Published: 26.11.2022

What is money laundering

Funds are considered as the proceeds of crime if they have come into the ownership or possession of a person as a direct or indirect result of a criminal offence or in other cases laid down in the Criminal Procedure Law.

The area of prevention of money laundering and terrorist and proliferation financing (MLTPF) is regulated by the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing which aims to prevent MLTPF by laying down the measures to be taken to achieve this objective for the various subjects of this Law, including institutions supervised Latvijas Banka.

Customer due diligence

One of the basic requirements to prevent money laundering is customer due diligence.

Customer due diligence is a set of risk assessment based activities in which the customer is identified and measures are taken to clarify the customer's beneficial owner and the purpose and nature of business relationships. It also ensures that the customer's transactions are monitored and the information and basic customer due diligence data obtained as a result of customer due diligence are updated in line with the customer's risk.

A lower-risk customer requires collecting less information than a higher-risk customer.

In addition to a varying extent of information, the way in which the information required for customer due diligence is obtained may also vary. Depending on the customer's risk assessment, it can take the form of a customer questionnaire containing various questions aimed at obtaining information that is well-grounded and sufficient to identify the customer's risk, as well as information from public and reliable sources such as commercial databases.

In practice, this means that the bank asks the customer to clarify a variety of information when the customer wants to open an account (e.g. the customer's business, what funds will be received in the account, what transactions and in what amounts have been executed), as well as, already during the cooperation phase, the bank may ask the customer for some further clarification, for example, on the origin of the funds, if this is identified as necessary by the bank when carrying out customer due diligence and the monitoring of transactions.

Importantly, the AML/CFTP Law also obliges the customer to cooperate and provide the requested information and documents on the beneficial owners (in cases where the customer is a legal person or the transactions are carried out on behalf of another person), the transactions carried out, economic, personal activity, financial standing, sources of money or other funds.

When a customer refuses to cooperate and does not provide the information or documents requested by the financial institution, or does not provide it to a sufficient extent, the financial institution, including the bank, is obliged to decide on the termination of the business relationship with such a customer, as well as to require early fulfilment of the customer's obligations where the customer has liabilities towards that bank or financial institution.

For a more detailed explanation and examples of AML/CFTP requirements (including terrorism and its financing) and their application to institutions supervised by Latvijas Banka, please refer to the relevant chapters of Recommendations No 169 of the Financial and Capital Market Commission of 21 December 2021 "Recommendations for the Establishment of the Internal Control System for Anti-Money Laundering and Countering Terrorism and Proliferation Financing and Sanctions Risk Management, and for Customer Due Diligence".

Further information on AML/CFTP prevention can also be found on the website of the Financial Intelligence Unit.


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