Shell company ban breezes through in first reading

Take note – story published 5 years ago

On April 19 the Saeima supported a bill banning Latvia's banks from doing business with shell companies in the first reading.

A total 78 MPs supported the proposals, while three chose to 'abstain' (which is different from voting against a proposal).

The second and final reading of the amendments to the Law on Anti-Money Laundering and Combating the Financing of Terrorism will take place April 26 and if adopted the law will come into force the next day after being promulgated. 

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.

The bill says banks will have to cease cooperation with shell companies within 14 days and close their accounts within 60 days. Following this period, these clients will be able to retrieve the money to their accounts in the holder bank or another one, but the clients will not be able to use this money for business dealings. 

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 channeling laundered money. The financial institutions will also have to take steps to reduce their risk profile.

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