On the Prevention of Money Laundering and Terrorism Financing – 1

General Provisions

Section 1. Terms Used in This Law

The following terms are used in this Law:

۱) funds – financial resources or other corporeal or incorporeal, movable or immovable property;

۲) financial resources – financial instruments or means of payment (in the form of cash or non-cash resources) held by a person, documents (in hard copy or electronic form) in the ownership or possession of a person that give the right to gain benefit from them, as well as precious metals in the ownership or possession of a person;

۳) business relationship – a relationship between the subject of the Law and a customer that originates when the subject of the Law performs an economic or professional activity and that is expected to have an element of duration at the time when the contact is established;

۴) customer – a legal or natural person or an association of such persons, to whom the subject of the Law provides services or sells goods;

۵) beneficial owner – a natural person:

1. a) who owns or directly or indirectly controls at least 25 per cent of the merchant’s fixed capital or the total amount of voting shares, or who controls the merchant’s activity in any other way;
2. b) who directly or indirectly has the right to property or who directly or indirectly controls at least 25 per cent of a legal entity other than a merchant. A person or a group of persons for whose benefit an establishment has been set up is considered the beneficial owner of the establishment. A political party, partnership or cooperative society is considered the beneficial owner of the relevant political party, partnership and cooperative society,
3. c) for whose benefit of in whose interests the business relationship is being established, or
4. d) for whose benefit or in whose interests an individual transaction is being executed without establishing a business relationship within the meaning of this Law;

۶) credit institution – a credit institution registered in the Republic of Latvia, another Member State or third country, a branch or representative office of a credit institution of a Member State, third country;

۷) financial institution – a merchant, branch or representative office registered in the Commercial Register, or a merchant registered in the relevant register of another Member State or a third country which is not a credit institution and which provides one or more financial services within the meaning of the Credit Institutions Law, except financial services which are allowed to be provided only by a credit institution. The following is considered a financial institution:

1. a) an insurance merchant carrying out life insurance, and a private pension fund,
2. b) an insurance intermediary providing life insurance services,
3. c) an investment brokerage company,
4. d) an investment management company,
5. e) a capital company carrying out buying and selling of foreign currency cash,
6. f) payment institution;
7. g) another provider payment services; and
8. h) electronic money institution;

۸) legal arrangement – a legal person or an association of persons having a permanent legal capacity;

۹) external accountant – a person, who on the basis of a written contract with the customer, except for an employment contract, pledges to provide or provides accounting services to the customer;

۱۰) provider of services related to the creation of a legal arrangement and provision of its operation – a legal or natural person having a business relationship with the customer and providing the following services:

1. a) assists in creation of a legal arrangement,
2. b) fulfils the duties of a director, secretary of a merchant or another legal arrangement or a partner of a partnership, as well as other similar duties, or provides the fulfilment thereof by another person,
3. c) provides a registered office, correspondence address, business address for a legal arrangement, as well as provides other related services,
4. d) fulfils the duties of a trustee of an express trust or a similar legal document or provides the fulfilment of such duties by another person, or
5. e) acts as a nominee shareholder of such commercial company whose financial instruments are not listed on a regulated market and that is subject to disclosure requirements in conformity with the European Union legislation or equivalent international standards, or provides the performance of such an activity by another person;

۱۱) Member State – a European Union Member State or a State of the European Economic Area;

۱۲) third country – a country other than a Member State;

۱۳) supervisory and control authority – a State authority or professional organisation carrying out activities related to supervision and control of compliance with the requirements of this Law;

۱۴) list of unusual transaction indications – a list approved by the Cabinet containing transaction indications which may be a sign of possible money laundering, terrorism financing or an attempt to carry out such actions;

۱۵) shell bank – a credit institution whose place of management, staff or provision of financial services is located outside the state where it has been registered, and whose operation is not controlled by a supervisory authority. Also a person who provides services equivalent to those of the credit institution by carrying out non-cash remittance on behalf of a third party, and whose operation is not controlled by a supervisory and control institution, except for the cases when such remittance is performed by an electronic money institution or it is performed between commercial companies of one group, which are such within the meaning of the Financial Conglomerate Law, or between commercial companies having one and the same beneficial owner, is considered a shell bank;

۱۶) unusual transaction – a transaction complying with at least one indication included in the list of unusual transaction indications; and

۱۷) suspicious transaction – a transaction in respect of which suspicions have aroused regarding money laundering or terrorism financing or an attempt to carry out such actions, or another associated criminal activity.

[۳۱ March 2011; 7 June 2012]

Section 2. Purpose of this Law

The purpose of this Law is to prevent money laundering and terrorism financing.

