On the Prevention of Money Laundering and Terrorism Financing – 3

Obligation to Identify a Customer

(۱) The subject of the Law shall identify a customer prior to establishing a business relationship.

(۲) The subject of the Law shall identify a customer also prior to performing an individual transaction, without establishing a business relationship within the meaning of this Law, if:

۱) the amount of the transaction or the total amount of several transactions which appear to be linked is equivalent to or exceeds EUR 15 000 according to the exchange rate set by the Bank of Latvia on the day of the transaction;

۲) the transaction complies with at least one indication included in the list of unusual transaction indications or suspicions have aroused regarding money laundering or terrorism financing or an attempt to carry out such actions; or

۳) there are doubts about the veracity of the previously obtained customer identification information.

(۳) If at the time of carrying out a transaction it cannot be determined whether the amount of the transaction will be equivalent to or will exceed EUR 15 000, the customer shall be identified as soon as it becomes known that it is equivalent to or exceeds EUR 15 000 according to the exchange rate set by the Bank of Latvia on the day of the transaction.

(۴) If the money laundering and terrorism financing risk is low and pursuant to the requirements of this Law the enhanced customer due diligence is not to be applied, then in order not to interrupt the usual procedure of a transaction, the identification of the customer and the determination of the beneficial owner may be carried out at the moment of establishing a business relationship, as soon as it is possible, but prior to carrying out the first transaction.

(۵) If pursuant to the requirements of this Law the enhanced customer due diligence is not to be applied, an insurance merchant carrying out life insurance and an insurance intermediary providing life insurance services may carry out the identification of the customer and the determination of the beneficial owner also after establishing a business relationship or prior to the payout, as well as before the beneficiary under the policy intends to exercise the rights provided for in the policy.

Section 12. Identification of Natural Persons

(۱) A natural person shall be identified by verifying his or her identity according to the personal identification document where the following information is provided:

۱) regarding a resident – the given name, surname, personal identity number; or

۲) regarding a non-resident – the given name, surname, date of birth, number and date of issue of the personal identification document, state and authority which has issued the document.

(۲) Only a personal identification document valid for entering the Republic of Latvia shall be used for the identification of a natural person – non-resident, who is a face-to-face customer of the subject of the Law in the Republic of Latvia.

(۳) An inland passport of the relevant state, another personal identification document recognised by the relevant state or a document giving the right to enter the state where the identification of a person is carried out may be used for the identification of a natural person – non-resident at the state of residence thereof if he or she is a non-face-to-face customer of the subject of the Law.

(۴) Sworn notaries shall identify a natural person pursuant to the procedure provided for in the Notariate Law.

 

Section 13. Identification of Legal Persons

(۱) For the identification of a legal person the following shall be requested:

۱) to present the documents attesting to the establishment or legal registration of the legal person;

۲) to provide information on the registered office of the customer; and

۳) to identify persons who are entitled to represent the legal person in the relationship with the subject of the Law, and a document or a copy of the relevant document attesting to their right to represent the legal person shall be obtained.

(۲) The subject of the Law may identify a legal person by obtaining the information referred to in Paragraph one of this Section from the publicly-available, reliable and independent source.

(۳) Sworn notaries shall identify a legal person pursuant to the procedure provided for in the Notariate Law.

Section 14. Making of Copies of Personal Identification Documents

(۱) When establishing a business relationship or carrying out the transactions specified in Section 11 of this Law, a credit institution and financial institution shall make copies of those documents on the basis of which the identification of a customer has been conducted.

(۲) If information used for the identification of a customer – a legal person – is obtained in the way specified in Section 13, Paragraph two of this Law, a credit institution and financial institution shall document the information specified in Section 13, Paragraph one of this Law and the information on the source thereof.

Section 15. Prohibition of Keeping Anonymous Accounts

A credit institution and financial institution is prohibited from opening and keeping anonymous (of unidentified customers) accounts.

Section 16. Obligation to Apply Customer Due Diligence

The subject of the Law shall apply customer due diligence in the following cases:

۱) prior to establishing a business relationship, also prior to opening of accounts and acceptance of money or other funds for storage or holding;

۲) if there are suspicions regarding money laundering or terrorism financing irrespective of the exceptions specified in Sections 26 and 27 of this Law; or

۳) if there are doubts about the veracity of the previously obtained information on the identification of the customer or on customer due diligence.

