Banks have ditched shell companies, says regulator

Take note – story published 5 years ago

Latvia's banking regulator, the Financial and Capital Market Commission said August 2 that the financial sector "has got rid of undesirable shell companies" following an intense U.S. - inspired crackdown on money laundering.

"The number of such companies in the customer base of Latvian banks had dynamically decreased, and by 7 July 2018 the balance of deposits of these customers formed the proportion of 0.03% in the total amount of deposits (predominantly, this being the balance of blocked cash in the outgoing flow)," FKTK said in an English-language sttement following an earlier Latvian-language statement. 


FKTK info on shell companies


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On 9 May 2018, amendments to the law “On the Prevention of Money Laundering and Terrorism Financing” took effect, which set the requirement for the financial sector market participants in Latvia to stop cooperation with companies within 60 days, which simultaneously match two of the shell entity features – they have no actual economic activity and economic value and there is no requirement in the country of their registration to prepare financial statements.

Following the announcement of sanctions against ABLV bank in February with the promise of more to come unless Latvia cleaned up its banking sector at high speed, officials have been scrambling to convince international partners that Latvian banks are no longer the go-to institutions for illicit cashflows from Russia and other former CIS countries.

FKTK Chairman Pēters Putniņš made a statement that the problem with shell companies has been solved, declaring: “Now we can safely say that this work has been fully performed on the part of our banks. The remaining 0.03% or EUR 4.5 million is the outgoing flow or frozen cash on blocked accounts, where checks of the origin of the respective cash is required." 

However he also made a point of saying the clean-up was part of a longer-term plan rather than a case of legislation from the end of a shotgun. "We see that the work started in 2016 is continued, the proportion of the risky part of the banks’ customers is decreasing every day, as banks also refuse to work with such shell entities that are not prohibited but the activity of which may involve big risks.
We can conclude that with regards to all types of shell companies, not only their prohibited part, about EUR 1.5 billion flew from the Latvian banking sector in the first half of this year. Further cooperation is refused for over 9000 of all types of shell companies," Putniņš said.

As of the end of July, the proportion of deposits of foreign residents, including from the EU, in Latvian banks was 21%. As recently as 2015, non-resident deposits outweighed domestic deposits.

The geographical structure of the deposits shows that domestic deposits now dominate in Latvia - 79%.

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