Financial Crime World

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Latvia’s AML/CFT System Under Scrutiny: Key Findings and Recommendations

Riga, Latvia - The Latvian authorities’ efforts to combat money laundering and terrorist financing (ML/FT) have been reviewed by international experts, who identified several areas for improvement.

Supervisory Actions and Financial Institutions

According to the report, the impact of supervisory actions on financial institutions (FIs) and designated non-financial businesses and professions (DNFBPs) has been mixed. While some FIs, such as the Financial and Capital Market Commission (FCMC), have demonstrated a good understanding of AML/CFT risks, others have shown a lack of awareness.

Transparency and Company Service Providers

The report also highlighted concerns over the transparency of legal persons and arrangements in Latvia, with many foreign companies incorporated in the country suspected of being involved in ML/FT schemes. Company service providers were found to be lacking in their understanding of AML/CFT risks and measures.

Business Owners’ Information and International Cooperation

Moreover, the report noted that business owners (BO) information gathered by reporting entities must conform to the AML/CFT Law, but self-identification through a statement signed by the customer was used as a primary method for determining BO. This practice is set to change with the introduction of new provisions requiring all legal persons in Latvia to collect and submit BO information to the Economic Register (ER).

International cooperation is another critical aspect of Latvia’s AML/CFT system, which has been deemed effective overall. However, challenges were identified in obtaining assistance from Commonwealth of Independent States (CIS) countries, which are critical partners given Latvia’s risk profile.

Recommendations for Improvement

To address these issues, the report recommends several priority actions for Latvia:

  • Improve understanding of ML/FT risks through better analysis and threat assessment.
  • Enhance enforcement of minimum requirements for additional information and documents collected by obliged entities.
  • Strengthen internal controls and procedures among all subjects of the AML/CFT Law.
  • Increase outreach to and regulation of reporting entities (REs) to develop internal control systems capable of detecting potential proceeds of crime activity.
  • Revisit the legal framework for terrorist financing supervision and assign adequate resources to compliance supervision.

Additionally, the report suggests revising concepts such as unusual transactions and suspicious activities to eliminate overlap in definitions and pursuing money laundering as a priority, with a focus on systematically prosecuting a wider range of ML offenses.

Effectiveness and Technical Compliance Ratings

The effectiveness and technical compliance ratings for Latvia’s AML/CFT system are:

  • IO.1 - Risk, policy, and coordination (fairly good)
  • IO.2 - International cooperation (good)
  • IO.3 - Effectiveness of measures to prevent the use of the financial system for ML/FT purposes (negligible)

Conclusion

The report concludes that while Latvia has made progress in implementing AML/CFT reforms, there is still much work to be done to ensure the effectiveness of its anti-money laundering and terrorist financing regime.