The law on dirty money is being urgently amended

Officially, Latvia is not included in the blacklist of international financial supervisors Moneyval and FATF, nor in the list of any other color of unreliable countries. However, we are still being closely monitored, and another report on the progress of the financial sector's overhaul is expected on 1 March. Overhaul appears to be continuing, and the government intends to bring with it a freshly fixed law that will allow bank customer research to be carried out in unprecedented detail.

I am talking about the amendments to the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing. The most significant innovation will be a special customer research tool that will be outsourced, thus transferring sensitive information about bank customers to foreign private company hands.

The subjects of the law and their true beneficiaries will be required to have an impeccable reputation. One mistake, and the bank doors will be slammed shut in the customer's face. And all the other doors too.

Everything and nothing is clear

The major changes in the law are considered as a matter of urgency. This means that the parliament will have only two readings and limited opportunities to go into the bill proposed by the government. Last week, it was discussed at a sitting of the Saeima Defense, Internal Affairs and Corruption Prevention Committee.

After the presentation given by the Ministry of Finance, the deputies had almost no questions, and, as the chairman of the sitting concluded, either everything is clear to everyone, or absolutely nothing is clear. However, the deputies of the commission supported the draft law in the first reading and also supported its consideration as a matter of urgency, as requested by the Ministry of Finance. It should be achieved by 1 March "in order to demonstrate compliance with international standards".

Deputies and other interested parties can get acquainted with the draft law here (in Latvian).

A very long, very complex, cumbersome piece of legislation. The amendments take 20 pages, but their annotation is 64 pages, which is an unusual amount. Those who do not understand the field of finance and the legalese of officials have to live with the simplified explanation of the Ministry of Finance. At the sitting of the Saeima commission, it was provided by the Deputy State Secretary Līga Kļaviņa.

Customer research will be privatized

The amendments can be divided into four groups according to their purpose. The first is the clarification of the recommendations of the international Financial Action Task Force (FATF). Various minor, including technical, changes to demonstrate that overseas instructions are being followed word for word. Up to the last letter.

The second group of amendments concerns the introduction of a new customer research tool. Legal entities (e.g. banks, law firms, real estate agents, etc.) will have the right and obligation to share information about clients with each other. And it is important that the maintenance of records of this information will be outsourced to a private company. Thus, a huge amount of information about virtually all residents of Latvia and foreigners living or working here will fall into private hands. About their income, payments, habits. Because the law requires - Know your customer! The research tool will have two models. The closed joint customer research tool will be used, for example, within one group of companies or industry by agreement. In turn, the open joint client research tool will be designed as a channel through which subjects of the law can obtain information, regardless of whether they have mutually agreed on it.

The third set of amendments to the law is related to a new reporting procedure for suspicious transactions. From 1 July, a common standard recommended by the FATF will be introduced. An added benefit is that the same transaction will not have to be reported to two authorities: the Financial Intelligence Unit and the State Revenue Service. One-off reporting to financial intelligence will suffice.

Can't do anything without reputation

The fourth group of amendments relates to the concept of "impeccable reputation". The draft law sets requirements for impeccable reputation and lack of prior criminal conduct for subjects of law - both natural and legal persons. In addition, this requirement applies not only to the entity itself, such as the owner of a building materials store, but also to his relatives and business partners. From March 1, everyone must have a crystal clear past and an exemplary reputation. Without those, the company's operations will practically be paralyzed. If only because banks will refuse to serve a customer with an imperfect reputation. In addition, supervisors are given the widest opportunity to reprimand an entity with an imperfect reputation. Including the right to issue an order on the suspension of payment operations, alienation of shares, and closure of the economic activity of the entity. As explained in the annotation of the draft law, “The main factors influencing reputation are compliance with the law, information about a person's previous personal or commercial activities, inspections performed by state authorities, as well as information gathered within the investigation. It also takes into account whether there is no publicly available negative information about the person that could indicate a possible connection with the MLTPF. Publicly available information must be objective and verifiable."

The Ombudsman will wait

At the sitting of the responsible committee of the Saeima, the only one who had questions and comments about the draft law was Matīss Malojlo, a representative of the Ombudsman's Office. He pointed out that the bill introduces very significant restrictions on fundamental human rights and requires a broader legal basis. The outsourcing of a customer research tool also needs to be clarified. The Ombudsman's Office has not yet managed to find in the draft law how it is planned to protect legal persons from errors in the assessment of the subjects of the law. They also could not find the retention period of the collected data. It was not clear why the processing of criminal record data needed to be carried out on such a large scale. The Ombudsman's representative would have had other comments, but he was no longer given the floor. Deputies promised to go into the nuances next time they look at the bill.