Legal advice

The account maintenance agreement stipulates the bank’s right to close the account if the internal control system of the client who is the subject of the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing, does not comply with legal requirements. Is the company selling building supplies a subject of the Law?

18.12.2020 Aleksandr Lenkovskis, member of the board

In accordance with Section 3, clause 1 of the Law, the subjects of the Law are:

1) credit institutions;
2) financial institutions;
3) outsourced accountants, auditors, tax advisors;
4) sworn notaries, advocates and lawyers (in specific cases specified by law);
5) providers of establishment and operation of legal arrangement or legal person;
6) intermediaries in real estate transactions;
7) organisers of lotteries and gambling;
8) cash collectors;
9) persons trading in means of transport, antique articles, precious stones (or as intermediaries in trading), as well as trade in other types of goods or the provision of other types of services, if payment for this goods or services is carried out in cash in the amount of 10 000 EUR or more;
10) debt recovery service providers;
11) virtual currency service providers;
12) persons operating in handling of art and antique articles by importing them into or exporting them from Latvia, if the total amount of the transaction is more than 10 000 EUR;
13) administrators of insolvency proceedings.

Based on the described type of activity of the company – sale of building materials in retail stores in Latvia, this company certainly cannot be a subject of the Law in accordance with clauses 1, 3, 8 and 10) – 13.

With clause 2, everything is not so unambiguous – if a company simultaneously systematically issues loans (even, for example, to related companies), then it can be recognized as a subject of the Law in accordance with this clause 2.

With respect to clause 9, in theory any trading company falls under the definition of a subject of the law under this clause, however, due to legal requirements for cash transactions (7,200.00 EUR), this company should not and cannot become a subject of the Law.

If the type of activity of the company would be subject to the definition of the subject of the Law, then it would be necessary to take a number of measures related to the establishment of the internal control system, including:

  • declaring oneself as the subject of the Law to the SRS,
  • appointing and informing the SRS about the company’s employee responsible for the compliance with requirements of the Law,
  • evaluate the company’s operational risks in the field of the prevention of money laundering and terrorism and proliferation financing,
  • based on risk assessment, develop risk management policies and procedures,
  • within the framework of its activities identify, investigate, evaluate and monitor clients (documenting all activities performed),
  • identify and report suspicious transactions,
  • implement document storage, train employees (related to customer service) and to take other activities in accordance with the requirements of regulatory enactments in the field of the prevention of money laundering and terrorism and proliferation financing.
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