Category: Latvia

In 2019, amidst the money-laundering scandal of a Latvian bank and the increasing risk that the country would be included in the Financial Action Task Force’s so-called “Grey List,” Latvia’s Financial and Capital Market Commission introduced new regulations on Anti-Money-Laundering and Counter Terrorism Financing (AML/CTF) and Sanctions.

One of the main priority actions in Moneyval’s fifth-round mutual evaluation report on Latvia was the introduction of additional measures to ensure the independence of the audit function and the effective and substantial implementation of internal controls and procedures. Hence, the Parliament of the Republic of Latvia developed an action plan to tackle these deficiencies.    

On February 12, 2019, the FCMC’s “Regulations on the management of sanctions risk” came into force. These regulations were significant because they stipulated that every financial institution had to carry out an assessment of sanctions risk and establish an internal control system for their management. The regulations were later amended to allow financial institutions to provide financial services to a person on whom restrictions on financial services were put where the provision of services is justified and the FCMC consents. It is yet to be determined whether the prohibition on providing financial services to a person can be circumvented with this exception.

Furthermore, on August 16, 2019, the FCMC adopted regulations related to the independent audit of the AML/CTF internal control system. Although the AML/CTF Law already obliged subjects to conduct an independent audit, these new regulations defined the specifics, namely, the scope and the procedure of the audit. The regulations also included the requirements for the independent auditor, such as, at least five years of experience and competence in AML/CTF and Sanctions field and the absence of any conflict of interest with the financial institution.

Moreover, on December 1, 2019, the FCMC’s “Regulations on due diligence, enhanced due diligence and the establishment of a client risk scoring system” came into force. These regulations were necessary mainly because the European Banking Authority published its guidelines on simplified and enhanced due diligence, which included new risk factors and defined the scope of the enhanced due diligence. Thus, the previous regulations were combined and the EBA guidelines were implemented. The regulations also obligate banks to establish a client risk scoring system to indicate the level of money laundering or terrorism financing risks for business relationships, taking into account various factors, such as client, geographic, service line, and product delivery channel risks. 

According to statistics published by the FCMC, foreign deposits in Latvian banks have decreased from EUR 12.4 billion in 2015 to EUR 3.2 billion in 2019, representing a 74% decrease. This might be due to stronger controls and more regulations in the AML/CTF and Sanctions sector, such as prohibition against providing services to shell companies. 

To conclude, the FCMC and other supervisory authorities have been focusing mainly on implementing the recommendations indicated in the fifth-round mutual evaluation report on Latvia. As previously mentioned, among other things, the FCMC has: (1) obliged financial institutions to carry out an assessment of sanctions risk and establish an internal control system for the management of sanctions risks; (2) specified the scope and the procedure of an independent AML/CTF audit; (3) implemented EBA guidelines on simplified and enhanced due diligence; and (4) obliged financial institutions to establish client risk scoring systems. 

These measures have effectively helped Latvia to strengthen its AML/CTF and sanctions regulations, and as a result, on February 21, 2019, the Financial Action Task Force decided not to put Latvia under increased monitoring, i.e.,  keeping it off its so-called “Grey List.” The FCMC has already declared its next aim, namely, to: (1) develop the dialogue between it and the members of the financial and capital market; (2) develop the supervisory process based on the risk assessment; and (3) strengthen and develop its supervisory powers.

By Maris Liguts, Partner, and Inese Otersone, Senior Associate, Deloitte Legal

This Article was originally published in Issue 7.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Labor Law of Latvia states that an employer is generally prohibited from dismissing employees with disabilities and has to provide such employees with adequate jobs. Employees with disabilities can be dismissed, however, on these grounds (and only these grounds): a) misbehavior; b) inability to perform the contracted job; or c) the employer’s liquidation. Additionally, until a recent judgment of the Supreme Court of Latvia, employers were unable to bring actions in court seeking the dismissal of employees with disabilities.

Recently, the Supreme Court of Latvia ruled that an employer may bring an action before a court for the dismissal of an employee with a disability if the employer has an important reason – which the court ruled is any condition not allowing the continuation of an employment relationship because of fairness and good faith considerations. A court will have discretion to determine on a case-by-case basis whether or not it believes the important-reason test has been met, based on evidence provided by an employer.

In the particular case, the court had to ascertain whether the repeated refusals to accept vacancies by an employee with a disability met the test for dismissal. The final judgment held that the employee’s repeated refusal to accept vacancies in the particular circumstances should be viewed as an act of the employee that is contrary to fairness and ethical standards and in conflict with the legitimate interests of the employer. It was found that the employee had been exercising his right not to be made redundant unfairly and not in good faith by refusing to cooperate reasonably with the employer by taking up other positions or accepting other compromise actions. Consequently, the employee’s dismissal was upheld by the court.

This new case law could actually have a positive impact on the employment of people with disabilities in Latvia. Employers have been cautious in recruiting people with disabilities due to the limited dismissal rights, particularly in the case of redundancy and position eliminations, the latter being the most common grounds for dismissal used by employers. The new case law could reduce employers’ caution by allowing them to protect their legitimate interests if a person with a disability refuses to cooperate in cases of redundancy or position-elimination. The state should also be in a better position to properly promote the realization of the right to work stipulated by the UN Convention on the Rights of Persons with Disabilities, which Latvia has ratified.

