Everything that businesses need to know about AML obligations in Latvia.
Latvia now hosts over 100 fintechs including Mintos, Creamfinance, Twino, Bitfury, and Crasula. Fintechs choose Latvia as a jurisdiction thanks to its business-friendly infrastructure, such as the Innovation Hub and regulatory sandbox.
At the same time, Latvia has been strengthening its AML (Anti-Money Laundering) regulations in line with FATF Recommendations and EU AML Directives. Sumsub prepared this article to help businesses operating in Latvia (or seeking to enter the Latvian market) navigate the AML compliance process.
The businesses that fall under Latvian AML regulations include:
The full list of regulated entities is provided in Section 3 of the Anti-Money Laundering and Terrorism and Proliferation Financing Act (“the AML law”).
Branches of financial and credit institutions from other member states of the EEA or third countries are also subject to AML obligations if they operate in Latvia.
Two main authorities regulating the AML sector in Latvia are:
Under Latvian AML law, businesses must:
The FCMC provides Latvian businesses with guidelines on the implementation of AML policies and measures in its Recommendations No. 169.
Customer Due Diligence (CDD) is the process of collecting and verifying information about customers during onboarding and throughout the business relationship. CDD also includes obtaining information on the purpose and intended nature of the business relationship or transaction.
Under AML Law, businesses in Latvia are required to conduct standard CDD when:
The full list of cases when businesses must perform CDD is provided in Section 11 (1) of the AML law.
Businesses in Latvia must apply Enhanced Due Diligence (EDD) in situations with a high risk of money laundering. Such cases include correspondent relationships with credit/financial institutions, as well as business relationships and transactions with:
Also, Latvian AML Law prescribes EDD measures for remote customer identification if it doesn’t comply with Cabinet Regulation No. 392.
As part of their Know Your Customer (KYC) obligations, businesses must identify and verify the identity of their customers, as well as their beneficial owners.
To identify Latvian residents, businesses must obtain the following information:
To identify non-residents, businesses must obtain the following information:
The legal entity must present documents attesting:
Businesses must also:
A beneficial owner is a person who directly or indirectly owns more than 25% of a company’s capital/voting rights or otherwise exercises ultimate control over it.
To identify the beneficial owners of legal entities, businesses must obtain their identity information:
Businesses must obtain information about beneficial owners from the Enterprise Register. On the basis of risk assessment, beneficial owners can be determined by additional means:
In cases when a beneficial owner cannot be determined, businesses may admit someone from the client’s senior management as the beneficial owner.
Businesses in Latvia must implement ongoing verification of the accuracy of obtained KYC data. This is crucial to ensure that the client’s established risk profiles are correct and that the monitoring process is efficient.
If businesses fail to comply with the obligations prescribed by the AML Law, they may be subject to fines of up to €5,000,000 or 10 percent of total annual turnover.
Latvia’s AML regulations have broad implications for fiat and crypto businesses both within and outside the country. We’ll continue to track AML changes in Latvia and will update this article on an ongoing basis. Save it to your reading list so you don’t miss any important news.