 

Section 17. Customer Due Diligence

(۱) Customer due diligence within the framework of a business relationship is a set of measures based on risk assessment within the framework of which the subject of the Law shall:

۱) clarify identifying information on the beneficial owner. For legal entities the subject of the Law shall clarify also the structure of participants of the relevant person or the way in which the control by the beneficial owner is expressed over such legal entity;

۲) gather information on the purpose and intended nature of the business relationship;

۳) conduct monitoring of the business relationship following the establishment thereof; and

۴) ensure the storage and regular updating of the documents, data and information obtained in the process of the customer due diligence.

(۲) When determining the amount of and the procedures for customer due diligence, the subject of the Law shall take into consideration the money laundering and terrorism financing risks posed by the customer’s state of residence (registration), the customer’s legal form, type of activity, services used and transactions conducted.

(۳) The obligations related to customer due diligence that are specified in this Law shall also apply to a legal arrangement regardless of whether the legal arrangement has the status of a legal person or not.

[۳۱ March 2011]

 

Section 18. Determination of a Beneficial Owner

(۱) The subject of the Law shall determine a beneficial owner for:

۱) customers – legal persons subject to enhanced customer due diligence; and

۲) all customers, if it is known or suspicions have aroused that the transaction is executed on behalf or in the interests of another person.

(۲) The subject of the Law shall determine a beneficial owner by obtaining the information specified in Section 12, Paragraph one of this Law in one of the following ways:

۱) by receiving a statement on the beneficial owner signed by the customer;

۲) by using information or documents from the information systems of the Republic of Latvia or foreign states; or

۳) by determining the beneficial owner in cases when it is impossible to obtain information on the beneficial owner in any other way.

 

Section 19. Obtaining of Information on the Purpose and Intended Nature of a Business Relationship

When establishing a business relationship, the subject of the Law shall, taking as a basis the assessment of money laundering and terrorism financing risk, obtain and document information on the purpose and intended nature of the business relationship, including the information on the services that the customer intends to use, the origin of the customer’s funds, the planned number and amount of transactions, the customer’s economic or personal activity, within the framework of which the customer will use the relevant services.

 

Section 20. Monitoring of a Business Relationship Following the Establishment Thereof

(۱) Following the establishment of a business relationship, the subject of the Law shall, taking as a basis the assessment of money laundering and terrorism financing risk:

۱) update information on the economic or personal activity of the customer; and

۲) conduct ongoing monitoring of the transactions, in order to ascertain that the transactions are not considered unusual or suspicious.

(۲) When carrying out monitoring of a business relationship, the subject of the Law shall pay special attention to the following:

۱) the customer’s unusually large, complex transactions or mutually linked transactions, which have no apparent economic or visible lawful purpose; and

۲) transactions involving persons from third countries which, according to the opinion of international organisations, are considered to be the states and territories where there are no regulatory enactments in force to combat money laundering and terrorism financing or which have refused to co-operate with the international organisations in the field of the prevention of money laundering and terrorism financing.

 

Section 21. Prohibition of Co-operation with Shell Banks

(۱) The subject of the Law is prohibited from carrying out transactions of any kind with shell banks.

(۲) Creation and operation of shell banks in the Republic of Latvia is prohibited.

 

Section 22. Enhanced Customer Due Diligence

(۱) Enhanced customer due diligence is the risk-assessment based activities carried out in addition to customer due diligence in order to:

۱) determine a beneficial owner, ascertain that the person indicated as the beneficial owner pursuant to Section 18 of this Law is the customer’s beneficial owner; and

۲) ensure enhanced monitoring of the transactions executed by the customer.

(۲) The subject of the Law shall apply enhanced customer due diligence in the following cases:

۱) when establishing a business relationship with a non-face-to-face customer;

۲) when establishing a business relationship with a politically exposed person; and

۳) when establishing a trans-frontier relationship of credit institutions with respondents from the third countries.