The Supreme Court of Latvia certainly did not deliver a “bright line” test that will be easy to apply and administer. It is a subjective rule, entirely dependent on the facts of each case, and we will no doubt see some variation among cases as practice develops. But the ruling is a clear step in the right direction, rooted in the idea of requiring fairness and good faith in relations between employees with disabilities and their employers.

The employer in this case was represented by Ivita Samlaja, an Attorney at Law and Head of the Employment Law Practice Group at Deloitte Legal Latvia.

By Ivita Samlaja, Head of Employment Litigation, Deloitte Legal

This Article was originally published in Issue 7.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Cobalt has advised arranger and sole book-runner AB SEB Bankas on financial institution Altum’s issuance of EUR 20 million notes.

According to Altum, “the transaction attracted a great deal of interest from investors in Latvia, Lithuania, and Estonia, and the notes were oversubscribed 3.8 times.”

Cobalt’s team was led by Specialist Counsel Edgars Lodzins.

The Latvian office of Cobalt, working alongside Clifford Chance, has advised Barclays, J.P. Morgan, and Societe Generale on the issuance of a 3-year Eurobond by the Republic of Latvia in an amount of EUR 1 billion. Allen & Overy advised the Republic of Latvia.

Cobalt’s team was led by Counsel Edgars Lodzins.

Allen & Overy’s team was led by London-based Partner Jamie Durham.

Cobalt has advised APX on an unspecified pre-seed investment into Marine Digital.

APX is an early-stage investment fund and accelerator based in Berlin backed by Axel Springer and Porsche. Marine Digital is a Latvian-based start-up engaged in developing neural networks for the recognition of documents and internal automation frameworks for the logistics sector.

Cobalt’s team included Partner Kristel Raidla-Talur and Associate Sven Bottcher.

TGS Baltic has advised SIA Saules Aptieka on an agreement with People’s Republic of China regarding the supply of surgical face masks to Latvia.

TGS Baltic reports that it inspected the certificates of conformity of goods and production processes, advised the on the process of concluding contracts, assisted in customs clearance procedures, and provided legal support throughout the transaction process. A total of two million surgical masks will be delivered to Latvia.

TGS Baltic’s team consisted of Partner Agnese Hartpenga, Lawyers Gundars Madelis and Rudolfs Vilsons, and Assistant Attorney at Law Zane Sklamina.

Cobalt has advised joint lead managers Barclays, J.P. Morgan, and Societe Generale on the Republic of Latvia’s EUR 550 million Eurobond issuance. Allen & Overy reportedly advised the Republic of Latvia on the issuance.

“Given the emergency situation in the country, it is important to have available funding to finance all economic stimulus efforts and measures to support citizens,” commented Latvia’s Minister of Finance Janis Reirs. “It is important to overcome the COVID-19 crisis together to return to normal conditions. With this transaction we have raised long-term funding having favorable borrowing conditions and ensuring low and predictable long-term debt servicing costs.”

Cobalt’s team was led by Specialist Counsel Edgars Lodzins.

Sorainen has advised the Biolars chemical factory on starting the manufacturing of disinfectants in its Latvian production plants.

According to Sorainen, “Biolaris wants to ensure the availability of disinfectants needed to stabilize the state of emergency and support people living in Latvia and help mitigate the consequences of Covid-19. Taking into account the increased demand for and unreasonably high prices of disinfectants, Biolars will try to set affordable prices for its products, in line with purchasing power.”

According to the firm, it helped Biolars draft documents for approval by Latvia’s State Environmental Service and State Revenue Service to launch the production of disinfectants.

Sorainen’s team was led by Counsel Viktorija Jarkina.

TGS Baltic has advised Cooperatieve Rabobank U.A. on its refinancing of Latvian fishing company SIA Batterfisa’s existing liabilities and working capital needs. Batterfisa was advised by Ellex Klavins.

TGS Baltic’s team in Latvia included Partner Inese Hazenfusa, Associate Raivis Znotins, and Legal Assistant Martins Galzons.

Ellex Klavins’ team included Associate Partner Maris Brizgo and Senior Associate Anna Misneva.

TGS Baltic and Deloitte Legal have advised CVI Dom Maklerski on financing provided to SIA Riga Retail Park for the purposes of co-financing its acquisition of real property as well as the construction and development of the Saga Lifestyle and Shopping Centre in Stopini, a suburb of Riga, by Baltic real estate developer VPH UAB.

According to TGS Baltic, “the bonds were issued by Latvian company SIA Riga Retail Park under Polish law, but the securities were established under Latvian law. The bond issue was also a subordinated transaction to the senior loan to be issued by a syndicate of banks in Latvia.”

As previously reported, Ellex and Sorainen advised on the underlying deal (as reported by CEE Legal Matters on February 20, 2020).

TGS Baltic’s team included Partner Inese Hazenfusa, Associate Mikelis Ozolns, and Legal Assistant Martins Galzons.

Deloitte’s team included Senior Managing Associate Antoni Goraj, Managing Associate Mariusz Banas, and Lawyer Sylwia Karpinska.