In developing internal control systems and conducting ‘know-your-client’ assessments, Latvian financial institutions and other entities subject to the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing must also taking geographic risks into account. Geographic risk assessment is an important factor in protecting the local and the international financial system from significant risks pertaining to money laundering, terrorism and proliferation financing typical for certain countries and territories.
As a member state of the European Union (EU), Latvia complies with the recommendations provided by the EU and other international organisations in combatting money laundering and terrorism and proliferation financing.
If the money laundering and terrorism and proliferation financing prevention system of a country show major deficiencies, and that country is unable or unwilling to eliminate such deficiencies by bringing its financial, control and law-enforcement system in line with international standards, the country is included in the list of high-risk countries and countries under increased monitoring, whereby financial cooperation with such countries is restricted, not recommended or even prohibited.
Latvian laws and regulations refer to such countries using the terms ‘high-risk third country’ and ‘high-risk jurisdiction’. High-risk third countries are countries or territories that, according to an assessment of international organisations, do not have an efficient system to prevent money laundering, terrorism and proliferation financing, including the countries and territories that pose a significant threat to the financial system of the European Union.
In assessing their clients, entities that are subject to the law must take into account such lists of high-risk third countries and high-risk jurisdictions:
- List of third countries that do not sufficiently combat money laundering and terrorism financing compiled by the European Commission;
- The lists of high-risk jurisdictions and jurisdictions under increased monitoring prepared by the Financial Action Task Force;
- Countries where active military operations are taking place (Iraq, Iran, Syria), and countries with significant strategic deficiencies in combatting money laundering, and financing of terrorism and proliferation (North Korea) and their neighbouring countries;
- Countries specified in Latvian laws and regulations;
- Countries with a high level of corruption, as determined in the international Corruption Perceptions Index.
High-risk countries and jurisdictions, and those under increased monitoring, as determined by the Financial Action Task Force
The Financial Action Task Force or its regional offices assess the compliance of countries with the international standards in the fields of prevention of money laundering, terrorism and proliferation financing.
In addition to the national laws and regulations, the assessment includes the capacity of the country to effectively enforce the provisions of these laws and regulations in practice. Based on the results of these assessments, the Financial Action Task Force not only determines the countries and jurisdictions with strategic deficiencies in their money laundering and terrorism and proliferation financing prevention systems, but also actively cooperates with them in order to help correct the deficiencies found, and reduce the risks for the international financial system.
The Financial Action Task Force has compiled and maintains two lists:
European Commission list of high-risk third countries
On 7 May 2020, the European Commission adopted a regulation on high-risk third countries that take insufficient measures to combat money laundering and terrorism financing.