FATF Status

Latvia is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

Compliance with FATF Recommendations

The latest Follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Latvia was undertaken in 2019. According to that Evaluation, Latvia was deemed Compliant for 7 and Largely Compliant for 33 of the FATF 40 Recommendations. It was also deemed Highly Effective for 0 and Substantially Effective for 1 with regard to the 11 areas of Effectiveness of its AML/CFT Regime

US Department of State Money Laundering assessment (INCSR)

Latvia was deemed a Jurisdiction of Primary Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR) but has not been included since. Key Findings from the last report are as follows: -

Latvia is a regional financial center with a large number of commercial banks and a sizeable non-resident deposit base. Foreign depositors account for more than half of the 30 billion euros (approximately $33 billion) in Latvia’s banking system, which markets itself as a gateway to the European Union. Nonresident cash continues to flow across the border from neighboring Russia and other former Soviet states. The Financial and Capital Market Commission (FCMC) stated in May 2015 that the growth of nonresident deposits from Russia has remained steady despite international sanctions imposed in the spring of 2014. Nonresident deposits pose a substantial risk in that money obtained from corruption and other crimes committed outside of Latvia can be laundered inside the country. Latvia’s geographic location, large untaxed shadow economy (estimated at about 25 percent of the overall economy), and public corruption make it challenging to combat money laundering.

Officials do not consider proceeds from illegal narcotics to be a major source of laundered funds in Latvia. Authorities identify the primary sources of money laundered in Latvia as tax evasion; organized criminal activities, such as prostitution and fraud perpetrated by Russian and Latvian groups; and other forms of financial fraud. Officials also report that questionable transactions and the overall value of laundered money have remained below pre-financial crisis levels. Latvian regulatory agencies monitor financial transactions to identify instances of terrorism financing.

There is a black market for smuggled goods, primarily cigarettes, alcohol, and gasoline; however, contraband smuggling does not generate significant funds that are laundered through the official financial system.

Four special economic zones provide a variety of significant tax incentives for manufacturing, outsourcing, logistics centers, and the transshipment of goods to other free trade zones. The zones are covered by the same regulatory oversight and enterprise registration regulations that exist for other areas.

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           60

World Governance Indicator – Control of Corruption             75

Corruption is a problem for businesses operating in Latvia, and demands for bribes and other irregular payments are pervasive. Close ties between public officials and businesses, the influence of private interests involved in illegal political party funding and the unethical behaviour of companies are considered competitive disadvantages for the country. Latvia's Criminal Law criminalises several forms of corruption, including active and passive bribery, gifts, conflicts of interest and influence peddling. Anti-corruption laws are not effectively implemented by the government. The government recently strengthened the independence of the country’s anti-corruption commission, established a comprehensive e-government system and centralised procurement processes, but procurement remains the sector most affected by corruption. Giving gifts to expedite or obtain administrative services is reportedly widespread, and irregular payments may also occur. For further information - GAN Integrity Business Anti-Corruption Portal

Located in the Baltic region of northeastern Europe, Latvia is a member of the EU, Eurozone, NATO, OECD, and the World Trade Organization (WTO). The Latvian government recognizes that, as a small country, it must attract foreign investment to foster economic growth, and thus has pursued liberal economic policies and developed infrastructure to position itself as a transportation and logistics hub. As a member of the European Union, Latvia applies EU laws and regulations, and, according to current legislation, foreign investors possess the same rights and obligations as local investors (with certain exceptions). Any foreign investor is entitled to establish and own a company in Latvia and apply for a temporary residence permit.

Latvia is a transportation and logistics hub between West and East, providing strategic access to both the EU market and to Central Asia. Latvia’s three ice-free ports are connected to the country’s rail and road networks and to the largest international airport in the Baltic region (Riga International Airport). Latvia’s road network is connected to both European and Central Asian road networks; in the case of the latter, via the Russian Federation. Railroads connect Latvia with the other Baltic states, Russia, and Belarus, with further connections extending into Central Asia and China. Latvia’s workforce is highly educated and multilingual, and its culture promotes hard work and dependability. Labor costs in Latvia are the fourth-lowest in the EU. Latvia ranked second in the OECD’s 2022 International Tax Competitiveness Index Rankings. To further boost its competitiveness, the Latvian government has abolished taxes on reinvested profits and has established special incentives for foreign and domestic investment. There are five special economic zones (SEZs) in Latvia: Riga Free Port, Ventspils Free Port, Liepaja Special Economic Zone, Rezekne Special Economic Zone, and Latgale Special Economic Zone, which provide various tax benefits for investors. The Latgale Special Economic Zone covers a large part of Latgale, which is the most economically challenged region in Latvia, bordering Russia and Belarus.

Despite Russia’s war of aggression against Ukraine, and the continued COVID-19 pandemic, Latvia’s GDP increased by 2 percent in 2022. According to the government, growth in manufacturing and services sectors were the main contributors to growth. The most competitive sectors in Latvia remain woodworking, metalworking, transportation, IT, green tech, healthcare, life science, food processing, and finance. Recent reports suggest that some of the most significant challenges investors encounter in Latvia are a shortage of available workforce, demography, quality of education, and a significant shadow economy. Latvia’s year-on-year inflation was 20.1 percent in February 2023, double the EU average (9.9 percent) and slightly higher than inflation in the other Baltic states (Estonia 17.8 percent; Lithuania 17.2 percent).

Latvia has made significant progress combating money laundering since its non-resident banking sector first came under increased regulatory scrutiny in 2018 over poor compliance with international AML standards. In late 2019 and early 2020, MONEYVAL and the Financial Action Task Force (FATF) concluded that Latvia had developed and implemented strong enough reforms for combating financial crimes to avoid inclusion on FATF’s so-called “grey list.” The Government of Latvia continues work to restore confidence in its financial institutions and has passed several pieces of additional reform legislation. Latvia was the first state under MONEYVAL review to successfully implement all 40 FATF recommendations.

Some investors note a perceived lack of fairness and transparency in Latvian public procurements. Several companies, including foreign companies, have complained that bidding requirements are sometimes written with the assistance of potential contractors or are couched in terms that exclude all but “preferred” contractors.

The chart below shows Latvia’s ranking on several prominent international measures of interest to potential investors.

Country Links

Office for Prevention of Laundering of Proceeds derived from Criminal Activity (Control Service) (KD)

Financial and Capital Market Commission

Bank of Latvia