Section 3. Subjects of the Law

(۱) The subjects of this Law are persons performing an economic or professional activity:

۱) credit institutions;

۲) financial institutions;

۳) tax advisors, external accountants, sworn auditors and commercial companies of sworn auditors;

۴) sworn notaries, sworn lawyers, other independent providers of legal services when they, acting on behalf and for their customer, assist in the planning or execution of transactions, participate therein or carry out other professional activities related to the transactions for their customer concerning the following:

1. a) buying and selling of immovable property, shares of the commercial company,
2. b) managing of the customer’s money, financial instruments and other funds,
3. c) opening or managing of all kinds of accounts in credit institutions or financial institutions,
4. d) creation, management or provision of operation of legal arrangements, as well as in relation to organisation of contributions necessary for the creation, operation or management of a legal arrangement;

۵) providers of services related to creation and provision of operation of a legal arrangement;

۶) persons acting as real estate agents or intermediaries in immovable property transactions;

۷) organisers of lotteries and gambling;

۸) persons providing encashment services; and

۹) other legal or natural persons trading in immovable property, means of transport, cultural monuments, precious metals, precious stones, the articles thereof or trading in other goods, as well as acting as intermediaries in the abovementioned transactions or engaged in provision of other services, if payment is carried out in cash in lats or another currency, which on the day of the transaction is equivalent to or exceeds EUR 15 000 according to the exchange rate set by the Bank of Latvia, independently of whether the transaction is executed in a single operation or in several operations which are linked. If a transaction is executed in a foreign currency, for which the Bank of Latvia has not set an official exchange rate, the currency exchange rate published on the first working day of the current week in the information source indicated by the Bank of Latvia shall be used for the calculations.

(۲) The subject of the Law shall ensure that its structural units, branches, representative offices and subsidiaries in the Member States and in third countries, if they provide financial services, observe the requirements consistent with those prescribed by this Law in respect of the identification of customers, customer due diligence and storage of the customers’ documents, as far as it is not in contradiction with the legal norms of the relevant state and the general practice of this state.

(۳) If the regulatory enactments of the third country prohibit application of the requirements consistent with those prescribed in this Law in respect of the identification of customers, customer due diligence and storage of customers’ documents, the subject of the Law shall inform the relevant supervisory and control authority in the Republic of Latvia and shall ensure the implementation of supplementary measures for the reduction of risk related to money laundering and terrorism financing.

(۴) In order to prevent activities related to money laundering and terrorism financing, also the persons not indicated in Paragraph one of this Section, as well as State authorities, derived public persons and their authorities, have an obligation to comply with the requirements of this Law in respect of provision of information regarding unusual or suspicious transactions. Legal protection mechanisms intended for the subjects of the Law shall be applied to the persons referred to in this Paragraph.

[۳۱ March 2011]

Section 4. Proceeds of Crime

(۱) Funds are considered proceeds of crime:

۱) if they are owned or possessed by a person in the result of a direct or indirect criminal offence; or

۲) in other cases prescribed by the Criminal Procedure Law.

(۲) The term “proceeds of crime” shall be used in the meaning of the term “criminally acquired property and financial resources” used in the Criminal Procedure Law.

(۳) In addition to the proceeds of crime specified in the Criminal Procedure Law, also such funds are considered proceeds of crime, which belong to a person or are directly or indirectly controlled by a person:

۱) on any list of persons suspected of being involved in terrorist activity compiled by the states or international organisations recognized by the Cabinet; or

۲) of whom bodies performing investigatory operations, pre-trial investigative institutions, the Prosecutor’s Office or a court have information which forms the sufficient basis for suspecting such person of committing a criminal offence related to terrorism or participation therein.

(۴) The Office for Prevention of Laundering of Proceeds Derived from Criminal Activity (hereinafter – the Control Service) shall inform the subjects of the Law and their supervisory and control authorities regarding the persons referred to in Paragraph three of this Section.

(۵) Funds shall be declared to be proceeds of crime in accordance with the procedure specified in the Criminal Procedure Law.

[۱۰ December 2009]

Section 5. Money Laundering and Terrorism Financing

(۱) The following actions are money laundering:

۱) the conversion of proceeds of crime into other valuables, transfer of their location or ownership, knowing that that these funds are proceeds of crime and if such actions are carried out for the purpose of concealing or disguising the illicit origin of funds or assisting any person who is involved in committing of a criminal offence in evading the legal liability;

۲) the concealment or disguise of the true nature, origin, location, disposition, movement, ownership of proceeds of crime, knowing that these funds are proceeds of crime;

۳) the acquisition, possession or use of proceeds of crime, if at the time of acquisition of such rights it is known that these are proceeds of crime; or

۴) the participation in any of the activities specified in Paragraph one, Clauses 1, 2 and 3 of this Section.

(۲) Money laundering is also a criminal offence provided for in the Criminal Law in the result of which such funds have been directly or indirectly acquired, and which has been committed outside the territory of the Republic of Latvia and the criminal liability is intended for such a criminal offence at the place of its commitment.

(۳) Terrorism financing is the actions defined as such in the Criminal Law.

[۳۱ March 2011]