Accountants, legal service providers, financial institutions and real estate brokers clearly understand their role as subjects of the Latvian Anti-Money Laundering and Countering the Financing of Terrorism and Proliferation Act (“AML Law”). However, what about companies operating in other sectors that provide the aforementioned services to their group companies? When providing accounting services to a subsidiary company, should it be immediately assumed that the service provider is subject to the provisions of the AML Law? What about real estate owners whose tenants register legal addresses or “mailboxes” on their real estate?
According to Article 3, Part one, Clause 3 of the AML Law, the subjects of the AML Law are “outsourced accountants”, as well as any other person who undertakes to provide assistance in tax matters (for example, consulting or material assistance) or acts as an intermediary providing such assistance, regardless of the frequency of its provision and the nature of the remuneration.
Further, according to Article 34, Part 2, Clause 2 of the Latvian Accounting Law, an outsourced accountant is a person who, on the basis of a written agreement with a company (except for a company agreement), undertakes to provide or provides a client with accounting services as a merchant and meets the following criteria:
Accordingly, a group company that provides accounting services to other group or other related companies (anywhere in the world) is considered an “outsourced accountant” and therefore a subject of the AML Law.
In addition, the Latvian State Revenue Service (“SRS”) has provided guidance in its Anti-Money Laundering and Prevention of Terrorism and Proliferation Financing guidelines (“AML Guidelines”) that from 1 July 2023, legal entities providing outsourced accounting services must obtain a license . This means that the license shall be received by the service provider as a legal entity, and not by each of the accountants working in the company.
2. Legal services
According to Article 3, Part 1, Clause 4 of the AML Law, subjects of the AML Law are “independent legal service providers” when they, acting on behalf and for their client, assist in the planning or execution of transactions, participate therein or perform other professional activities related to transactions for their clients concerning the following:
According to the Article 3 Part 2 of the AML Law: “The subjects of the [AML] Law which are in the composition of a certain group shall implement the group-scale policy and procedures, including the personal data processing policy, as well as the information exchange policy and procedures established within the group for the purpose of the prevention of money laundering and terrorism and proliferation financing. The abovementioned group-scale policy and procedures shall be efficiently implemented in Member States and the third countries also at the branch level and at the level of those subsidiaries where the subjects of the Law hold the majority of capital shares.”
On one hand, the AML law provides the requirement to determine whether or not a subject is indeed a subject of the AML Law based upon the economic or professional activity carried out. On the other hand, in practice, it has been observed that the SRS interprets the provisions of the AML Law in such a way that legal entities providing those services (referred to in Article 3 of the AML Law), even if the services are provided within a group of companies, regardless of whether compensation is received for the services, are considered a subject of the AML Law.
On 28 June 2021, amendments were introduced to the AML Law which provide for exceptions to the Article 3 of the AML Law (i.e., Part 6 was introduced), which underlines those entities providing financial services that do not require a license and are providing services within a group, are not considered subjects of the AML Law. Although the AML Law does not mention those companies providing the aforementioned services (mentioned in Article 3 of the AML Law) to companies within group are considered subjects of the AML Law, the amendments are the only exceptions to the provision of those services. In this regard, the legislator has intentionally ensured a company is not considered to be a subject of the AML Law only when it provides the services specified in Part 6 of Article 3 of the AML Law within the group.
3. Registration of legal addresses
According to Article 3, Part 1, Clause 5 of the AML Law, the subjects of the AML Law are also providers of services related to the establishment and provision of operation of a legal arrangement or legal person.
Article 1, Part 10, point c) of the AML Law defines the provider of services, for the establishment of a legal arrangement or legal person and securing its operation, as a service provider that, among other things, has a registered office, correspondence address, business address for a legal arrangement or a legal person and also provides other related services.
Accordingly, if the owner of a real estate, a legal entity or a natural person, gives consent to register legal addresses for legal entities in his real estate, even if the legal entity will not actually be located there (it will not have an office at the specified address), but the legal address is registered as a “mailbox”, the owner of the property is considered to be a subject of the AML Law with all the consequences arising from it.
If your company provides any of the aforementioned services, the AML law obliges your company to comply with all the requirements of the subject of the AML law, that is, it must prepare an internal control system, carry out its own risk assessment, identify the client and determine its risk before starting a business relationship, appoint an AML responsible person, carry out employee training and the compliance of the internal control system (with the valid AML regulatory acts) must be regularly reviewed, as well as its effectiveness in practice must be verified.