Sanita Bajāre
Chairwoman of the Board at Finance Latvia Association

Just a few years ago, Latvia almost ended up on the “grey list” of the Financial Action Task Force (FATF), i.e. the list of countries where significant deficiencies in the prevention of money laundering and terrorist financing have been identified. Latvia managed to avoid such a turning point. The FATF concluded that Latvia had implemented recommendations of the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (Moneyval) and since 2018 had built a strong and sustainable financial crime prevention system. In a short while, Latvia has done a lot and achieved fundamental changes, making the country’s money laundering prevention system one of the most effective in Europe. Even though part of society may consider the requirements too strict, they are necessary and they are constantly adjusted to the risks. Therefore, work in this area is ongoing and it is not campaign-like. What can others learn from Latvia’s experience?

Strong AMLregulation and compliance with the highest international standards

Following the recommendations of Moneyval, Finance Latvia Association worked together with public administration to develop the necessary regulatory amendments, performed risk assessment, reviewed the acceptable risks and developed tools for competent management of the risks. As a result, compliance with all 40 FATF technical recommendations was ensured, and real and attributable progress in efficiency was attained.

Effective internal control systems and wide use of automation

As the entire financial crime prevention system is based on risk assessment, Latvia ensures development of an adequate national risk assessment system and regular revision thereof, which in turn is integrated into internal control systems of the private sector representatives. Banking systems have also been improved to ensure that they are able to respond to risks and manage them accordingly. It is required by regulatory enactments to ensure the automation and efficiency of processes, to provide appropriate information technology solutions for AML and Sanctions risk management. This concept is extensively implemented and constantly upgraded on on-going basis. For better customer due diligence various information sources are available and applied actively  for example, adverse media assessment and interconnection with the number of state registers (population, land, vehicle etc.). We can be proud of the fact that Latvia has demonstrated an excellent ability of the public sector to cooperate with the private sector and find the most efficient way to attain its goals.

Comprehensive cooperation mechanisms

It is noteworthy that since 2018, Latvia has implemented a series of new solutions, which the international community views as a good example and is still looking for opportunities for their implementation. As a result of public-private partnership, current typologies are timely identified at a strategic level and there is efficient cooperation at the operational level to prevent human traffickers, corrupt officials, drug dealers, and other criminals from accessing financial resources. The private – private information sharing between banks is allowed and is actively used as well. Furthermore, one of the keys to success is a legally correct and generally available register of ultimate beneficial owners, which has been highly important in effective application of sanctions against Russia and earned international acclaim.

Opting out of unmanageable risks and transition to better, risk allied risk management.

Russia’s war in Ukraine has, of course, also shocked the financial sector, but it also showed that reforms carried out by Latvia, including the refusal of unreasonable cash flows from Russia, was a correct and sustainable decision. Foreign deposits share in total deposits since 2017 dropped from 39.7% in 2017 to 12.5% in 2022 and outgoing transactions of foreign customers decreased by approximately 60% compared to 2017. Additionally, since 7th July 2018, all accounts in credit institutions of prohibited shell arrangements is either blocked or arrested or closed. Therefore, following the introduction of sanctions against Russia and Belarus, Latvian banks  were able to react quickly, make well-thought-out decisions and cooperate smoothly with state institutions and their customers. Noteworthy to mention that compliance with international and national sanctions is mandatory for everyone in accordance with the law. Regulatory enactments impose an obligation on financial institutions to comply with US OFAC sanctions and Latvian banks comply with them even in EUR and domestic payment screening. Also, the said register of beneficial owners has helped and continues to help Latvia identify persons subject to sanctions to ensure implementation of the sanctions against them and prevent attempts to circumvent the sanctions.

Tone from the top to ensure the compliance with the highest AML/CFT compliance standards

Therefore , the negative report is a closed chapter of the past, we have become one of the opinion leaders, a developer of new and effective tools that has been able to learn from own experience and inspire other countries with a new vision of public-private partnership and data sharing principles. The efficiency of the measures implemented in Latvia is already evidenced by growing investments and a positive annual assessment by foreign investors, who believe Latvia is a much safer place to invest in compared to 2018.

At the same time, Latvian financial sector does not rest on its laurels but continues to work and look for the most effective ways to ensure that money laundering prevention requirements contribute to the entire society and economic growth, and do not create unreasonable obstacles for customers.

Although a lot has already been achieved and Latvia is an example for other countries, we still see a series of challenges. The Latvian financial sector indeed has good experience when it comes to sanctions, however, it is still gaining experience in areas such as trade and cross-border transportation. Therefore, it is important that the dialogue continues and information is made available to businesses who may otherwise be involved in circumvention of the sanctions. It is clear that we cannot stop at what has been achieved. We live in a time when it is of utmost importance to take a fresh look at ESG’s “S” – social, and “G” – governance objectives, realizing that if we do not timely reduce social inequality, if we do not eradicate corruption, kleptocracy, if we do not reduce shadow economy and thereby make it impossible for dishonest persons or even criminals to influence processes taking place in the country, it will pose threat to not only the financial system, but also to security of each individual and the country. This must be remembered at all times! Latvia has done a lot, is doing a lot and is ready to do even more, but considering our location, it is important for us to continuously assure ourselves and our cooperation partners in the international arena of which side we are on and what values ​​we stand for, in order to maintain sustainability of the system, world order, peace and security, building attractive investment environment with an impeccable reputation.

In the coming years, Latvian banking sector will continue to look for the most effective ways to provide inclusive financial services to bona fide customers, regardless of the risk level. However, the most important task for Latvia in the long term will be to restore its reputation and keep it intact at the international level. Moneyval’s assessment was constructive and logical, providing us with excellent tools for developing an appropriate system. Other countries can also learn from Latvia’s example. We will share our experience on April 27 at international conference of financial experts, From grey to green: Latvia’s success story, which will bring together financial professionals from all over the world.

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