(۳) Within the meaning of this Law such natural person is considered a politically exposed person, who:

۱) is entrusted with one of the following prominent public functions in another Member State or third country: a Head of State, a Member of Parliament, a Head of Government, a Minister, a Deputy Minister or an Assistant Minister, a State Secretary, a Judge of the Supreme Court, a Judge of the Constitutional Court, a board or a council member of the Court of Auditors, a member of the council or of the board of the Central Bank, an ambassador, a chargé d’affaires, a high-ranking officer of the armed forces, a member of the council or board of a State capital company, as well as a person who has resigned from the relevant prominent public function within one year;

۲) is a parent, a spouse or a person equivalent to a spouse, a child, his or her spouse or a person equivalent to a spouse of the persons specified in Clause 1 of this Paragraph. A person shall be considered equivalent to a spouse only in the case if he or she is given such a status pursuant to the legislation of the relevant state; or

۳) is publicly known to have a business relationship with any of the persons specified in Clause 1 of this Paragraph or a joint ownership with such a person of the share capital in a commercial company, as well as a natural person who is a sole owner of such a legal arrangement that is known to be actually established for the benefit of any person specified in Clause 1 of this Paragraph.

(۴) In credit institutions and financial institutions whose operation is monitored by the Finance and Capital Market Commission pursuant to this Law, enhanced customer due diligence shall be applied also to the customer categories specified by the Finance and Capital Market Commission.

(۵) The Finance and Capital Market Commission shall specify for the credit institutions and financial institutions, whose operation is monitored by it pursuant to regulatory enactments, the minimum amount of enhanced customer due diligence for different customer categories and the procedure for enhanced monitoring of the transactions executed by the customers, as well as indications of services provided by credit institutions and financial institutions and transactions executed by the customers in the case of disclosure of which the credit institutions and financial institutions are obliged to conduct enhanced customer due diligence.

 

Section 23. Non-face-to-face Customers

(۱) If, when establishing a business relationship, the customer has not been identified by the subject of the Law, an employee or authorised person thereof, the subject of the Law shall carry out one of the following measures:

۱) obtain additional documents or information attesting to the customer’s identity;

۲) carry out verification of the additionally submitted documents or obtain approval of another credit institution or financial institution registered in the Member State testifying that the customer has a business relationship with this credit institution or financial institution;

۳) ensure that the first payment within the framework of the business relationship is carried out through the account which has been opened in the customer’s name at the credit institution to which the requirements arising from this Law and European Union legislation for the prevention of money laundering and terrorism financing apply; or

۴) request that the first transaction of the customer is a face-to-face transaction.

(۲) When authorising a person who is not an employee of the subject of the Law to identify a customer, the subject of the Law shall be responsible for the identification of the customer by such a person pursuant to the requirements of this Law.

 

Section 24. Trans-frontier Relationships of Credit Institutions

(۱) When establishing a correspondent banking relationship with such credit institution and investment brokerage company (respondent) that is registered and operates in a third country, a credit institution shall take the following measures:

۱) gather information on the respondent in order to understand fully the nature of the respondent’s business and to determine from publicly available information the reputation of the relevant credit institution or investment brokerage company and the quality of supervision thereof;

۲) assess the measures related to the prevention of money laundering and terrorism financing taken by the respondent with which the correspondent banking relationship is being established;

۳) obtain approval from the board or specially authorised member of the board prior to establishing new correspondent banking relationships;

۴) document the respective responsibility of the respondent in the field of prevention of money laundering and terrorism financing; and

۵) ascertain that the respondent which uses services related to the direct access to accounts of the correspondent has verified the identity of the customers having direct access to accounts of the correspondent and has applied enhanced customer due diligence thereof, and, upon request, is able to provide relevant customer due diligence data.

(۲) A credit institution shall ensure that it does not enter into a correspondent banking relationship with a credit institution or investment brokerage company which is known to be engaged in business relationships with shell banks, or shall discontinue such a relationship.

 

Section 25. Business Relationship with a Politically Exposed Person

(۱) When establishing a business relationship with a customer, the subject of the Law shall determine, carrying out risk-assessment based measures, whether the customer or the beneficial owner is a politically exposed person.

(۲) The internal control system of the subject of the Law shall ensure, on the risk assessment basis, a possibility to determine that a customer, who at the time of establishing a business relationship is not a politically exposed person, has become such after the establishment of the business relationship.

