On May 18, 2006 Regulations No.93 on Establishment of Inside Control System for Prevention of Money Laundering and Terrorism Financing (the "Regulations") issued by the Finance and Capital Market Commission (the "FCMC") entered into force.
The said Regulations replace FCMC recommendations on establishment of inside control system for prevention of money laundering and terrorism financing and set the requirements for credit institutions, savings and loan companies, investment brokerage companies, investment holding companies, insurers, Latvian Central Depositary, managers of regulated market (stock exchanges), private pension funds and insurance agents (the "Participants") in respect of identification of clients and their true beneficiaries as well as reporting of unusual and suspicious financial transactions.
The Regulations aim to facilitate the observance of the Law on Prevention of Money Laundering, to decrease the possibilities of the Participants to co-operate with clients that might be involved in money laundering or terrorism financing and to prevent loss of trust in providers of financial services.
In accordance with the Regulations, documents (policies and procedure) of the inside control system of Participants shall contain the following basic elements: (1) establishment of potential range of clients; (2) client identification and establishment of true beneficiaries; (3) recognition of unusual and suspicious transactions; (4) recognition of high risk clients; (5) regular monitoring of client transactions, the scope and regularity of which depends upon the respective clients risk group; (6) procedure for abstention of performance of suspicious transactions.
In case the agent services are used for the client identification and establishment of true beneficiaries in the name of the Participant, the Participants shall provide within the documentation of their inside control system for the procedure of entering into and closing of their business relationships with the said agents. Such documentation shall also set the mutual obligations, responsibilities and requirements stipulated for the said agents including the requirement of good reputation and stable financial standing. It has to be noted here that the use of the above mentioned agent services does not release the Participant from the liability with respect to the client identification, establishment of true beneficiaries and good knowledge of its commercial activities.
Under the Regulations the Participants are required to establish a procedure for client identification and establishment of true beneficiaries. Thus, before co-operation with the client the Participant is required to request the information from the client regarding its planned transactions with the Participant, their type and scope. The Participant is prohibited to undertake the provision of financial services to the client before the client has been identified and the true beneficiary has been established in accordance with legislation.
Special attention under the Regulations shall be afforded to clients, which fall within the category of high risk clients. High risk clients are defined under the Regulations as the ones who have any of the following features: (1) client’s state of registration (residence) is included in internationally recognized list of states which are related to the money laundering or terrorism financing; (2) client’s state of registration (residence) is included in the list of states not co-operating with FATF; (3) client regularly pursues unusual or suspicious financial transactions, which the Participant reports to the Money Laundering Prevention Office; (4) client unreasonably tries to limit the amount of information provided to the Participant for the purposes of establishing the true beneficiary; (5) inquiries have been received about the client from the investigation authorities or the court which attest the client’s possible connection to the money laundering or the terrorism financing; (6) client is a company true beneficiary of which owns majority of bearers shares, except when the Participant has a knowledge of and a documentation on the purpose of client’s establishment and commercial activities and client’s true beneficiary is not a high risk client; (7) client is a person regarding which the Participant has no financial reports where the preparation of such financial reports is required in accordance with the legal acts of the state of registration (residence); (8) new client (for the period of up to three months) which is a company registered offshore or the legal acts of its place of registration (residence) in their essence provide the company the possibility to conduct its commercial activities in a way similar to the companies registered offshore and its actual monthly turnover exceeds LVL 200 000 or its equivalent in other currency; (9) client’s activities differ significantly from the information provided to the Participant and the client has not informed the Participant on the reasons of such differences; (10) client is politically displayed person.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
