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Global geopolitical events and technological developments have had an impact on the terrorism financing and proliferation financing (TF and PF) situation in Europe and Latvia. It has become more dynamic and complex. In the light of the evolving situation in the field of TF and PF, the Financial Intelligence Unit (FIU), in cooperation with the State Security Service (VDD), has developed updated Guidelines on the Prevention of Terrorism and Proliferation Financing. This is an updated version of the “TF and PF Prevention Guidelines for the Subjects of the Law on PMLTPF and Supervisory Authorities” developed by the FIU and the VDD in 2019. The updated guidelines are intended to serve as a practical tool for the subjects of the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing (Prevention Law) and their supervisory and control authorities in planning and implementing measures to prevent TF and PF. The guidelines are designed to help financial institutions and other involved parties better understand, identify, and respond to potential TF and PF risks. The updated guidelines include a general description of TF and PF, the current situation and trends in Europe and Latvia, as well as detailed information on the signs that could indicate suspicious transactions involving TF and PF. The updated guidelines are part of a broader effort to strengthen the capacity of the Latvian financial market, including the ability of financial market participants and others involved in TF and PF prevention to mitigate and effectively manage TF and PF risks. The FIU stresses the importance of cooperation between the public and private sectors in order to ensure effective control and monitoring through joint efforts. Private and public sector representatives are invited to familiarise themselves with the updated guidelines and use them to improve TF and PF risk management systems in order to promote a safer financial environment in Latvia. Guidelines on the Prevention of Terrorism and Proliferation Financing

On 24 June 2024, the 14th set of restrictive measures against the Russian Federation was adopted. Briefly on the essentials in the 14th sanctions package. Energy-related measures: The package prohibits reloading services, including ancillary services, in the European Union for transhipment operations where such services are used for the transhipment of liquefied natural gas (LNG) originating in the Russian Federation or exported from the Russian Federation, except when such transhipment takes place to Member States;Prohibition of new investment and the supply of goods, technology, and services to complete LNG projects such as Arctic LNG 2 and Murmansk LNG. Anti-circumvention measures: European Union parent companies must make every effort to ensure that their subsidiaries in third countries do not participate in sanctions evasion;EU natural and legal persons selling sensitive goods and technologies as listed in Regulation (EU) No 833/2014 to third countries must have in place risk-appropriate control mechanisms capable of identifying and mitigating possible re-exports of goods to the Russian Federation;European Union natural and legal persons are required to contractually prohibit their counterparties in third countries from using or allowing the use of information protected by intellectual property rights or as trade secrets and transferred to them in connection with common high priority items to be sold, supplied, or exported to the Russian Federation or for use in the Russian Federation. Financial measures: European Union legal persons operating outside the Russian Federation are prohibited from connecting directly to the SPFS (the Russian Federation’s equivalent of SWIFT) or equivalent specialised financial messaging systems established by the Central Bank of Russia;European Union legal persons are prohibited from conducting business with respect to certain listed entities that use the SPFS outside the Russian Federation. The abovementioned measures do not apply to legal persons established and operating in the Russian Federation, including subsidiaries of European Union legal persons;Political parties, foundations, associations, non-governmental organisations, including think tanks, and media service providers in the European Union are prohibited from accepting, directly or indirectly, funding, donations, or any other economic benefit or support from the Russian Federation. Logistics/transport measures: Banned access to ports and locks of European Union Member States, as well as a ban on provision of a wide range of maritime transport services for specific vessels contributing to Russia’s warfare against Ukraine (targeting the shadow fleet);Additional restrictions are introduced on scheduled and non-scheduled flights where Russian Federation persons may determine the place or time of take-off or landing (including holidays and business meetings);Broadened prohibition on the transport of goods by road within the territory of the European Union, including in transit, so as to cover European Union companies which are owned 25% or more by a natural or legal person of the Russian Federation. Import/export measures: Imposed export restrictions on an additional 61 items supporting the military and industrial complex of the Russian Federation in its war of aggression against Ukraine, located in various countries including China, Kazakhstan, Kyrgyzstan, Turkey, and the United Arab Emirates;Additional restrictions are imposed on the export of goods that could contribute in particular to the enhancement of the Russian Federation’s industrial capabilities, e.g. chemicals, including manganese ores and compounds of rare-earths, as well as plastics, excavating machinery, monitors, and electrical equipment. In addition, five common high priority items were added to the export restrictions;Further restrictions are imposed on the import of helium, which is a source of significant revenues for the Russian Federation, allowing it to continue its war of aggression against Ukraine;Prohibition to acquire, import, transfer, or export Ukrainian cultural objects and other goods of archaeological, historical, cultural, rare scientific, or religious importance where there are reasonable grounds to suspect that the goods have been illegally removed from Ukraine. A ban on the provision of related services has been introduced in addition. Measures protecting intellectual property rights: Restrictions on accepting applications for the registration