The Enterprise Register threatens investors with liquidation
All it takes is for the notary to change and the documents that have been collected for several months turn out to be not the ones needed for the Enterprise Register. And the preparation of documents must start from scratch. For foreign companies with a branched ownership structure, certification of ownership in Latvia is such a complicated and time-consuming procedure that investors prefer not to engage in any dealings with our country anymore. On the one hand, the state requires all companies to declare their true beneficiaries, on the other hand, it does not explain what documents need to be submitted and threatens to remove branches from the registers. The problem was explained in more detail at the Sorainen law firm's annual seminar by Eva Berlaus, the country managing partner of the firm’s office in Latvia. The registration of the true beneficiaries in Latvia started in 2017, but the internal practice of the Enterprise Register in fulfilling this task has constantly changed. When it comes to one company with one shareholder, everything is simple. A copy of the passport is submitted and the beneficiary is registered. It is a whole another thing if the true beneficiary of the company is established somewhere abroad. For large investors, ownership chains sometimes even take up several Excel tables. It's neither good nor bad, it just is. There are many such companies. And the problem is in the fact that the documents that must be submitted are not clearly defined anywhere. The internal practice of the Enterprise Register changes every few months, and customers find out about it only when they receive a refusal.
Each notary has their own procedures
Here is one specific example without naming a company. For 10 months, a Sorainen customer collected the documents required for the registration of the true beneficiary - all over the world, in different jurisdictions and each paper must be notarized. Ten months later, he arrives with a smile on his face, hoping that he will finally be able to complete the necessary formalities, but it turns out that the practice of the Enterprise Register has changed in the meantime. You can find out about it only when the notaries of the Enterprise Register give a refusal. Lawyers, on the other hand, have to explain to their clients that it is not that the lawyers in Latvia are weird and do not know how to do their job, but this is the way the system works in the state institution. "There are even cases when clients change the organizational structure so that it is not necessary to complete any formalities in Latvia," says sworn attorney Eva Berlaus. Another case in her practice - for two months the company has been collecting documents to register the transaction, and then the notary changes. And this new one needs completely different documents, and again, everything has to be started from scratch.
There are no regulations of the Cabinet of Ministers
What should be done now to prevent investors from being expelled from Latvia? The bare minimum would be detailed regulations of the Cabinet of Ministers, which would clearly indicate what documents are required for the registration of the true beneficiary. This would also stop unjustified interpretations and unnecessary barriers to business.
However, the Latvian state has so far followed its radically orthodox path in combating dirty money, and now the message to foreign entrepreneurs is clear - if you do not understand how the Latvian bureaucracy works, get lost. Anyone who has not registered the true beneficiary is considered a money launderer and a terrorist collaborator.
On February 12, the Enterprise Register issued the last warning:
“The Enterprise Register, with the support of the State Revenue Service, has identified approximately 200 active branches and representative offices of foreign companies, as well as representative offices of foreign organizations, which have not yet identified the true beneficiaries but have identified employees. The register is issuing the last call to reveal the true beneficiaries! If this is not done within a month, these entities will also be removed from the registers in accordance with the provisions of the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing.”
Ineptitude will be severely punished
For foreign legal entities, the deadline for registration of true beneficiaries was 1 January this year. This applies to about 1800 subjects. However, less than 24% have done so in time, so the exclusion of the disobedient from the registers is now starting. It will happen in two waves.
In the coming days, about 85% of those who have not identified the true beneficiaries will be removed from the registers. According to SRS data, they are considered inactive. In turn, the Enterprise Register will send warning letters to the approximately 200 remaining entities, asking them to reveal their true beneficiary within a month. The additional warning was implemented and a longer registration deadline was set so that employees of these companies do not suffer. As many as 800 people work in one company that might be liquidated!
"However, if no active action is detected from a branch or representative office of a foreign entity, they will also be removed from the registers after the expiry of the term specified in the warning (approximately in mid-March),"
the Register of Enterprises threatens foreigners. Disobedience or ineptitude will be severely punished.