Category: Latvia

Sorainen, working with lead counsel Kirkland & Ellis, has advised AE Industrial Partners on its acquisition of UAV Factory.

UAV Factory is a designer and producer of airframes, engines, stabilized EO/IR ISR payloads and related components in-house for the unmanned and manned aircraft industry. The company operates branches in Riga, Latvia and Bend, Oregon.

AE Industrial Partners is a private equity firm which specializes in the aerospace, defense, and government services sectors, as well as power generation and specialty industrial markets.

Sorainen’s team included Managing Partner Eva Berlaus and Associate Liva Aleksejeva.

Sorainen did not reply to an inquiry about the deal.

Walless has advised Lumi Retail Property Fund on its acquisition of the Juglas Centrs shopping center in Riga in a share deal from RCH Management.

According to Walles, “Juglas Centrs has a 4,500-square-meter lease area and its anchor tenant is Rimi … [and it] also houses Lemon Gym and Pepco, as well as several smaller tenants.”

Lumi Retail Property Fund, a subsidiary of Lumi Capital, is a Baltic-wide real estate fund that specializes in shopping centers. Walless reported that “the total volume of the fund’s investments is planned to be EUR 100 million within a timeframe of 20 years … [and that] the anchor investors of the fund are Swedbank pension funds.”

The Walless team consisted of Partner Kristine Gaigule-Saveja and Senior Associates Kristine Sakarne and Andis Ozolins.

TGS Baltic has assisted Latvian warehousing and logistics park SIA Olaines Logistics Parks and holding company SIA Olaines Logistics with the former’s merger into the latter. SIA Olaines Logistics is owned by United Partners Property OU via UPP Olaines OU.

According to TGS Baltic, “SIA Olaines Logistics Parks complex is a modern storage place consisting of two buildings with high-class warehouse and office space. The complex is equipped with adequate technological infrastructure and security systems. The total area of the complex is 37,000 square meters, and the premises can provide all the most important temperature regimes for storing food and other products.”

According to TGS Baltic, “the purpose of the merger was to ensure the simplification of the group structure and management, and increase the efficiency of use of administrative resources. The warehouse and logistics park is located in a very advantageous place with a developed transport infrastructure and flexible logistics solutions.”

TGS Baltic’s team included Partner Sandis Petrovics and Associate Alina Lepere.

Ellex Klavins has advised Danske Bank on the sale of its corporate portfolio to Luminor. Sorainen advised the buyer on the deal. The parties did not disclose the financial details.

Luminor is the third-largest provider of financial services in the Baltics, providing banking and financial services to individuals, companies, and institutions in Estonia, Latvia, and Lithuania. 

This transaction is in line with Danske Bank’s 2019 announcement on the winding down of its banking activities in the Baltics in order to focus on its Nordic core markets. 

The portfolio consists of Latvian corporate customers of Danske Bank and includes loan, leasing, and guarantee agreements. 

Ellex’s team included Associate Partner Valters Diure, Senior Associate Roberts Rimsa, and Associate Eduards Dzintars. 

Sorainen’s team in Riga included Partner Rudolfs Engelis, Senior Associate Inese Heinacka, and Associate Agneta Rumpa.

Walless has advised UCTAM Baltics SIA on the sale of several land plots in Riga, covering a total area of 7.3 hectares, to Urban Investors. The total value of the transaction is EUR 5.5 million.

Urban Investors is part of the Lithuanian SBA Group. Acquired to the company, the land is intended to be used for campus-style development for high-tech companies, educational institutions, and science laboratories as a synthesis of the workplace and living area, with a complex ecosystem.

Walless’s team included Partner Sintija Radionova and Senior Associate Andis Ozolins.

Walless did not reply to our inquiry on the matter.

Cobalt has advised lead investor Change Ventures on its participation in Berlin-based startup Inzmo’s EUR 3.1 million round. Inzmo was advised by PwC Legal Germany.

Change Ventures is an early-stage venture capital fund based in the Baltic states, backing Baltic founders.

Inzmo, a startup founded in 2015 in Germany, offers technological solutions for insurers to increase sales and improve customer relations, as well as for claim settlement and risk management. The company is engaged in the insurance of assets such as bicycles, electronics, eyewear, and watches.

Cobalt’s team included Partner Kristel Raidla-Talur, Senior Associate Greete-Kristiine Kuru, and Assistant Lawyer Johanna Lumiste.

Cobalt has successfully persuaded the Administrative Department of the Supreme Court Senate of Latvia to deny the appeal of the State Revenue Service of a decision by the District Administrative Court to revoking a decision by the State Revenue Service against the firm’s client, SIA Lielzeltini.

According to Cobalt, “the dispute concerned the decision of the State Revenue Service stating that the company is not entitled to deduct input tax as the goods were not supplied by the seller indicated in the transaction documents and alleging that SIA Lielzeltini was aware of this.”

Cobalt’s team included Partner Sandija Novicka and Senior Associate Elina Locmele.

“Currently, the main debate in Latvia is about when business will get back to normal and whether companies will be compensated for their lockdown-caused losses,” says Janis Zelmenis, Managing Partner at BDO Latvia, sighing that he expects the burden to eventually fall on the taxpayers’ shoulders.

Indeed, he reports, Latvia’s economy has been hit hard by the recently-imposed strict curfew, which limits the working hours of many businesses in the country. As a result, as Zelmenis reports, many hospitality businesses have closed.

Zelmenis disagrees with the assessments of some Latvian ministers who, as he says, deemed certain industries, such as tourism, effectively dead and not worth stimulating. “Their argument is that, when the time is right, tourism will revive on its own,” he explains. That might not be the most prudent approach, according to Zelmenis, who notes that tourism is a big driver of Riga’s economy.