of certain intellectual property rights in the European Union submitted by natural and legal persons of the Russian Federation. Amendments regarding diamonds: It is clarified that the ban does not encompass diamonds that were physically located either within the European Union or in a third country, or were polished or manufactured in such third country, before the entry into force of the Russian Federation diamond ban;Temporary import or export of jewellery for auctions and repairs is allowed;The transitional period after which traceability scheme for diamonds will become mandatory is extended by 6 months (until 1 March 2025);It is stipulated that the indirect import ban on Russian Federation diamonds processed in third countries other than the Russian Federation temporarily will not apply to jewellery containing such diamonds until otherwise decided by the Council, taking into account the action taken within the G7 to implement the abovementioned measure. The latest sanctions impose restrictive measures against additional 116 natural and legal persons responsible for acts that undermine or threaten the territorial integrity, sovereignty, and independence of Ukraine. The listed persons are subject to an asset freeze and are prohibited from making funds available to citizens and companies of the European Union. Furthermore, natural and legal persons of the European Union Member States are allowed to receive compensation from natural and legal persons of the Russian Federation for damage caused to them. It is also prohibited to carry out transactions with persons listed in Annex XLIII to Regulation (EU) No 833/2014 who apply the Arbitration Procedural Code of the Russian Federation in order to settle claims under foreign jurisdiction. Publications in the Official Journal of the EU: https://eur-lex.europa.eu/legal-content/LV/TXT/HTML/?uri=OJ:L_202401745 (amendments to Regulation (EU) No 833/2014);https://eur-lex.europa.eu/legal-content/LV/TXT/HTML/?uri=OJ:L_202401739 (amendments to Regulation (EU) No 269/2014).

Directive (EU) 2024/1226 of the European Parliament and of the Council of 24 April 2024 on the definition of criminal offences and penalties for the violation of Union restrictive measures and amending Directive (EU) 2018/1673 (Directive) which enters into force on 19 May 2024 has been published in the Official Journal of the European Union. Until now, European Union Member States have had different practices in relation to the prosecution of those responsible for the violation of sanctions, including no obligation of Member States to criminalise such behaviour. The Directive provides for certain actions which will constitute a criminal offence and for which both natural and legal persons will be held criminally liable, e.g. violation of the prohibition imposed by the European Union to make funds or economic resources available, directly or indirectly, to or for the benefit of an entity or body subject to sanctions, conducting business with sanctioned persons, circumventing the travel restrictions imposed by the European Union, and other acts referred to in Article 3 of the Directive. Also, in order to ensure a proportionate use of investigative resources, taking into account the seriousness of the committed offence, the Directive provides that in certain cases Member States will be able to establish that infringements of restrictive measures of the European Union do not constitute a criminal offence if they concern goods, services, transactions, or activities of a value of less than EUR 10,000, and in such case the person may be held administratively liable. The Directive provides for various types of penalties for infringements of the regulatory framework on sanctions, including deprivation of liberty. The Directive will facilitate and unify the process of investigating and prosecuting infringements of the regulatory framework across the European Union. Latvia already criminalises violations of international and national sanctions, while, like other European Union Member States, Latvia will have to assess the compliance of its national regulatory framework with the Directive and transpose the Directive into national law by 20 May 2025.

The Financial Intelligence Unit of Latvia (FIU) informs that in accordance with the regulatory framework of the sanctions imposed against Russia, legal entities incorporated in Latvia shall, as of 1 May, report to the FIU any transfer of funds exceeding EUR 100,000 out of the Union that they made during that quarter, directly or indirectly, in one or several operations if the proprietary rights are directly or indirectly owned for more than 40% by: a legal person, entity or body established in Russia;a Russian national; ora natural person residing in Russia. The reporting obligation also applies to legal persons for which the 40% ownership threshold is reached by several persons together. For example, 20% of the capital is owned by a legal entity incorporated in Russia and 20% by a natural person residing in Russia. The first report, due by 15 May, must include information on payments made by legal persons between 1 January and 31 March of this year. From the second quarter onwards, the report will have to be submitted within two weeks of the end of each quarter. The aim of the regulatory framework is to provide competent authorities with more information on flows of funds between the European Union and third countries, allowing them to identify sectors with a high risk of sanctions evasion and to identify sources of Russian revenue. Credit institutions and financial institutions are required to submit reports on transfers made out of the Union by customers that meet the abovementioned conditions on a semi-annual basis as of 1 July for the period from 1 January to 30 June of this year. The template to be used for submitting the report is available on the website of the FIU under section Information to be submitted to the FIU. The report must include information on the payment, the payee, the ownership structure of the legal entity and its compliance with the reporting obligation criteria, and other information specified in the template. Information should be sent to the e-mail sankcijas@fid.gov.lv. Additional information on the reporting requirement is available at Information to be submitted to the FIU and the explanatory notes prepared by the European Commission are available here (in English). The reporting obligation is laid down by Article 5r of Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine.

