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

Daiga Kiopa/facebook.com.
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.

BNN/LETA

10-04-2018
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