(۳) If a customer or a beneficial owner is a politically exposed person, the subject of the Law shall take the following measures:

۱) obtain approval from the board or specially authorised member of the board prior to establishing the business relationship. The condition referred to in this Clause shall apply to the subject of the Law – a legal person; and

۲) implement and document measures for determining the origin of the customer’s money or other funds used in the transactions.

(۴) The subject of the Law engaged in business relationships with politically exposed persons shall conduct ongoing monitoring of the customer’s transactions.

 

Section 26. Simplified Customer Due Diligence

(۱) The subject of the Law is entitled to apply simplified customer due diligence in cases when a customer is:

۱) a credit institution or financial institution registered in the Republic of Latvia or a Member State, except for capital companies carrying out foreign currency cash buying and selling and payment institutions;

۲) a credit institution or financial institution (except for capital companies carrying out foreign currency cash buying and selling and providers of money transmission and remittance services) registered in a third country whose relevant regulatory enactments in the field of the prevention of money laundering and terrorism financing provide for the requirements consistent with the requirements provided for in the European Union legislation;

۳) the Republic of Latvia, a derived public person, an institution of the Republic of Latvia or an institution of indirect administration of the Republic of Latvia, or a capital company controlled by the State or by a local government representing a low risk of money laundering and terrorism financing;

۴) a merchant whose securities are admitted to trading on a regulated market in one or more Member States or on a regulated market in a third country, if the merchant is subject to disclosure requirements consistent with the requirements of the European Union legislation;

۵) a person in whose name a notary or another independent provider of legal services from a Member State or a third country, whose relevant regulatory enactments in the field of the prevention of money laundering and terrorism financing provide for the requirements consistent with the requirements provided for in the European Union legislation, operates, if such a person is monitored in respect of compliance with the abovementioned requirements and if information on such a person is available at the request of the subject of the Law with which the business relationship is being established; or

۶) another person representing a low risk of money laundering and terrorism financing.

(۲) The customer specified in Paragraph one, Clauses 3 and 6 of this Section shall be regarded as representing a low risk of money laundering and terrorism financing, if such a customer fulfils all of the following criteria:

۱) the customer has been entrusted with public functions pursuant to the European Union legislation;

۲) the customer’s identity is publicly available, transparent and certain;

۳) the activities of the customer, as well as its accounting practices, are transparent; and

۴) appropriate check procedures specified by the European Union or a Member State exist ensuring control of the customer’s activity.

(۳) In other cases not specified in Paragraph two of this Section a customer shall be regarded as representing a low risk of money laundering and terrorism financing, if such a customer complies with all of the following criteria:

۱) the customer is the subject of this Law;

۲) the customer’s identity is publicly available, transparent and certain;

۳) the person providing financial services has received the licence (permit) for the provision of financial services; and

۴) the person is subject to supervision by competent authorities as regards compliance of the person’s activity with regulatory enactments.

(۴) The Cabinet shall approve the list of such third countries and territories whose relevant regulatory enactments in the field of the prevention of money laundering and terrorism financing provide for the requirements consistent with the requirements provided for in the European Union legislation.

(۵) When applying a simplified customer due diligence, the subject of the Law shall obtain and document information attesting to the customer’s compliance with the exemptions specified in Paragraph one of this Section, and after commencement of transaction relations shall carry out the supervision thereof.

(۶) In the cases specified in Paragraph one of this Section the subject of the Law is entitled not to observe the requirements referred to in Section 14, Paragraph one of this Law.

[۱۰ December 2009; 31 March 2011]

 

Section 27. Exemptions from Customer Due Diligence

(۱) Insurance merchants carrying out life insurance and insurance intermediaries are entitled not to apply customer due diligence in respect of life insurance policies where the annual premium, according to the exchange rate set by the Bank of Latvia on the day of the transaction, is equivalent to EUR 1 000 or the single premium does not exceed EUR 2 500.

(۲) Private pension funds are entitled not to apply customer due diligence in respect of contributions to pension plans, if the abovementioned contributions cannot be used as collateral, and in respect of contributions to pension plans which are made by way of deduction from wages.

