Saeima committee supports ban for banks to work with shell companies
Banks registered in Latvia will be prohibited from working with shell companies and servicing their accounts. New restrictions are provided by amendments to the Law on the Prevention of Money Laundering and Terrorism Financing supported by Saeima’s Defence, Internal Affairs and Corruption Prevention Committee on Tuesday, 17 April.
Amendments were proposed to reduce the possibility of using Latvia’s financial system to launder illegally obtained funds. This ban will apply to credit institutions, because turnover of funds from shell companies forms a considerable portion of their clients’ turnover.
The ban will also apply to payment processing institutions, electronic money institutions, deposit broker associations and individual client deposit portfolios and open deposit fund certificate distribution management associations. Amendments provide that banks within fourteen days will have to inform their clients – shell companies – about termination of relations and that their accounts will be closed within sixty days. Remaining money on the clients’ account will be allowed to be transferred to a different bank account in another financial institution. No transactions will be allowed with this money. Saeima notes that Finance and Capital Market Commission has concluded that systematic flaws in banks’ internal control system create risks of money laundering. This especially applies to situations associated with servicing foreign clients. This means foreign clients’ flow of money remains extremely vulnerable to money laundering risk, which only increases the risk of Latvian banks being used to perform such criminal acts, as stated in the annotation to supported amendments.
Data from FCMC shows that the proportion of shell companies’ finances formed 27.8% of turnover of all clients in Latvia’s banks in Q1 2017. This proportion was 44.52% for credit institutions that service mainly highrisk clients.
Amendments to the law are intended to ensure more efficient combating of financial crimes and information exchange for law enforcement institutions. Amendments to the law are asked to be added to Saeima’s 19 April meeting, as confirmed by committee’s chairman Ainars Latkovskis.