Countries/Jurisdictions of Primary Concern - Latvia
Latvia is a regional financial center with a large number of commercial banks and a sizeable non-resident deposit base. Foreign depositors account for more than half of the 30 billion euros (approximately $33 billion) in Latvia’s banking system, which markets itself as a gateway to the European Union. Nonresident cash continues to flow across the border from neighboring Russia and other former Soviet states. The Financial and Capital Market Commission (FCMC) stated in May 2015 that the growth of nonresident deposits from Russia has remained steady despite international sanctions imposed in the spring of 2014. Nonresident deposits pose a substantial risk in that money obtained from corruption and other crimes committed outside of Latvia can be laundered inside the country. Latvia’s geographic location, large untaxed shadow economy (estimated at about 25 percent of the overall economy), and public corruption make it challenging to combat money laundering.
Officials do not consider proceeds from illegal narcotics to be a major source of laundered funds in Latvia. Authorities identify the primary sources of money laundered in Latvia as tax evasion; organized criminal activities, such as prostitution and fraud perpetrated by Russian and Latvian groups; and other forms of financial fraud. Officials also report that questionable transactions and the overall value of laundered money have remained below pre-financial crisis levels. Latvian regulatory agencies monitor financial transactions to identify instances of terrorism financing.
There is a black market for smuggled goods, primarily cigarettes, alcohol, and gasoline; however, contraband smuggling does not generate significant funds that are laundered through the official financial system.
Four special economic zones provide a variety of significant tax incentives for manufacturing, outsourcing, logistics centers, and the transshipment of goods to other free trade zones. The zones are covered by the same regulatory oversight and enterprise registration regulations that exist for other areas.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: //2009-2017.state.gov/j/ct/rls/crt/
Do FINANCIAL INSTITUTIONs engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or illegal drug sales that otherwise significantly affect the U.S.: NO
criminalizATION OF money laundering:
“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes
Are legal persons covered: criminally: YES civilly: YES
Know-your-customer (KYC) rules:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: NO
KYC covered entities: Banks, credit institutions, life insurance companies, and intermediaries; private pension fund administrators, investment brokerage firms, and management companies; currency exchange offices, payment service providers, money transmission or remittance offices, and e-money institutions; tax advisors, external accountants, and auditors; notaries, lawyers, and other independent legal professionals; trust and company service providers; real estate agents or intermediaries; organizers of lotteries or other gaming activities; persons providing money collection services; EU-owned entities; and any high-value goods merchant, intermediary, or service provider
Number of STRs received and time frame: 6,923: January 1 - November 1, 2015
Number of CTRs received and time frame: 6,134: January 1 - November 1, 2015
STR covered entities: Banks, credit institutions, life insurance companies, and intermediaries; private pension fund administrators, investment brokerage firms, and management companies; currency exchange offices, payment service providers, money transmission or remittance offices, and e-money institutions; tax advisors, external accountants, and auditors; notaries, lawyers, and other independent legal professionals; trust and company service providers; real estate agents or intermediaries; organizers of lotteries or other gaming activities; persons providing money collection services; any high-value goods merchant, intermediary, or service provider; and public institutions
money laundering criminal Prosecutions/convictions:
Prosecutions: 27: January 1 - November 1, 2015
Convictions: 14: January 1 - November 1, 2015
Records exchange mechanism:
With U.S.: MLAT: YES Other mechanism: YES
With other governments/jurisdictions: YES
Latvia is a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body. Its most recent mutual evaluation report can be found at:
Enforcement and implementation issues and comments:
On June 30, 2015, several amendments were made to the Law on the Prevention of Money Laundering and Terrorism Financing. The amendments empower credit institutions to inform Latvia’s Financial Intelligence Unit (FIU) of any suspicious transactions involving accounts closed by their clients, and more clearly define the institutions from which the FIU is permitted to request and receive information. The amendments also require these institutions to provide information on international passengers, airports, and aero-navigation service owners and related officials where money laundering, terrorism financing, or threats to national security are suspected.
Under Latvian law, foreign politically exposed persons (PEPs) are always subject to enhanced due diligence procedures, but domestic PEPs are not. The FCMC reports it is developing enhanced due diligence regulations as well as language for draft legislation that would ultimately extend existing PEP rules to cover domestic PEPs.
The 27 cases prosecuted in the first 11 months of 2015 involved 84 individuals. During 2015, Latvian authorities took additional actions against high-level government officials and appointees. In August, the Bureau to Prevent and Combat Corruption (KNAB) detained the CEO of state-owned Latvian Railways for two months for allegedly accepting a 500,000 euro (approximately $546,000) bribe. The CEO posted bail and was freed, pending trial. In November, the Prosecutor’s Office opened a criminal case against the Riga Freeport CEO and his deputy, who are suspected of using their official positions for private gain. The Riga Freeport Board declined to remove the two officials while proceedings are ongoing. Both cases are pending. In December 2015, the FCMC announced a 2.0 million euro (approximately $2.2 million) fine – its largest ever – against the Latvian branch of Ukrainian-owned PrivatBank and ordered the bank to fire its board for its role in handling cash from an alleged multi-billion euro fraud in Moldova. Also that month, the Latvian State Police arrested and searched the offices of two Trasta Komercbanka employees suspected of criminal involvement in money laundering. By late December, Latvian media had reported both a pre-trial investigation and an FCMC probe of the bank’s internal control system were underway.
In October 2015, the Organization of Economic Cooperation and Development’s Anti-Bribery Working Group released a report expressing concern about Latvian enforcement capacity and efforts to combat corruption and money laundering. It raises “serious concerns” about KNAB’s effectiveness, ongoing conflicts among personnel, and insulation from potential political interference that have overshadowed KNAB’s investigative efforts. The report further highlights the risks to Latvia’s banking system of money laundering by non-resident clients, FCMC’s failure to detect large-scale transfers subsequently reported in the media, and the low number of money laundering investigations and resulting convictions. The report recommends Latvia make further legislative amendments in the areas of foreign bribery, extradition, corporate liability, and external auditor reporting. It also urges FCMC to require banks that take nonresident deposits to adopt stronger AML measures, to inspect banks more frequently, and to punish banks that violate the law.
While Latvia has taken steps to implement anti-corruption and AML/CFT legislation, enforcement must be strengthened. Latvian banks continue to invest substantially in IT systems to develop programs for identifying high-risk clients. However, they should enforce a higher standard of due diligence and KYC best practices. The FCMC should inspect banks more regularly, investigate alleged malfeasance more aggressively, and impose penalties where appropriate, while continuing efforts to increase its human and financial resources, specifically for AML purposes. The government also should devote appropriate resources to its AML and anti-corruption programs and take steps to correct noted deficiencies.