Banks to start monitoring politically exposed persons

The Latvian parliament is due to review - and most likely to accept - amendments to the Act for Preventing the Legalization of Criminally Acquired Funds, making banks monitor politically exposed clients, that is, people tied to individuals carrying political clout, Latvian Radio reported last Wednesday.

Politically exposed persons - like the relatives of MPs, ministers, high-ranking officials, municipal leaders, judges, party associates, and others - will probably have to put up with their bank accounts being monitored more heavily, as Saeima has slated the final review of the amendments for February 4.

Arvils Ašeradens (Unity), the Parliamentary Secretary at the Finance Ministry, explained to Latvian Radio why they are being pushed through so fast.

"It's several things taken together. First of all - this is the moment when we can lay claim on being a part of the club for developed countries. We want to become an OECD member, and in talks we have received harsh criticism about how the state manages Latvia as an international finance center. Latvia has become a large international finance center - about €300b passes through Latvia. At best a third of it is Latvian money. The rest is non-resident money," he said.

While Ainars Latkovskis - one of the two officials summoned to the US and told at the State Department and Treasury that Latvia needed to clean up its act as regards financial regulation - said it depends on these amendments whether the Latvian banks serving non-residents will be able to continue working like they used to.

"The obligations worked into the law, most likely to be accepted by the Saeima on Thursday [they were not, ed.] have to be fulfilled if we want to become an OECD member state," he said.

He noted however that "These obligations aren't meant only to appease some foreign partner. They are necessary so that the banking sector can go on working."

As the Latvian OECD accession talks are expected to be concluded in the following months, there is not much time for further discussions over the amendments.

Viesturs Burkāns, the head of the Bureau for Prevention of the Legalization of Criminally Acquired Funds, noted that Latvia would have to introduce, legally, the definition of a 'politically exposed person' even if the country would not want to join the OECD. 

"In 2012 the Financial Action Task Force adopted guidelines saying that the term is to be applied to politically exposed persons who are nationals as well. And in May 2015 the EU adopted the fourth directive, effective in June. [..] Within two years after the directive comes into force - that is, until June 2017 - Latvia would have to adopt amendments to the Legalization Prevention Law to include politically significant persons who are nationals," said Burkāns.

Monitoring thousands of clients?

The Association of Latvian Commercial Banks thinks that increasing numbers of persons banks have to monitor might make the banks' job much more difficult. 

"We understand that the current offer is to look at them all in five generations - parents, grandparents, brothers, sisters, children, grandchildren, wives... the number of persons could theoretically reach half a million.

It means that quarter of the people living in Latvia would have to be analyzed, their every transaction, well, maybe not every single transaction, as there's no clear definition over it," Mārtiņš Bičevskis, the President of the Association of Latvian Commercial Banks told Latvian Radio.

While officials from Financial and Capital Markets Commission (FKTK), Latvia's financial regulator, said they doubt whether the number of persons to be monitored will reach hundreds of thousands, however they also admitted that they don't have estimates on the matter either.

Confusing to bankers as well

Bank clients will most likely have to fill questionnaires over whether they are close to people with political clout. 

"It will affect countless people. The clients of Latvian banks will have to fill special surveys, [and the banks will have to] provide information and tell these people why they have to do it," said Bičevskis.

While Kristaps Markovskis from the monitoring department at the FKTK said that the regulator will work out guidelines that will allow banks to identify the people who should be monitored. 

It is likely that after December 1 clients won't be able to transfer funds before they'll have filled the necessary forms.

While the new regulation may encompass many individuals, it could also help combat graft.

"It's interesting to see that, year by year, the list of Latvia's 500 wealthiest we see that a person is among millionaires for many years, and next year his son or daughter is in the list. This is why we cannot limit ourselves to MPs or ministers," said Ainārs Latkovskis.

The new anti-corruption measures will pose short-term inconveniences for most people, but whether the work will be justified depends on the authorities being able to effectively employ the new information. 

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