Around 20,000 Lat­vian busi­nesses will have to cease work­ing with shell com­pa­nies

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Ap­prox­i­mately 20,000 Lat­vian busi­nesses will have to cease work­ing with shell com­pa­nies, said Lur­soft board mem­ber Daiga Kiopa in an in­ter­view to Latvi­jas Ra­dio.

She men­tioned that so­ci­ety has a mis­con­cep­tion that new amend­ments to the Law on the Preven­tion of Money Laun­der­ing and Ter­ror­ism Fi­nanc­ing in­tended to strengthen the coun­try’s fi­nan­cial sys­tem will only on Latvia’s bank­ing sec­tor. «Amend­ments will not ap­ply solely to the bank­ing sec­tor – they will ap­ply to com­pa­nies like tax con­sul­tants, law firms, ac­coun­tancy ser­vice providers and oth­ers. Ap­prox­i­mately 20,000 com­pa­nies in to­tal,» said Kiopa, adding that these com­pa­nies will have to sort their client base and cease co­op­er­a­tion with shell com­pa­nies. Lur­soft board mem­ber re­minded that the law in­cludes three def­i­ni­tions of a shell com­pany. Ac­cord­ing to the Law on the Preven­tion of Money Laun­der­ing and Ter­ror­ism Fi­nanc­ing, a shell com­pany is a le­gal per­son that fits one or three fac­tors. Firstly – this le­gal per­son has no re­la­tion to ac­tual busi­ness op­er­a­tions. Se­condly, a le­gal per­son is con­sid­ered a shell com­pany if leg­is­la­tion of the coun­try where it is lo­cated does not re­quire busi­nesses to sub­mit fi­nan­cial ac­counts to state mon­i­tor­ing in­sti­tu­tions. Thirdly, a com­pany is con­sid­ered a shell com­pany if the le­gal per­son has no of­fi­cial ad­dress in the coun­try where it is reg­is­tered. Ac­cord­ing to Kiopa, the first sign is the hard­est one to de­ter­mine.

She men­tioned that Lat­vian banks have be­gun ac­tively re­view­ing their clients. «This means enor­mous vol­umes of fi­nances and re­sources are be­ing used, be­cause no one wants to ex­pe­ri­ence the same as what hap­pened with ABLV Bank,» said Kiopa. Lur­soft board mem­ber also pre­dicts the new amend­ments will have a ma­jor im­pact on in­vestors’ mood and Latvia’s na­tional econ­omy. «It may leave a large im­pact; we will all feel it. With such changes there is no point in hop­ing in­vest­ments in Latvia con­tinue grow­ing or at least re­main on their cur­rent level,» she said.

On Tues­day, 10 April, the gov­ern­ment in­tends to dis­cuss the mat­ter re­gard­ing re­stric­tion of op­er­a­tions per­formed be risky clients in Latvia’s fi­nan­cial sec­tor. Mem­bers of the Cabinet of Min­is­ters will dis­cuss this mat­ter be­hind closed doors. Fi­nance Min­istry has de­vel­oped amend­ments to Law on the Preven­tion of Money Laun­der­ing and Ter­ror­ism Fi­nanc­ing in or­der to strengthen the coun­try’s fi­nan­cial sys­tem and re­duce the pro­por­tion of fi­nan­cial op­er­a­tions per­formed by high-risk clients (shell com­pa­nies). Amend­ments also in­clude es­tab­lish­ing in­for­ma­tion ex­change be­tween subjects of the law and law en­force­ment in­sti­tu­tions to im­prove money laun­der­ing mea­sures in the coun­try.

A new sec­tion to the law will in­tro­duce a pro­hi­bi­tion for credit in­sti­tu­tions, pay­ment pro­cess­ing in­sti­tu­tions, in­vest­ment bro­ker as­so­ci­a­tions and client de­posit funds to work with shell com­pa­nies.

The pro­hi­bi­tion de­tailed in the law will not ap­ply to clients of in­sti­tu­tions reg­is­tered in Latvia, be­cause the coun­try’s leg­is­la­tion makes it a re­quire­ment for all le­gal per­sons to sub­mit reg­u­lar fi­nan­cial ac­counts of their op­er­a­tions to ap­pro­pri­ate su­per­vi­sory in­sti­tu­tions.

It is ex­pected that this leg­isla­tive draft will re­duce the pos­si­bil­ity of us­ing Latvia’s fi­nan­cial sys­tem for crim­i­nal in­tent. Credit in­sti­tu­tions and other subjects of the law will have to per­form mea­sures to re­duce the pro­por­tion of risky clients. Amend­ments also pro­vide for im­prov­ing in­for­ma­tion ex­change for more ef­fi­cient com­bat­ing of fi­nan­cial crimes. It is the lack of co­op­er­a­tion and deficit of in­for­ma­tion that are two de­cid­ing fac­tors that make pub­lic and pri­vate sec­tors’ work are the more dif­fi­cult. In­volve­ment of the pri­vate sec­tor in in­for­ma­tion ex­change is im­por­tant not only be­cause of in­for­ma­tion ac­ces­si­bil­ity for this sec­tor, but also be­cause ac­qui­si­tion of in­for­ma­tion from the pub­lic sec­tor can help pre­vent crimes.

The Saeima will soon have to dis­cuss the leg­isla­tive draft be­fore its ap­proval.

Evija Tri­fanova/LETA

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