Latvia’s Prime Minister, Maris Kucinskis, announced last week that Latvia is preparing a legislation to ban shell companies after receiving demands from the European Union and its western allies to strengthen their anti-money laundering (AML) policies. The Latvian government plans on approving the new legislation at the beginning of April in order to start enforcement as early as May.
Finance Minister Dana Reizniece-Ozola stated that once the legislation is in effect, banks may have as little as six months to identify and sever all ties to accounts using shell companies. Head of Latvia’s Finance and Capital Market Commission (FCMC), Peters Putnins, added that after the deadline of the transition period has passed, any customers who failed to withdraw their funds will need approval to gain access to them again.
Latvia has been known to be a hotspot for shell companies, with more than 26,000 being reported by the FCMC. Many of Latvia’s banking customers are also from Russia or ex-Soviet states who often utilize shell companies for business purposes because it makes tracking the source of the funds and the beneficial owners more difficult and conducting illicit transactions more effortless. Thomson Reuters reported that although Latvia’s banks flagged 17,900 suspicious transactions in 2017, only 85 investigations were launched. At the end of 2017, 40% of deposits in the Latvian banking system were from non-residents although withdrawals have decreased somewhat since ABLV, Latvia’s third largest bank, closed last month.
Despite Latvia’s struggles with their weak AML regulations, they are working to restore faith in their financial institutions by joining the fight against money laundering rather than turning a blind eye to the illicit activities of its banking customers. The US and the European Union will be watching closely to ensure that Latvia is improving its AML efforts.
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