(۳) Electronic money institutions are entitled not to apply customer due diligence in the following cases:

۱) the maximum amount stored in the electronic device does not exceed the amount equivalent to EUR 500, and the device cannot be recharged; or

۲) if the electronic money device can be recharged, the total amount transacted with the electronic money device does not exceed the amount in lats that according to the exchange rate set by the Bank of Latvia is equivalent to EUR 2 500 in a calendar year. Such exemption shall not be applied, if an electronic money institution repurchases EUR 1000 or larger amount from a customer (electronic money holder) upon the request thereof during the same calendar year.

(۴) The subject of the Law is entitled not to apply customer due diligence complying with all of the following indications:

۱) the transaction has a written contractual base;

۲) the transaction is carried out through a bank account opened by a credit institution registered in a Member State or in such third country which imposes requirements in the field of the prevention of money laundering and terrorism financing that are consistent with the requirements provided for in the European Union legislation;

۳) the transaction does not comply with the indications included in the list of unusual transaction indications;

۴) the transaction does not arouse suspicions or there is no available information attesting to money laundering, terrorism financing or attempt to carry out such actions;

۵) the total amount of the transaction does not exceed EUR 15 000 according to the exchange rate set by the Bank of Latvia on the day of the transaction;

۶) the income from the transaction cannot be used for the benefit of third parties, except in the case of death, disability, obligation to provide subsistence or in similar events; and

۷) if at the time of the transaction the transfer of funds into financial instruments or insurance or any other claims is impossible; or if such a transfer of funds is possible, the following conditions shall be observed:

1. a) the income from the transaction is realisable only in the long term – not earlier that in five years,
2. b) the subject of the transaction cannot be used as collateral, and
3. c) during the time of validity of the transaction no accelerated payments are made, the cession of the right to claim and early termination of the transaction are impossible.

[۳۱ March 2011]

 

Section 28. Obtaining of Information Necessary for Customer Due Diligence, and Responsibility of a Customer

(۱) In order to comply with the requirements of this Law, the subject of the Law is entitled to request its customers and the customers have an obligation to provide true information and documents necessary for the customer due diligence, including information on the beneficial owners, transactions executed by the customers, economic and personal activity, financial position, sources of money or other funds of the customers.

(۲) If the subject of the Law has not received true information and documents, necessary for the compliance with the requirements specified in Sections 11 and 17 of this Law, in the amount enabling it to perform a compliance check, the subject of the Law shall end the business relationship with the customer and request early fulfilment of obligations from the customer. In such cases the subject of the Law shall consider ending of business relationships also with other customers having the same beneficial owners, or requesting early fulfilment of obligations from such customers.

(۳) The requirements referred to in Paragraph two of this Section shall not be applied to tax advisors, external accountants, sworn auditors, commercial companies of sworn auditors, sworn notaries, sworn lawyers and other independent providers of legal services in cases when they defend or represent their customers in a pre-trial criminal proceedings or judicial proceedings or advise on instituting or avoiding judicial proceedings.

 

Section 29. Recognition and Acceptance of the Customer Due Diligence Outcome

(۱) The subject of the Law has the right to recognize and accept outcomes of such customer identification and due diligence which have been performed in the Member States or third countries, which impose requirements in the field of the prevention of money laundering and terrorism financing consistent with the requirements provided for in this Law, by credit institutions and financial institutions other than capital companies carrying out foreign currency cash buying and selling and payment insitutions.

(۲) The subject of the Law has the right to recognize and accept the outcomes of customer identification and due diligence performed by the credit institutions and financial institutions specified in Paragraph one of this Section even if the amount of the information received and the documents substantiating it are different from the requirements of this Law.

(۳) The subject of the Law shall be responsible for the compliance with the requirements of this Law also in the case where the customer identification and due diligence have been performed by using the outcomes of the customer identification and due diligence conducted by the credit institutions and financial institutions specified in Paragraph one of this Section.

(۴) The credit institutions and financial institutions specified in Paragraph one of this Section shall without delay, as soon as the subject of the Law, whom the customer has addressed, requests it, forward to the subject of the Law the information and copies of documents obtained as a result of the customer identification and due diligence, if following the receipt of such a request a consent of the customer for the forwarding of the information and documents referred to in this Section to the subject of the Law has been obtained.

(۵) The reliance of the subject of the Law upon the customer identification and due diligence performed by other persons shall not cancel the obligation thereof to carry out its own monitoring of the customer’s business relationships.