On 21 March 2018, following the US allegations made on 13 February against ABLV, the third largest bank in Latvia, relating to incomplete know your customer procedure, and the resulting shareholders’ decision to wind up the Bank, the Government of Latvia decided to review the procedure for non-resident customers to use banking services in Latvia and to consider whether it is reasonable to decrease the number of shell companies’ accounts in Latvian banks.
The definition of a shell company is given in laws and regulations and currently it is a legal entity with at least one of the following features:
1) no connection between such legal entity and actual business activities while such legal entity is of little or no economic value, and a respective credit institution has no supporting documents to the contrary,
2) laws and regulations of the country of registration of such legal entity do not require it to prepare and submit to competent regulatory authorities any financial statements, including annual reports,
3) such legal entity has no place of business (premises) in the country of its registration.
On 3 April, the Government of Latvia expects to make a decision on bank services in Latvia for those clients using shell companies. In mid-April, this decision will be considered by the Saeima. Latvian banks will be given a relatively short period to terminate any cooperation with companies representing this type of risk. The Minister of Finance stated that this decision aims at ensuring stability and reliability of the Latvian financial sector and that financial institutions would only offer such services which would support the economy of Latvia rather than create risks for it.
On 18 March, Rietumu bank suspended services for offshore companies and LLPs / LPs and announced that will cease maintaining any such accounts from 21 May 2018. Accounts of companies falling under category of shell companies have been blocked at the moment, and to transfer money or close an account such companies are to undergo a compliance audit procedure.
Latvian LPB (Pasta bank) has suspended opening accounts pending a decision by the Latvian Financial and Capital Markets Commission specifying types of companies which may not have accounts in Latvian banks.
Norvik Banka is carrying out a compliance audit of payments made by shell companies so there can be delays in payments. Currently, the Bank is developing rules and guidelines for companies falling under the category of shell companies and wishing to continue working with the Bank.