Latvia’s Money Laundering Concerns: What You Need to Know
Latvia, a country of 1.9 million residents in Northern Europe, has been plagued by issues related to money laundering and illicit financial activities for years.
The Problem
According to World Bank data, Latvia’s GDP per capita was $17,726 in 2020, with Lithuania being its biggest trade partner. Despite not being subject to any international sanctions, Latvia’s untaxed shadow economy is estimated to be around 25% of its overall economy.
- The primary sources of laundered money in Latvia are tax evasion and organized criminal activities such as fraud.
- Transparency International Corruption Index gave Latvia a score of 59 out of 100, indicating a moderate level of corruption.
Anti-Money Laundering (AML) Efforts
Latvia has strong AML laws against Politically Exposed Persons (PEPs), but there have been concerns about its implementation. In 2016, the US Department of State designated Latvia as a “Jurisdiction of Primary Concern” in its International Narcotics Control Strategy Report (INCSR). However, it was removed from this list in subsequent reports.
Challenges
Despite efforts to combat money laundering, non-resident funds from neighboring Russia and other former Soviet states continue to flow into Latvia. In 2015, the Financial and Capital Market Commission (FCMC) reported that the growth of non-resident deposits from Russia remained consistent even after international sanctions were imposed in 2014.
- These non-resident deposits pose a significant risk as they could be used to launder money acquired through corrupt and illicit activities outside of Latvia.
- Combating money laundering in the country is made more challenging by its geographic location, substantial untaxed shadow economy, and issues related to public corruption.
Monitoring Financial Transactions
The Financial and Capital Market Commission actively monitors financial transactions to spot potential instances of terrorism financing. A black market for smuggled goods primarily involves items like cigarettes, alcohol, and gasoline, but this illicit trade does not generate significant funds that make their way into the official financial system for money laundering purposes.
FATF Status
Latvia’s current FATF (Financial Action Task Force) status is an area of concern. While the country has made commendable efforts to strengthen its framework for preventing money laundering and terrorism financing since its mutual evaluation report in July 2018, it still faces challenges in implementing AML regulations.
Recent Developments
MONEYVAL updated Latvia’s ratings after the country improved its compliance with several essential recommendations. However, Latvia remains under enhanced follow-up status due to ongoing concerns about its AML environment. The nation will continue to provide updates to MONEYVAL as part of its efforts to strengthen its framework.
Combating Money Laundering
To combat money laundering in Latvia, financial institutions must be vigilant in addressing these issues within their operations and work diligently to comply with AML regulations. Sanction Scanner provides advanced options designed for Latvia’s particular AML environment, enabling businesses to efficiently fulfill their AML obligations while gaining valuable insights about the nation’s changing AML environment.