Latvia's Ability to Identify and Manage Money Laundering Risks is High
The National Money Laundering and Terrorism and Proliferation Financing Risk Assessment Report for 2017 -2019 (hereinafter referred to as the Risk Report) developed by the Financial Intelligence Unit of Latvia characterises Latvia's ability to manage money laundering (ML) risks and the stability of the created anti money laundering (AML) system as high.
This is demonstrated by positive trends and indicators in the field of local and international inter-institutional cooperation, growth in the monitoring and controlling capacity of authorities, as well as the creation of a unified and coordinated AML system. The Risk Report also analyses the key events of 2020, paying special attention to the challenges caused by the COVID-19 pandemic.
Development of the Risk Report is important for each country, since it enables continued identification of money laundering and terrorism and proliferation financing (ML/TF/PF) risks and preparation of relevant measures to reduce these risks. Thus, the report functions as a basis for further development or alignment of the AML/CFT/CFP policy. Representatives of the private sector, in turn, may use conclusions in the Risk Report to review their internal control procedures and adjust them as needed.
This is the first report of its kind created under the leadership of the Financial Intelligence Unit of Latvia. Commenting on the main takeaways, Mrs. Ilze Znotiņa, Chief of the Financial Intelligence Unit of Latvia, said: “Our conclusions are positive: we have become smarter, we have acquired methods for timely identification of risks and are learning to manage them accordingly. Our system is stable, our policy instruments and range of actions are sufficiently flexible to be able to counteract existing and potential ML/TF/PF risks. However, at the same time, there is no room for complacency. Threats and risks are increasingly complicated. Criminals constantly find ways to adapt and bypass our obstacles. The COVID-19 pandemic has also opened up new possibilities for those, who want to take advantage of vulnerabilities during this emergency situation, as well as operate at an enhanced level in the digital environment, so the work must go on.”
The main conclusions in the Risk Report include:
- The AML/CFT/CFP system is stable – it integrates the necessary tools to manage existing and potential risks. The range of activities and risk reduction measures implemented by authorities working in this field is sufficiently flexible for a rapid response to the trends and constantly changing situation in the area of AML/CFT/CFP.
- Money laundering risk is consistently decreasing. This can be mainly explained by the significant decrease in cross-border cash flows from high-risk countries, an improved legal framework, the strengthened capacity of authorities working in this field, including relevant human resources, as well as improvement of inter-institutional cooperation. Most changes took place at the end of 2019, so results will be visible during the next reporting period.
- A gradual decrease in sectoral risks has also been identified. Special emphasis must be placed on the sector of credit institutions, which has faced the greatest changes (refused service to high-risk customers, improved ability to identify and report suspicious transactions, development of high-level internal control systems). This also had positive impact on other sectors.
- The events of 2020 also affected AML/CFT/CFP activities – during the COVID-19 pandemic, the number of virtual crimes grew, and new money laundering schemes appeared.
- The Risk Report also identifies potential future risks and predicts that crimes generating criminally acquired funds and laundering of such funds using various virtual solutions will increase in future. This is possible thanks to the anonymity of virtual currencies, problems related to monitoring such currencies, as well as the growing number of virtual currencies and their diversity.
According to the risks identified in the Risk Report, measures are defined and proposals for the actions to be taken are developed to successfully ensure prevention of these risks:
- To continue improvement of international and national cooperation,
- To strengthen implementation of a risk-based approach,
- To improve implementation of monitoring functions in all sectors,
- To ensure compliance with reasonable monitoring requirements,
- To ensure the efficiency of prevention and enforcement measures included in the AML/CFT/CFP system and continuity of processes,
- To organise training on the most significant conclusions for the target audience – policy-makers, responsible public authorities, reporting entities and the general public.
Development of the Risk Report is also determined by international standards, and the supra-national risk assessment of the European Union is prepared on the basis of the national risk assessments of EU Member States.
The Risk Report assesses the efficiency of the existing AML/CFT/CFP system, identifies previously undetermined threats, vulnerability factors, risks and related consequences, as well as defines deficiencies and provides recommendations for their elimination.
Many partners were involved in drawing up the Risk Report, which also features opinions from institutions and experts in each field, as well as data collected from the Financial Intelligence Unit of Latvia, supervisory and controlling authorities (e.g. FCMC, SRS), law enforcement authorities, the Ministry of Finance, Ministry of Justice, Ministry of Foreign Affairs, Ministry of the Interior and other competent institutions, as well as the reporting entities according the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing and other representatives of the private sector.