Moneyval experts: Latvian regulatory framework for AML/CTF/CPF largely complies the international standards set by FATF

Prime Minister Arturs Krišjānis Kariņš stresses: “Moneyval experts’ assessment strengthens our conviction that Latvia might not be included on the so-called ‘grey list’. While waiting for the assessment of our performance, including the most important assessment of the effectiveness of the system, which remains to be decided by FATF experts, the work on implementing the reforms underway should continue. The ‘overhaul’ of the supervision of the financial sector has been a priority for my government since day one, and a huge amount of work has been done over the year to fine-tune this area. Thank you to everyone who worked hard and tirelessly to do this. Let’s keep working!”. 

Head of the Financial Intelligence Unit (FIU) Ilze Znotiņa as the head of the Latvian delegation to Moneyval states: “Moneyval experts’ assessment provided an opportunity for Latvia to implement intensively and in a short period of time radical, but at the same time very necessary changes, thus demonstrating our ability to work as a team. All the changes that have been made to date are firmly anchored in the regulatory framework and are considered to be lasting. But we must not stop; we must continue to work for a safe, well-arranged and prosperous country.”

In July 2018, the Fifth Round Mutual Evaluation Report (MER) on Latvia was adopted at the 56th Plenary Session of Moneyval. The MER presented a summary of AML/CTF/CPF measures, assessing the current situation in Latvia from 30 October to 10 November 2017. Since the adoption of the MER, Latvia has demonstrated a strong and sustained political, supervisory and institutional commitment to fight financial crime.

Initially, the Latvian political commitment was demonstrated by the adoption of the Action Plan in October 2018. The plan provided a solid basis for developing a comprehensive, coordinated and targeted approach to address the risks identified by Moneyval experts.

Commitment, coordination and cooperation of political and institutional representatives involved in the reform implementation resulted in substantial changes in terms of aligning Latvia’s regulatory framework with the international standards — 40 recommendations of the Financial Action Task Force (FATF). This has been achieved by adopting new or amending existing legislation, developing recommendations, explanations, guidelines and ML/TF risk assessments. The following are some of the main amendments made:

1. The Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing, which as a result of significant amendments now includes a ban on financial institutions to do business with shell companies; repeals the requirement to submit to the FIU financial reports on unusual transactions; introduces a threshold declaration institute; amends the legal status of the FIU and provides an opportunity to convene meetings of the cooperation coordination group or public– private partnership platform.
2. The Law on International Sanctions and National Sanctions of the Republic of Latvia (and related binding regulations of the Cabinet of Ministers) — ensuring direct and immediate application of the sanctions imposed by the UN Security Council, without waiting for their introduction into the EU’s legal system; establishing a Sanction Coordination Council under the guidance of the Ministry of Foreign Affairs; specifying the scope of persons subject to requirements of the law, as well as describing in detail application of the sanctions in the field of public procurement and expanding the scope of supervising bodies.
3. The Criminal Law — establishing criminal liability for non-declaration or false declaration of a large amount of cash (exceeding in total 50 minimum monthly wages) when crossing the state border of Latvia.
4. The Law on Declaration of Cash at the State Border — establishing a mechanism for the declaration or disclosure of incoming and outgoing cross-border cash consignments not only outside the European Union, but also within it.
5. The Law on the Financial and Capital Market Commission (FCMC) — extending the scope of FCMC’s performance targets, functions and responsibilities in order to strengthen AML/CFT in the financial and capital market sector.

Regarding the above-mentioned actions, Latvia on 30 August 2019 submitted to the Moneyval committee of experts a progress report on the progress achieved to improve the system of AML/CFT. Following Latvia’s report, Moneyval experts re-evaluated Latvia’s compliance with all 11 recommendations where deficiencies were previously identified. Currently, in all 11 recommendations Latvia’s rating has been raised, and compliance with the FATF standards is assessed as ‘largely compliant’ and ‘compliant’. Thus, current Latvia’s regulatory framework has been assessed as generally compliant with FATF standards — with all 40 recommendations. What has been achieved is considered an important first step towards Latvia’s non-inclusion in the so-called ‘grey list’.

Latvia is left in Moneyval’s enhanced follow-up process, which means that according to Moneyval’s internal rules, Latvia will have to report regularly on the remaining deficiencies, but progress will not be re-evaluated as compliance with the FATF international standards is at least ‘largely compliant’.

Latvia has demonstrated its commitment, not only focusing on the regulatory framework, but also its effective application, which is evaluated in a separate process — Latvia’s effectiveness or application of the regulatory framework in the field of AML/CFT will be evaluated by FATF, and the final decision will be taken at the end of February.

Full Moneyval’s progress report is available here.