Moneyval: Latvia is subject to follow-up procedures over money laundering

Take note – story published 5 years and 9 months ago

A long-awaited report over anti-money laundering (AML) and counter-terrorism financing (CTF) has mapped out the situation in Latvia's finance sector, with Moneyval, a Council of Europe body putting Latvia under further future scrutiny as institutions have failed to comply with recommended practices in preventing criminal proceeds from being laundered in the country.

In particular, Latvia is in "enhanced follow-up" because of the number of Low and Moderate ratings awarded for Effectiveness, Moneyval said.

Data for the report was collected in on-site visits late last year, well before ABLV Bank folded after being hit by US sanctions over anti-money laundering and before Latvia hastily introduced a number of initiatives designed to curb the flow of illicit proceeds. 

Two areas were considered to have low levels of effectiveness - relevant beneficial ownership information and preventing proliferation financing.

“Latvia should continue improving the new measures to ensure that the authorities collect the relevant beneficial ownership information as defined in the AML/CFT law at the time of incorporation and throughout the lifetime of all legal persons,” Moneyval said.

Also, Latvia should develop and institute internal control systems capable of detecting potential proliferation financing activity, taking into account developments in efforts at proliferation financing sanctions evasion and Latvia’s proliferation financing vulnerabilities. In parallel resources should be bolstered in supervisory authorities along with the prioritization of proliferation financing related compliance supervision by supervisory authorities.

Moneyval identified eight areas as having Moderate levels of Effectiveness.

Moneyval said that there is an uneven and overall inadequate appreciation, understanding and awareness of the ML/FT risks. In terms of improvements, the Government recognises that further work needs to be undertaken on several aspects, including better coordination and cooperation both horizontally and vertically.

In terms of supervision, the report highlights that the supervisors demonstrate widely varying views and knowledge about ML/FT risks. In practice, issues such as understanding the nature or significance of ML/FT risks, or a lack of knowledgeable resources, prevent the supervisory authorities from fully implementing programs focused on high-risk market segments. It was also noted that even the knowledgeable and persistent approach taken by the financial watchdog to the non-resident banking sector, does not change the risk-appetite of this sector adequately and is timely.

Concerning preventive measures, Moneyval notes that business, in particular, the financial sector, lack knowledge of the risks they face, and therefore application of a risk-based approach, is not commensurate with their exposure.

In the area of money laundering investigations and prosecutions, the report recommends that AML as a priority should be pursued. Investigations and prosecutions should be prioritised and made more streamlined and apply to a wider range of ML offences, including third party and stand-alone/autonomous ML. The recent legislative change in the ML definition should also be tested to the effect that a ML conviction is possible on the basis of circumstantial evidence, as opposed to the previous reliance on the existence of a predicated offence.

Moneyval also reported that although no formal comprehensive terrorism financing risk assessment has been performed, awareness of key terrorism financing threats and terrorism financing sanctions was demonstrated. The Government notes and continues to work on critical elements of uncertainty in this regard, including the adoption of a CFT strategy; enhanced capacity of law enforcement for TF; more guidance, outreach and supervision for industry, and better lines of communication between competent authorities.

Meanwhile, Moneyval identified one area as having a ‘substantial level’ of effectiveness. “Moneuval recognises that the Latvian authorities proactively cooperate with foreign counterparts, effectively providing and seeking mutual legal assistance (MLA), exchanging financial intelligence and engaging in joint investigations and cooperation meetings with positive results. However, difficulties to obtain assistance from countries of the Commonwealth of Independent States (CIS) and inactivity of supervisors to take an active part in international cooperation, with the exception of the Financial Capital Market Commission (FCMC), were recognised as a weakness,” the report says.

As Latvia is in enhanced follow-up procedure, further progress reports are then required on an annual basis until the next on-site Moneyval evaluation which is currently expected to take place in 2022. Latvia can request a move from the enhanced follow-up process to the regular follow-up process, when it considers that it can evidence sufficient progress to Moneyval.

The evaluation was carried out by experts from Moneyval in accordance with international Financial Action Task Force on Money Laundering (FATF) standards during their visit of October 30 to November 8, 2017 and is an independent audit that will help Latvia meet the latest global AML/CTF standards. For the first time, the committee assessed both the technical compliance and operational efficiency of Latvia’s system.

The Latvian Cabinet of Ministers has welcomed the report, and has indicated that it is a valuable guide for the ongoing reform process initiated by Latvian financial sector institutions. The Latvian Government has acknowledged that there are shortcomings in the Latvian AML/CTF system, as was demonstrated by the case of ABLV Bank. The government has committed to following the recommendations of Moneyval experts, in particular to implementing improvements in areas marked as “low” or “moderate” efficiency in the report.

In addition, the government is reviewing Latvia’s AML/CTF strategy, supplemented with a detailed action plan for state institutions. It is also renewing the National Risk Assessment of Latvia. While introducing the necessary mechanisms for strengthening the AML/CTF system, the government plans to strengthen the dialogue between the public and private sectors in order to ensure the necessary information sharing and collaboration.

Seen a mistake?

Select text and press Ctrl+Enter to send a suggested correction to the editor

Select text and press Report a mistake to send a suggested correction to the editor

Related articles


Most important