New Anti-money Laundering Law Adopted
- Latvia
- 09/02/2008
- Raidla Lejins & Norcous
On 17 July 2008 Saeima passed a new Law On Prevention of Laundering of Illegally Acquired Funds and Financing of Terrorism (hereinafter – “New Money Laundering Prevention Law”), implementing the European Parliament and Council’s Directive 2005/60/EK on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing and the Commission Directive 2006/70/EK was adopted laying down implementing measures for Directive 2005/60/EC of the European Parliament and of the Council as regards the definition of politically exposed person and the technical criteria for simplified customer due diligence procedures and for exemption on grounds of a financial activity conducted on an occasional or very limited basis. The new Money Laundering Prevention Law entered in force on 13 August 2008 and will substitute the previous Law on Prevention of Laundering of Illegally Acquired Funds, adopted on 18 December 1997.
As compared to the previous law, the New Money Laundering Prevention Law has considerably changed the scope of the person which are subject to the law. Thus, it has included in the scope of the persons subject to the law also the persons engaged in provision of services of establishment of legal formations and maintenance of their operations, persons providing cash-collection services, external accountants, all legal service providers irrespectively of the form of operation. The New Money Laundering Prevention Law has also made it clear that not only the persons incorporated in Latvia or operating there via a local branch, but also all those entities which are providing financial services in Latvia on a cross-border basis will be subject to the law. At the same time, the New Money Laundering Prevention Law will not apply to postal service providers (unless they are engaged in banking or financial services like money transmission, opening and maintenance of cash accounts, etc.), savings and loan associations, and, in respect of insurance businesses, the application of the law has been limited to insurance companies and insurance companies engaged in the underwriting and distribution of life insurance products only, thus excluding its application non-life insurance businesses.
The New Money Laundering Prevention Law will continue to apply to electronic money institutions, although they will be subject to less stringent legal regulation. The electronic money institutions will be exempt from the customer due diligence obligations under the New Money Laundering Prevention Law if the electronic money devices issued by them cannot be recharged and the maximum amount of money stored in the device is limited to EUR 150 or its equivalent, or, if the device is rechargeable – if the maximum transaction amount per year carried out with the device does not exceed the equivalent of EUR 2500. In addition, while this has not been clearly defined in the law, it is likely that the electronic money institutions will be allowed not to undertake the customer identification in respect of one-off issuances of electronic money devices.
Subject to certain exceptions, all entities subject to the New Money Laundering Prevention Law will have three broad sets of obligations – creation and maintenance of an internal control system to prevent money laundering and terrorism financing, including mandatory training of the employees, the customer identification obligation and the customer due diligence obligation.
According to the New Money Laundering Prevention Law, all credit institutions and all financial institutions (except for the ones whose activities are limited to sale and purchase of foreign currencies only) are required to appoint one of their Board members to be in charge of the money laundering and terrorism financing prevention matters in the institution. In addition, all legal entities subject to the law are required to appoint a structural unit or one or more employees which are authorized to take decisions on the matters concerning the law and which are directly responsible for the compliance with the law. The names of these persons have to be notified to the Control Service within 30 days from the date the legal entity became subject to the law.
As far as client identification is concerned, complete client identification procedures in accordance with the requirements of the New Money Laundering Law must be accomplished by 1 July 2009, unless already performed. In cases when that is not possible, the persons subject to the law must terminate the business relationship with that customer by 1 July 2009.
A new “risk based approach” is introduced by the Money Laundering Prevention Law providing that the subjects to the Law shall carry out evaluation of risks of money laundering and terrorism financing and determine the scope of client research within the internal control system, based on the mentioned evaluation (the greater the risk is, the closer attention should be brought to the client). The new Money Laundering Prevention Law, unlike the previous law “On Prevention of Laundering of Illegally Acquired Funds”, allows the subjects to the Law to apply a risk based approach by drawing more attention to clients with a higher money laundering or terrorism financing risk, but less attention in low risk cases. The Money Laundering Prevention Law defines the basic requirements for creation of internal control system, as well as specifies measures for identification and client research.
In order to ensure fulfillment of obligations of supervision and control authorities defined by the law, including exploration and registration of subjects to the Law being under supervision, the State Revenue Service will supplement the Tax Data System with a new field – features indicating that the person is under the supervision of the State Revenue Service.
The Cabinet of Ministers regulations approved pursuant to the previous Law on Prevention of Laundering of Illegally Acquired Funds, adopted on 18 December 1997, including the regulations approving the list of unusual financial transactions and regulations on reporting procedures, will continue to be applicable until replaced by new regulations or until 1 January 2009, whichever is later.
