On August 30th, Latvia has submitted its update report to MONEYVAL – the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering and the Financing of Terrorism. The technical report includes detailed evidence that the joint efforts of the Latvian government and Parliament, as well as the supervisory authorities, the FIU and law enforcement agencies are yielding tangible results.
Minister of Finance Jānis Reirs said: “The message of today’s report is clear. Addressing money laundering remains the top priority for this government and my country. We have zero-tolerance for money laundering in our banking system. The report demonstrates that much progress has been made. The supervision of Latvia’s financial sector is stronger and the fight against financial crime more effective. But there is no room for complacency. We will remain focused, ambitious and vigilant.”
“Combatting financial crime remains my absolute focus. Anti-money laundering is a global problem and Latvia is no exception. Our active commitment paved the way for Latvia becoming a successful example of adopting and implementing an unprecedented set of financial legislative reforms internationally. The State Police together with other law enforcement bodies and supervisors of the financial sector have ensured tangible improvements to the implementation of Latvia’s AML/CTF system. The number of money laundering cases that have been investigated and further processed has significantly increased. The AML/CTF legal framework currently in force is progressive and effective. Nor will we cease our efforts in the future. I am confident that Latvia’s financial sector has the capacity and stability to support investment and GDP growth,” said the Minister of Interior.
The Head of Financial Intelligence Unit and Latvia’s delegation to Moneyval Ilze Znotiņa notes: “I am grateful to the Parliament and the government for their readiness and determination to ensure such a significant progress within a short timeframe. This boosts our collective ability to fight financial crime. I would particularly like to thank the whole team of FIU, the Ministry of Justice, the Ministry of Finance, the Ministry of Foreign Affairs, the Ministry of Interior, as well as all the other institutions involved in drafting the report submitted today. This is the first step in successfully implementing Moneyval recommendations and it has demonstrated our proven ability to cooperate and achieve common goals.”
The Latvian government remains strongly dedicated to further strengthening the integrity and stability of the financial system.
All authorities are focused on ensuring the robust implementation and application of the new legislative and supervisory framework, as well as monitoring and reviewing strictly its effectiveness as needed in the future.
The government will examine the outcome of MONEYVAL’s follow-up assessment to ensure that further steps take full account of its recommendations on how Latvia should continue to strengthen its financial system.
To ensure that ongoing implementation remains effective, timely and properly monitored, the Latvian government will continue to uphold the commitment to the AML/CFT reforms as one of its top priorities in its 2020 national budget.
Latvia’s efforts should not be seen in isolation: as recently noted by the IMF, the reforms that Latvia has adopted would “benefit from intensive regional cooperation”. Much stronger cooperation, coordination and trust are absolutely fundamental to addressing the magnitude of the challenge. Financial crime remains complex, widespread and multifaceted, knowing no borders when it comes to threatening countries’ economies and stability.
In its recent Staff Report for the 2019 Article IV Consultation, the IMF concluded that significant gaps in implementing Latvia’s AML/CFT framework had hampered our effectiveness in fighting financial crime in the past. Acknowledging that and with the orientation and in collaboration with international institutions – including MONEYVAL, Latvia has been addressing the deficiencies in the system and reforming the legal and supervisory AML/CFT frameworks since 2018. We note that the IMF concluded that significant efforts have so far been undertaken by Latvian authorities.
The government of Latvia welcomes the IMF recommendations and remains resolutely committed to continuing to deliver the reforms identified by MONEYVAL in 2018 to restore the banking sector’s financial integrity and reputation. Our full response to IMF Article IV mission can be found here.
To implement the MONEYVAL recommendations, Latvia has taken proactive steps to improve Latvia’s AML/CFT legal and institutional framework at pace. We have made meaningful progress in 10 of the 11 areas identified by MONEYVAL and have implemented most of its recommended actions. We will continue to work on implementing any outstanding areas as soon as possible. We are confident that Latvia will meet the conditions to remain off the list of jurisdictions with strategic AML/CFT deficiencies.
As the report outlines, Latvia has:
Adopted a substantial strategy for reforming the financial sector and related regulation (February 2019) focused on strengthening the capacity of all authorities to combat money laundering and unburdening law enforcement and judiciary to more effectively address financial crime. This was supplemented by a revised Financial Sector Development Plan, which focused entirely on rebuilding the reputation of Latvia’s financial sector and addressing remaining vulnerabilities and risks in AML/ CFT capabilities.
Harmonised Latvia’s AML/CFT legislation with FATF standards, including significantly amending the AML/CFT Law to prohibit financial institutions from doing business with shell companies and to strengthen the legal status, operational independence and autonomy of the FIU, establishing it as the authority responsible for AML/CFT issues; and amending the Law on International Sanctions and National Sanctions to expand the list of authorities with competence to enforce sanctions.
Transposed the EU’s forthcoming AML Directive ahead of its January deadline, including establishing an Enterprise Register to require firms to disclose beneficial ownership and improve transparency of, and access to, such information.
Reviewed the National Risk Assessment (NRA) of Latvia, including updating sectoral and national money laundering and terrorist financing risks assessments. Further efforts are ongoing to deliver the next iteration of the 2017-2018 NRA by the end of the year.
These efforts have enabled Latvia to achieve substantial progress.
The AML/CFT Law now captures shell entities that were previously threatening the integrity of the Latvian banking system. Since November 2017, Latvia has eliminated more than 17,600 shell companies; between March and June 2019 alone the number of serviced shell companies has dropped further from 2,421 to 1,829.
The share of non-EU deposits has decreased from 35.6% in 2015 to 7.7% in June 2019, greatly reducing the risk of money laundering associated with shell companies.
The value of foreign deposits has shrunk from €8.1 billion in 2017 to €3.5 billion in June 2019 (39.7% to 21.3% in total deposits).
Around 97% of companies established in Latvia have disclosed their beneficial owners since the introduction of the Enterprise Register. The remaining 3% have had their rights to trade terminated because of non-compliance with the UBO reporting requirements.
The MONEYVAL process
The report submitted today focuses on the technical compliance of its financial system with global anti-money laundering and terrorist financing (AML/CTF) standards. It follows the fifth evaluation round of Latvia conducted at the end of 2017. It will be discussed at MONEYVAL’s plenary in December. Latvia will submit a further report on the operational efficiency of its AML/CFT framework to MONEYVAL for information in November.