Banks, Financial Services, Latvia, Legislation

Saeima agreed to put the bill on the fast track. MPs' proposals for the second reading will be accepted until April 23, and Saeima is planning to vote on the legislation in the final reading on April 26.

During the debates, MP Janis Adamsons (Harmony) criticized the bill, saying that the bill was being rushed and it might create more harm than good. On the other hand, MP Lolita Cigane (Unity) responded that now was the time to take decisive action in order to cleanse Latvia's financial sector from shell companies and non-resident transactions that had poisoned the Latvian banking sector.

78 MPs voted for the bill and three abstained. There were no votes against the legislation.

As reported, the Cabinet of Ministers on April 10 upheld the draft amendments to the Law on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) aimed at strengthening the Latvian finance system by reducing the number of risky transactions with high-risk customers that meet the definition of a shell company. The bill is also intended to increase the exchange of information between the financial institutions and the law enforcement agencies.

It has been proposed banning the Latvian financial institutions from cooperation with the entities that show the signs of being a shell company. Under the draft law, the shell company is defined as an entity that fits one or several of the following three criteria. Firstly, there is no actual economic activity and no documentary proof to the contrary. Secondly, the entity is registered in a jurisdiction where companies are not required to submit to the authorities their financial statements. Thirdly, the entity has no place of business in its country of domicile.

In opinion of the Finance Ministry, the first two criteria are decisive in determining the AML/CFT risks related to shell companies. Therefore the ministry proposes that the ban to do business with shell companies would apply to the entities that meet both those of criteria at once.