Another big economic driver that Latvia is happy to take advantage of is the influx of Belarusian IT companies. “There was a beauty contest between Poland, Lithuania, and Latvia on who will offer better conditions to these companies,” Zelmenis says. “Even though Vilnius is closer to Minsk than Riga, Latvia managed to tap into the Belarusian market.”

Latvian IT companies have been busy as well lately, and Zelmenis points to Giraffe Visual, a Latvian provider of interactive 3D, 360-degree virtual presentations of different products and interiors. “I was impressed by their virtual presentation of real estate, which came in quite handy during lockdowns,” he notes. Still, Zelmenis explains, even the more active sectors of the Latvian economy are finding it difficult to find qualified people. “Latvia has lost many people to migration,” he says. “In a country of just under two million, it is challenging to find a proper team.”

Latvia also hopes to attract foreign investment, and to that end Zelmenis notes that the Liepaja Special Economic Zone lately has proven to be very valuable. The zone, which was established in 1997 in the town of Liepaja, offers direct tax rebates and indirect tax reductions to businesses operating in it. In addition, Latvia is trying to stimulate investments via its Start-Up law. “Latvia was recently awarded by an international organization as a start-up friendly country,” Zelmenis says, and he explains that recent amendments to the law should change the definition of a start-up and enable eligible companies to obtain between EUR 100,000 and EUR 200,000 salary compensation upon registering. “So, if you qualify as a Latvian start-up, say, in the IT sector,” he notes, “you will have your salaries covered for about six months or even a year.”

In February, 2020, the Latvian authorities breathed a sigh of relief after the Financial Action Task Force voted against adding Latvia to the so-called “grey list” of jurisdictions with strategic anti-money laundering deficiencies. Prior to that, MONEYVAL, the permanent monitoring body of the Council of Europe entrusted with the task of assessing compliance with the principal international standards to counter money laundering, found that Latvian financial institutions had failed to introduce sufficient methods to identify suspicious funds primarily associated with clients from the former Soviet bloc countries.

Building Culture of Compliance

Since the European Union anti-money laundering directives require only minimum harmonization and consist of high-level principles, the Member States have wide discretion in implementing the standards into national laws. This has led to different national supervisory practices, and, in the wake of the collapse of ABLV Bank – which was blacklisted by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network – Latvian authorities introduced far more stringent anti-money laundering and sanctions compliance rules than required under European Union law. As a result, Latvia requests more information from financial institutions and their clients than many other Central and Eastern European and Nordic countries do.

As a Baltic business hub, Latvia continues to attract foreign investors and multi-national companies operating in Latvia both via subsidiaries and on a cross-border basis. Now, these businesses are required to be even more transparent – for instance, until January 1, 2021, all branches and representative offices of foreign entities included in the Latvian Register of Enterprises, as well as permanent representative offices registered with the Latvian State Revenue Service, are obliged to disclose their ultimate beneficial owners.

The same principles also apply to financial institutions licensed in other Member States and operating in Latvia on a cross-border basis. Namely, in addition to group-wide anti-money laundering and sanctions compliance policies and procedures, branches of financial institutions are expected to comply with the applicable Latvian regulations which may – and in most cases do – substantially differ from analogous obligations under the laws of their home Member States.

Current Trends

Increasingly demanding regulatory requirements have led to the phenomenon of “de-risking,” pursuant to which Latvian financial institutions terminate or limit business relationships with high-risk clients rather than managing the risks in line with a risk-based approach. To prevent the potentially adverse effects on Latvia’s economy, various professional associations closely linked to foreign investors and financial industry have pushed the Latvian Government to adopt a clear anti-money laundering strategy moving forward.

In the meantime, however, both businesses and financial institutions are somewhat unevenly balanced between the risk-based and rule-based anti-money laundering approaches, with the latter taking precedence. The Financial and Capital Market Commission – Latvia’s financial supervisory authority – has very recently adopted recommendations intending to serve as a practical guide for financial institutions through customer due diligence and enhancement of internal control systems, also averting the rule-based trend.

In practice, there is still room for improvement, as the current law imposes largely the same anti-money laundering obligations on all financial institutions, notwithstanding the fact that there are significant differences between credit institutions and other participants of the financial and capital market, such as private pension funds, savings and loan associations, and alternative investment fund managers, which operate in areas posing less risk of money laundering.

According to state authorities, further changes in the applicable laws are expected to be introduced to provide more clarity and lessen the administrative burdens. However, these amendments are unlikely to be less strict, and will, probably, only address the current ambiguity clouding certain legal principles. As such, businesses operating in Latvia are expected to continue encountering high transparency and disclosure requirements, with financial institutions under strict obligations to provide internal control mechanisms to ensure the relevant transparency levels.

By Girts Lejins, Partner, and Krisjanis Buss, Associate, Cobalt

This Article was originally published in Issue 7.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Cobalt is representing Saeima, the legislature of the Republic of Latvia, before the Latvian Constitutional Court regarding the compatibility of its administrative-territorial reform package with the country’s Constitution and the European Charter of Local Self-Governments.

According to Cobalt, “the Constitutional Court shall also review whether the digital platform e-Saeima, introduced by the parliament in 2020 and used in the legislative process, is compatible with the Constitution. Latvia’s Constitutional court is reviewing this landmark case of administrative reform in oral hearing using online digital tools.”

Cobalt’s team includes Partner Lauris Liepa and Associates Gabriela Santare and Toms Krumins.