The Financial Intelligence Unit (FIU) has compiled information on frozen funds and economic resources and published it on 17 April 2024. Information has been published on the basis of the data provided for the first time in accordance with Cabinet Regulation No. 184 of 26 March 2024, Procedures for the Proposition and Implementation of International and National Sanctions (Cabinet Regulation) until 12 April 2024 by persons who have frozen funds or economic resources of sanctioned persons in Latvia in compliance with their obligations under national and international sanctions. The FIU has received information from credit and financial institutions, including credit institutions subject to liquidation, on both the funds of sanctioned persons frozen in current accounts opened at Latvian credit institutions and other funds of sanctioned persons frozen by Latvian credit and financial institutions. For example, information has been received on sanctioned persons registered abroad who have made payments to persons with accounts in Latvian credit institutions. Information has also been received on payments made through a foreign sanctioned person (credit institution). In these cases, the Latvian credit institution suspended the payments and froze the funds. The national authorities which register economic resources in Latvia have provided information on the economic resources of the sanctioned persons that are recorded in the public registers they keep and that they have frozen by making a relevant entry in the register. Information on sanctioned persons with frozen funds and economic resources in Latvia is compiled and published on the website of the FIU under section Sanctioned persons. Detailed information on frozen economic resources of sanctioned persons is available under section Frozen assets. Please note that for more convenient processing of data, the FIU publishes information on frozen economic resources also in the Open Data Portal of Latvia.

The conference was organised with the support of the EEA grant under the project “Improvement of staff knowledge in combating money laundering in Latvia” (No. EEZ/FID/2021/6). Information on the EEA Financial Instrument: www.eeagrants.lv. Working together for secure and competitive Europe! On 19 March of this year, Rīga hosted the international conference “Effective sanctions: goals for 2024”, which brought together more than 1000 participants, 100 of them in person and 900 remotely. The aim of the conference was to discuss improvement of the application and implementation of sanctions in the European Union (EU). The conference brought together 21 international experts from 9 countries, representing public authorities, financial institutions, and the industry, to exchange experiences and discuss ways to strengthen the application and implementation of sanctions at operational level across the EU. The event was opened by Toms Platacis, the Head of the Financial Intelligence Unit of Latvia (FIU Latvia), who informed of the new role of the FIU Latvia as the leading authority in matters related to sanctions implementation in Latvia. Thereafter the Minister for the Interior of the Republic of Latvia Rihards Kozlovskis emphasised the crucial role of sanctions in national security, in particular against Russia’s actions in Ukraine. In his speech, EU Special Envoy for Sanctions David O’Sullivan highlighted the impact of sanctions on reduced energy profits of Russia and on its military capabilities. The conference discussed a wide range of topics, including: Vladyslav Vlasiuk, the advisor in the Ukrainian presidential office, in conversation with Tom Keatinge, Director of RUSI’s Centre for Financial Crime and Security Studies, stressed the need to strengthen sanctions and their implementation in order to deter Russia’s military capabilities. Mr Vlasiuk urged Ukraine’s allies to notice what the sanctions have achieved. Russia is struggling to obtain key microelectronic components for its Shahed drones, which are increasingly failing because they have to use lower quality components. Mr Vlasiuk insisted on the importance of decisive action and identified three priorities: to achieve the confiscation of Russian assets, to strengthen the implementation of the Oil Price Cap, and to cooperate with the international financial institutions after the US December 2023 executive order. In the first panel discussion “How to ensure an effective sanctions implementation model in a country?”, moderated by the FIU Latvia Deputy Head Paulis Iļjenkovs, representatives of various national competent authorities discussed their different powers and responsibilities in their respective implementation models, their role in applying exceptions, as well as the support they provide to the private sector in the implementation of sanctions. The Latvian and Estonian financial intelligence units, the Finnish Ministry of Foreign Affairs, and OFSI, which is a separate body in the United Kingdom dealing with the implementation of financial sanctions, took part in the discussion as national competent authorities. The discussion described the positive aspects of centralised competent authorities, while concluding that there is no singular model of authority that is clearly more successful than others. It was concluded that greater effort is needed to ensure the effectiveness of these models and also it is necessary to foster cooperation with the private sector. In conclusion, a discussion was held on the need for the EU to establish a centralised structure for the implementation of sanctions, a proposal that was also supported by FIU Latvia.Tom Keatinge and Kinga Redlowska, Head of RUSI’s European Centre for Financial Crime and Security Studies, discussed