Biķis believes that some shareholders may become targets for fraudsters or persons who will want to abuse their influence over Latvijas finieris.

The Constitutional Court has accepted the case and is now awaiting clarifications from the Saeima. Dagnija Palčevska, from the Ministry of Justice, said that the privacy aspect and the constitutionality of the law had been assessed during the drafting process. "The addresses [of shareholders] are not available in the public part. [...] Publicity of ownership is not alien to Latvia. We also have data on property owners in the Land Registry publicly available with personally identifiable information."

However, Palčevska pointed out that in the area of shareholder disclosure, amendments to the law are now being worked on. There are joint stock companies that for some reason do not know all their shareholders.

The Ministry of Justice is currently working on a regulation so that such companies can also comply with the obligation to disclose their shareholders.

The privacy aspects of company owners have already been assessed by the European Court of Justice a few years ago. In November 2022, it annulled a provision of a European Union directive that required all Member States to disclose the beneficial owners.

Several countries subsequently restricted access to their registers. This prompted the Ministry of Justice to assess the Latvian system. The conclusions were that disclosure of beneficial owners was proportionate and in line with the Latvian Constitution, so nothing has changed in the approach. It is not yet known when the Constitutional Court will have its say on the disclosure of shareholders, but June 26 has been set as the deadline for the preparation of the case.

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