Saeima com­mit­tee sup­ports ban for banks to work with shell com­pa­nies

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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.


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