the role of research in the effectiveness of sanctions. RUSI is committed to improving knowledge and awareness of sanctions across Europe and in early 2022 launched the Sanctions and Illicit Finance Monitoring and Analysis Network (SIFMANet). SIFMANet has organised more than a dozen discussions in EU Member States, bringing together the public and private sectors to assess the situations faced by organisations in the application and implementation of sanctions. Both authorities and companies are committed to their responsibilities, but researchers support strengthening the strategic vision and helping to identify policy and operational gaps to achieve a stronger sanctioning framework.Benjamin Hilgenstock, Senior Economist at Kyiv School of Economics, joined RUSI Research Analyst Gonzalo Saiz for a discussion on the current impact of sanctions on Russia and ways to improve the application and implementation of sanctions. Mr Hilgenstock emphasised the negative impact of sanctions on Russia’s energy revenues, as well as military and industrial complex, but pointed out that the pace of impact is too slow. He stressed the need to tighten the Oil Price Cap to limit Russia’s ability to finance the war. Export controls should also be strengthened, in particular by supporting non-financial operators with limited experience in sanctions implementation. The discussion concluded by underlining that strong sanctions and export control regimes are essential for national security and that ensuring their effectiveness should remain a priority beyond the current focus on Russia in order to respond to future threats.The panel discussion “Combating the sanctions evasion” brought together authorities from different EU Member States to discuss the level and effectiveness of sanctions implementation measures. The panellists agreed that identifying Russian assets is not an easy task, as they are often hidden behind complex ownership structures and cross-border networks. Many national authorities were not fully prepared to comply with a series of sanctions imposed in February 2022. Ruud Leeuwendaal, Head of Team Anti-Terrorism Financing and Sanctions in the Netherlands, explained how Member States have consistently stepped up their efforts, especially in view of the new risks of circumvention when trade is routed through third countries. Lars Schmidt, Director and Sanctions Coordinator at the Swedish Ministry of Foreign Affairs, presented his country’s initiative to distribute a sanctions leaflet with the help of the Swedish authority to exporters in order to inform them of their responsibilities, provide support, and encourage vigilance. The discussion concluded with information on the measures to be taken to prevent and deter future infringements.Pierre-Arnaud Lotton, Sanctions Policy Officer at DG for Financial Stability, Financial Services and Capital Markets Union (FISMA), had a discussion with Marta Tilhena, Head of Sanctions Implementation Division at the FIU Latvia, about the European Commission’s efforts to support the application and implementation of sanctions across the EU. It was concluded that there has been an increased policy focus on combating sanctions evasion through new measures such as the extension of the transit ban through Russia or the new requirement to include a “ban on re-export to Russia” clause in contracts, but that it is also important to ensure that these measures are implemented. While there is still a lack of coherence across Member States in such matters as “control” over legal entities, the Commission is committed to continuing to raise awareness, use information exchange tools, and provide guidance on how to prevent inconsistencies and promote common understanding.The panel discussion “Strengthening cooperation of public and private sectors” highlighted the important role of the private sector in sanctions implementation. Emil Dall, Senior Consultant and Sanctions Lead at FINTRAIL, highlighted how the unprecedented scale of sanctions has changed the international compliance landscape, with the EU and the United Kingdom at the centre of a sanctions landscape traditionally dominated by the US. Laima Letiņa, Finance Latvia Association Advisor, highlighted the insufficient readiness of bank clients to comply with sanctions, which increases the administrative burden on financial institutions, requiring more manual work to conduct enhanced due diligence on clients and their business activities. Gem Conn, Vice President of Content Strategy and Quality, Risk and Compliance at Dow Jones, concluded by calling on institutions to publish as much information as possible on sanctions lists to facilitate these growing compliance tasks, prevent false positives, and improve the quality of suspicious transaction reports.In a remote conversation with Tom Keatinge, Michael Khoo, Co-Director of the Task Force KleptoCapture, explained the Task Force’s efforts to ensure the implementation of sanctions and export control regimes, to obtain evidence of sanctions violations and circumvention, and to prosecute and convict perpetrators. Other international initiatives, e.g. the G7 Working Group “Russian Elites, Proxies and Oligarchs” (REPO), have also contributed to these efforts. However, Mr Khoo concluded that there are still problems in this area. Many jurisdictions still do not criminalise the circumvention of sanctions, which hampers mutual legal assistance requests. The forthcoming EU Directive, which will criminalise sanctions violations, should bridge this gap. The FIU Latvia Deputy Head Paulis Iļjenkovs concluded the conference with the main conclusions of the discussions, paving the way for future cooperation between the main sanction stakeholders in the EU and pointing to the example that the FIU Latvia can set for other Member States to centralise their sanctioning competences in order to promote effective application and implementation of sanctions. The full recording of the conference is available here. The conference was organised under the EEA Financial Mechanism period 2014–2021 programme “International Police Cooperation and Combating Crime” project No. EEZ/FID/2021/6 “Improvement of staff knowledge in combating money laundering in Latvia”

