Fi­nance sec­tor’s de­vel­op­ment coun­cil sup­ports pro­hi­bi­tion of shell com­pa­nies

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On Wed­nes­day, 21 March, Lat­vian Prime Min­is­ter Māris Kučin­skis’ man­aged Fi­nance Sec­tor’s De­vel­op­ment Coun­cil sup­ported ini­tia­tive on pro­hibit­ing shell com­pa­nies, as con­firmed by the prime min­is­ter.

«We have reached an agree­ment on pro­hi­bi­tion of shell com­pa­nies in Latvia,» said Kučin­skis, adding that the gov­ern­ment plans to re­view this mat­ter on 3 April, and the Saeima – on 8 April.

Fi­nance Min­is­ter Dana Reizniece-Ozola says that the goal be­hind pro­hi­bi­tion of shell com­pa­nies is mak­ing sure Latvia’s fi­nan­cial sec­tor is sta­ble, sus­tain­able, se­cure and able to of­fer ser­vices that pro­vide sup­port for the na­tional econ­omy, not cre­ate risks. ‘We have agreed on a plan of ac­tions. A to­tal of 22 pro­pos­als sub­mit­ted by the reg­u­la­tor, fi­nance min­istry, As­so­ci­a­tion of Lat­vian Com­mer­cial Banks and non-gov­ern­ment or­ga­ni­za­tions, the main goal of which is re­duc­ing the pro­por­tion of risky clients in the coun­try’s bank­ing sec­tor,’ she said.

The min­is­ter is also con­fi­dent that new mea­sures will help sort out the fi­nan­cial sec­tor.

At the same time, Pēters Put­niņš, head of the Fi­nance and Capital Mar­ket Com­mit­tee, men­tioned that banks have been ten days to come up with strate­gic plans on fu­ture op­er­a­tions, specif­i­cally how they in­tend to cover losses caused by re­jec­tion of shell com­pa­nies. «We ex­pect this process to be rel­a­tively rapid. Be­cause of that, it is highly im­por­tant for sta­bil­ity’s sake to give banks some time to think things over,» he said. FCMC had pre­vi­ously re­ported that among clients of Lat­vian banks are 26,081 shell com­pa­nies, in­clud­ing two based in Latvia. The pro­por­tion of shell com­pa­nies in all Lat­vian banks is 36.57%. Their pro­por­tion in the for­eign clients seg­ment is 44.5%. In to­tal, Lat­vian banks have ap­prox­i­mately 2.6 mil­lion clients.

Be­cause of the re­cent de­vel­op­ments and the over­all sit­u­a­tion with Latvia’s fi­nan­cial sec­tor, As­so­ci­a­tion of Lat­vian Com­mer­cial Banks has asked the gov­ern­ment to add changes to ex­ist­ing reg­u­la­tions.

The as­so­ci­a­tion fully sup­ports in­tro­duc­tion of re­stric­tions and con­trol mea­sures in re­gards to shell com­pa­nies. ‘The as­so­ci­a­tion pro­poses that in sit­u­a­tions when shell com­pa­nies fit all three cri­te­ria de­tailed in the Law on the Preven­tion of Money Laun­der­ing and Ter­ror­ism Fi­nanc­ing, co­op­er­a­tion with them should be pro­hib­ited by law. We be­lieve such a so­lu­tion would help ef­fec­tively re­duce and pre­vent the pres­ence of un­wanted clients in Latvia’s fi­nan­cial sys­tem and clearly voice Latvia’s po­si­tion,’ as in­formed by the as­so­ci­a­tion.

At the same time, the as­so­ci­a­tion adds that a pro­posal has been voiced in re­gards to in­tro­duc­tion of a spe­cial fee for ser­vic­ing shell com­pa­nies. In this case, how­ever, it is im­por­tant to make sure such a fee does not cre­ate an im­pres­sion of it be­ing per­mis­sion to act based on the sit­u­a­tion.

«We be­lieve adding such a fee with­out other re­stric­tions on co­op­er­a­tion with shell com­pa­nies would only cre­ate prob­lems for Latvia’s in­ter­na­tional rep­u­ta­tion. Ac­cord­ing to our in­for­ma­tion, such a tool for re­duc­ing sys­temic risks is not in­ter­na­tion­ally ac­cepted. Work­ing on so­lu­tions, we ask of­fi­cials to con­sider the pos­si­bil­ity of peo­ple try­ing to cir­cum­vent re­stric­tions. We have to be care­ful with risk co­ef­fi­cient or in­di­ca­tion of ju­ris­dic­tion in law/reg­u­la­tion, which is some­thing that is easy to cir­cum­vent. What is im­por­tant is why shell com­pa­nies are formed and what they do. Es­to­nian and Lat­vian com­pa­nies can also serve as ‘shells’ used for money laun­der­ing and fi­nan­cial crimes. Ap­pli­ca­tion of a fee based on a le­gal prin­ci­ple could po­ten­tially con­trib­ute to a de facto in­crease of reg­is­tra­tion of shell com­pa­nies in Latvia’s En­ter­prises Reg­is­ter. We be­lieve a more ef­fec­tive mea­sure would be a full pro­hi­bi­tion on co­op­er­a­tion with shell com­pa­nies that fit all three cri­te­ria of the Law on the Preven­tion of Money Laun­der­ing and Ter­ror­ism Fi­nanc­ing. This would re­quire law amend­ments,» the as­so­ci­a­tion notes.

Evija Tri­fanova/LETA

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