New legal rules for all legal entities below

In order to ensure greater transparency on legal entities registered in the Register of Enterprises, including their formal and “real” owners or natural persons who are the beneficial owners of legal entities (PLGs), the legislator has granted new powers to the Register of Enterprises. 

The new rules are binding on all legal entities registered in the Register, ie not only foreign subsidiaries of Latvian companies, but also local SIA and AS, as well as foundations, associations, farmers' and fishermen's farms, individual companies, partnerships, cooperative societies, European economic interests. groups, European companies, trade unions, religious organizations, political parties.

The new rights and obligations of the Registry are determined by amendments to the Law on Prevention of Money Laundering and Terrorist Financing (henceforth - Amendments to the FCTC) adopted by the Saeima at its final reading on Thursday, June 13. They will take effect the day after the announcement.

In future, the Register of Enterprises will have new rights and obligations - the right to request additional information about its PLG on the registration of the company or organization and to apply a more efficient liquidation procedure if the PLG is not disclosed.

The Registry is also obliged to register several times before 01.12.2017. PLG established by Latvian legal entities based on their default detection and intensified cooperation with the private sector to identify and report law enforcement authorities on allegedly false information about PLGs.

A beneficial owner (PLG) is a natural person who owns or on whose behalf a specific legal entity is established or who exercises control, directly or indirectly, over a legal person.

PLG - for any legal entity

The rights and obligations of the new Registry, as well as progress towards maximum availability of information, have been established to ensure the transparency of legal entities and thus reduce their potential for criminal purposes. The amendments include measures to ensure compliance with the recommendations of the Moneyval Report of the Expert Committee on Money Laundering and Terrorist Financing of the Council of Europe on Latvia, as well as the requirements of the fifth AML Anti Money Laundering Directive .

“Foreign experts have highlighted the problems of the financial sector and the business environment that have been important for the Latvian state and society for several years. While public officials charged with serious crimes lie behind long chain chains of owners who "launder" and "invest" money to the state and society, the Latvian state has to introduce money laundering and terrorist financing regulation, the so-called fifth AML directive, as the first in Europe, "explains justice Minister Janis Bordans. Other European Union countries now have a longer timeframe for implementing the new regulation.

The role of the Enterprise Register in the business environment is growing  

The task of the Registry will continue to be to record and provide information. It is important to emphasize that in the future, when registering new legal entities or registering changes in existing companies and organizations, state notaries will have the right to request additional documentary information about the PLG . Assessing the actual circumstances will continue to be the responsibility of law enforcement agencies, the Financial Intelligence Service. The Registry does not conduct investigative activities. However, an effective mechanism for the exchange of information, including the private sector, will be established. As a result, law enforcement authorities will receive the information they need more effectively. It should be noted that the submission of false information to the natural person is subject to criminal liability - now up to two years in prison.

“The register is undoubtedly of great importance in ensuring the transparency of the business environment, as legal entities are only fictions behind which people operate. For investigators, however, it is essential to know which natural persons are behind the legal fictions when disclosing criminal offenses. Therefore, the Registry is moving towards electronization, data availability and transparency. In addition, as the recent conference of the European Business Registers Association found, the current topicality of all European registers is the capture of larger amounts of information, which in turn enables data researchers to analyze information and investigators to fight off criminals, ”explains Guna, the chief public notary of the Enterprise Register. Paidere.

Auditing begins with "foreigners"

In accordance with the Latvian National Report on Risk Assessment of Money Laundering and Financing of Terrorism, SIA has been recognized as a high-risk legal entity. Therefore, in accordance with the risk-based approach introduced in the Register, at the end of 2017, the Registry identified as the primary target group in the opening of the PLG SIA and as the highest risk group or “high risk SIA” - SIA registered in Latvia, owned by companies registered abroad. The approach was determined by the fact that the Registry did not have information about the natural persons who are behind the foreign legal entities - at the end of the chain. In November 2017, there were 5,000 high risk companies in total. Currently, some 900 SIAs have not yet discovered their PLGs.

“So far, the Registry has been more active in communicating with the high-risk company in the public space, inviting them to reveal their PLGs, as well as organizing a communication campaign with business organizations and the State Revenue Service, because in many cases they are real, working companies that pay taxes to the state budget. In total, this group of companies paid more than 300 million euros to the state budget in 2018, ”says G.Paidere.

PLG non-discoverers - under the hammer

Now, in line with the new amendments to the law, capital companies starting with high-risk companies that have not yet discovered their PLGs will be subject to simplified liquidation. The procedure provides for: The Registry sends a pre-liquidation warning to the corporation (SIA or AS) inviting them to disclose the PLG within one month; if SIA or AS does not disclose its PLG, its activity is terminated on the basis of the decision of the Registry. The termination and liquidation process will take place in accordance with the provisions of the Commercial Law on simplified liquidation.

Failure must be justified

 The new regulation imposes an obligation on all legal entities in case the legal entity, when doing its best, has concluded that it is not possible to find out the PLG at the end of the chain of legal persons of natural persons, then the member of the board of the legal person has to prove it by justifying.  

PLG by default - for some domestic LLC, PS, IU, ZZS, foundations

The previous version of the law provided for exceptions or notification of a PLG (always a natural person) by default for the period before 01.12.2017. for registered legal entities in the following cases: (1) SIA members - natural persons who own more than 25% of the capital, (2) members of the partnership, if there are no more than 3 members in the partnership, (3) owners of individual enterprises, (4) farmers or fishermen's farm (5) members of the foundation board. In these cases, the status of the PLG of a legal entity is considered to have been derived from the status of the natural persons concerned in the specified records and, unless the PLG was another person, the Registry was not required to make a separate application. If, however, the PLG was another person, the Registry had to be informed by 1 March 2018. That's why, if the legal entity has not submitted any other information at this time, it is considered that the information on the PLG has been notified by default. Now -until July 1, 2019 - in the above cases, the identified persons, if there is no information about another PLG in the respective registration case, will be registered as the PLG of the respective legal entity. Records in the registers will be made to improve the transparency of the records kept by the Registry and will be made on the basis of the relevant notification, without the decision of a separate notary public.

“When a few years ago, legal persons had to make the denomination of the share capital or the change in share capital from lats to euro, we received reprimands for bureaucracy and administrative burdens from business organizations. Therefore, this time a legal entity, which has already provided information about natural persons who are considered to be PLGs under other duties, does not have to come to the Register specifically. However, if legal entities officials know that changes have taken place and the PLG is now another person than the one that will be recorded on the default basis, I invite you to update this information immediately, ”calls G.Paidere.

Transparent environment - free access resources

Amendments to the NILLTFNL stipulate that for the purpose of ensuring transparent business environment as of January 1, 2020, information on registers entered by the Register will be provided free of charge. The date of implementation of this measure depends on the decisions of politicians during the review of the state budget for 2020, ie, the financing of 1.2 million euros each year to ensure the free receipt of data to clients.

"It should be noted that the availability of relevant information in the Register for the true beneficiaries is also essential for the companies themselves, both when assessing their counterparties and in meeting the requirements that will come into force immediately in the International and National Sanctions Act. Namely, the better and more freely accessible the information of the Registry, because the business environment will be safer, while at the same time losing the speed that is so important to it, ”explains G.Paidere.  

 

 

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