A significant precedent has been established in Latvia regarding the enforcement of sanctions: the Administrative District Court has rejected an application by a legal entity registered in Latvia to be removed from the list of sanctioned entities maintained by the Financial Intelligence Unit (FIU). The legal entity is 50% indirectly owned by a person included on the sanctions list.
In rejecting the claim for compensation of more than one million euros, the court concluded that the actions of the involved authorities in publishing information about the applicant on the sanctions list were lawful. Similarly, no direct causal link was found between the authorities’ actions and the claimant’s inability to settle its obligations, as a result of which enforcement proceedings were directed against a helicopter owned by the claimant.
“This ruling is a significant step toward strengthening Latvian case law regarding the enforcement of sanctions. It clearly confirms that a 50% ownership stake in a legal entity is sufficient grounds to freeze the assets of such a legal entity that is not included on the list. It is significant that the court confirms the need to interpret the element of control broadly in order to prevent the circumvention of sanctions. This ensures that attempts by sanctioned persons to transfer assets using front persons, trusts, or shell companies, as well as other attempts to evade the application of sanctions, are unsuccessful,” explains Marta Tilhena, Head of the Sanctions Implementation Division at the FIU.
In accordance with European Union (EU) legislation and best practices, a 50% ownership stake is sufficient to apply the same restrictions to a person not directly included on the sanctions list be subject to the same restrictions as a person included on the list, including the freezing of funds and economic resources. Consequently, the FIU's action — in determining the justification for freezing the applicant’s assets and including them on the FIU's list of sanctioned entities—was deemed lawful in this case.
The court, citing provisions of the Commercial Law, noted that ownership of 50% of the shares or equity interests also enables one to determine the composition of the board of directors, influence or block the company’s decisions, and control the use of funds and resources, which fully corresponds to the element of control within the meaning of the EU sanctions regime.
A broad interpretation of the element of control is necessary to prevent the circumvention of sanctions. The Court draws attention to the real-world situation in which assets can be transferred within a short period of time, and therefore has identified ways in which a listed person may exercise control over an unlisted entity (e.g., majority ownership, use of front persons, use of trusts, shell companies, and limited liability companies).
Sanctions lists and other useful information available on the FIU website.
Since April 2024, the FIU has been the national competent authority for sanctions implementation in Latvia.
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