Amendments to the Law on Prevention of Money Laundering and Terrorism and Proliferation Financing

On 19 September 2024, amendments to the Latvian Law on the Prevention of Money Laundering and the Financing of Terrorism and Proliferation (AML Law) were adopted. Here is a look at the main changes introduced by the amendments.

Exemptions for services provided to group companies

The amendments clarify that outsourced accountants will not be considered obliged entities under the AML Law when they carry out their professional activities within the same group. The amendments to the Accounting Law adopted on 26 September also provide that such companies will no longer be required to obtain an outsourced accountant’s licence from the State Revenue Service (SRS). These changes will reduce the compliance burden for groups of companies which organise their accounting in such a way that one group company provides accounting services to other group companies without engaging external professional accounting firms.

In addition, the provision has been extended to exclude persons from the scope of the AML Law when they provide financial services (lending, financial leasing, granting of guarantees) within a group. Until now, there were a number of restrictions on the application of this exception, e.g. a group could only consist of companies registered in Latvia, the beneficial owners and board members of group companies had to be residents of EU Member States, etc. These restrictions have now been removed. This means that, for example, a parent company registered abroad which periodically grants loans to its subsidiaries in Latvia will no longer risk being treated as a subject of the law.

Similarly, an undertaking which carries out real estate brokerage activities in relation to the management, disposal, letting or leasing of immovable property belonging to another company within the same group of companies will no longer be considered an obliged entity.

The above amendments are long overdue and are obviously positive. It should be noted that in January this year, the Latvian Supreme Court (Senate) referred to the Court of Justice of the European Union (CJEU) the question whether Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 (AML 4 Directive) applies to external accountants if accounting services are only provided to companies related to the external accountant. As can be seen, the Latvian legislature has already resolved this issue before the ruling of the CJEU.

These amendments enter into force on 22 October.

New regulation of cryptoasset service providers

A significant part of the amendments concerns crypto-asset service providers and crypto-asset transfers. They are linked to the entry into force of EU Regulation 2023/1114 on markets in cryptoassets (MiCA Regulation) on 30 December this year.

A crypto-asset service provider licensed by the Bank of Latvia under the MiCA Regulation will be considered a financial institution and will be supervised by the Bank of Latvia.

Those crypto-asset service providers that are currently supervised by the SRS will be required to apply to the Bank of Latvia for a licence under the MiCA Regulation starting 30 December 2024. They will be able to continue their existing activities until the date on which the Bank of Latvia has issued or refused to issue a licence to them, but no later than 30 June 2025. Accordingly, until that date, it will continue to be supervised by the SRS and not by the Bank of Latvia.

Any obliged entity will be required to conduct customer due diligence when a customer transfers crypto-assets to or from a self-hosted crypto-asset address. Crypto-asset service providers, in turn, will need to take additional risk mitigation measures when providing crypto-asset transfers to or from a self-hosted address.

These amendments are scheduled to enter into force on 30 December 2024.

Other changes

The amendments oblige all subjects of the law to establish procedures for verifying the suitability (eligibility) of employees who are directly involved in the management of the risks of money laundering and the financing of terrorism and proliferation.

Furthermore, there are now minimum requirements to be set out in group-wide compliance policies and procedures for entities that are part of a group.

In addition, a number of changes have been made to customer due diligence regulation.

For example, the mandatory requirement to make a copy of a client’s identification document when conducting a face-to-face identification has been removed.

Henceforth, customer due diligence will be mandatory prior to a occasional transaction if the money transfer is EUR 1,000 or more (previously – only if it exceeded EUR 1,000).

A new risk factor has also been introduced: the client is a third-country national who applies for or has obtained a temporary residence permit in connection with an investment in the share capital of a company, the acquisition of reals estate, the acquisition of interest-free government securities or subordinated liabilities with a credit institution of the Republic of Latvia.

Credit institutions, in turn, will have the right to request and receive from the Register of Enterprises documents on the beneficial owners of the client – legal entity free of charge.