In the light of the judgments of the European General Court in Cases T-301/22 and T-304/22 granting the requests of Petr Aven and Mikhail Fridman to revoke the restrictive measures or sanctions imposed, the Financial Intelligence Unit of Latvia (FIU) informs that the judgments do not imply an automatic revocation of the sanctions. The FIU explains that as long as the persons are listed in Annex I to Council Regulation (EU) No 269/2014 of 17 March 2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine (Regulation), the restrictive measures imposed by the Regulation remain in force. The removal of persons from Annex I to the Regulation requires a decision of the Council of the European Union amending the Regulation. The Regulation now requires that the freezing of funds and economic resources belonging to, owned, held, or controlled by Petr Aven and Mikhail Fridman is continued and that no funds or economic resources are made available. For up-to-date information on changes to the sanctions lists, please see the website of the FIU available at sankcijas.fid.gov.lv.

As of 1 April 2024, the Financial Intelligence Unit of Latvia (FIU) becomes the competent authority for the implementation of international and national sanctions. In terms of sanctions implementation, the FIU has been entrusted with the following main functions: decide on the application of exemptions to sanctions when issuing an authorisation for a transaction or activity;publish information on sanctioned persons, their frozen funds and economic resources in Latvia;keep a sanctions search engine with information on persons included in the national sanctions of Latvia, United Nations and European Union sanctions lists;take binding decisions on the implementation of sanctions where it is established that sanctions have not been implemented, including freezing the funds and economic resources of sanctioned persons;decide on the release of funds and economic resources from freezing if sanctions imposed on a person are revoked or in case of change in property rights or control of the sanctioned persons, but the funds and economic resources are not released;provide explanations, implement informative measures and training on matters related to sanctions implementation;receive and analyse information to be reported to the competent authority of the Member State in accordance with the requirements of the sanctions framework, including information on the implementation of sanctions, on the freezing of funds and economic resources in Latvia, and other information;share information with the European Commission and the competent authorities of the European Union Member States. Competence of the FIU in matters related to sanctions implementation was established by the amendments to the Law on International Sanctions and National Sanctions of the Republic of Latvia of 8 December 2023, which entered into force on 1 April 2024. The changes are made to ensure that there is a single initial point of contact and a single central authority in matters related to sanctions implementation, thus facilitating and simplifying communication between the private and public sectors. At the same time, it should be noted that in certain cases, other authorities decide on the application of exemptions to sanctions, i.e.: the Ministry of Foreign Affairs decides on activities involving goods the circulation of which is governed by the Law on the Circulation of Goods of Strategic Significance and exceptional cases related to humanitarian considerations;the Cabinet of Ministers, upon proposal from the FIU, decides on the application of exemptions to sanctions in special matters related to national security regarding;the Civil Aviation Agency and harbour master decide on exemptions to sanctions in aviation and shipping emergency situations. In addition to the new functions, the FIU remains the competent authority in combating the circumvention of sanctions or a circumvention attempt in the implementation of financial restrictions in accordance with the procedures laid down in the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing.

The seminar was organised with the support of the EEA grant under the project “Improvement of staff knowledge in combating money laundering in Latvia” (No. EEZ/FID/2021/6). Information on the EEA Financial Instrument: www.eeagrants.lv. Working together for secure and competitive Europe! In order to inform businesses of the practical changes that will take place in the field of sanctions implementation from April this year, e.g. what sanctions matters will be under the responsibility of the Financial Intelligence Unit of Latvia (FIU), what information will be available on the sankcijas.fid.gov.lv website, how to obtain an authorisation to apply the exemptions provided for in the sanctions regulations, on 20 March, FIU Latvia organised a practical seminar for businesses under the title “New functions of FIU Latvia – the matter of sanctions”. The seminar was attended in person by around 30 representatives from various businesses, financial institutions and their associations, and viewed remotely by around 320 viewers. Workshop presentation in Latvian language is available for download here.