Ieva Tetere, Member of the Board of the Association of Latvian Commercial Banks, SEB Bank CEO
This opinion piece was also featured in the newspaper Dienas Bizness on 7th May, 2018.

Last week, the Association of Latvian Commercial Banks, together with the Employers’ Confederation of Latvia and the Latvian Chamber of Commerce and Industry, held a meeting with more than 60 Latvian entrepreneurs. Its main goal was to provide businesspeople with an objective and unexaggerated insight into the current issues in relationships between banks and companies: compliance with international sanctions; various strategies and business models used by banks; shell companies and why they are, in most cases, unwelcome.

Lately, many company owners have been worried about subjects such as banks closing companies’ accounts. In many cases, discussions are fuelled by irresponsible generalizations. When asked to name specific cases of account termination, businesspeople often refer to vague information. “We have heard that several banks are closing down accounts”, “why aren’t banks opening accounts for normal companies? What is happening?” — this kind of rhetoric is gaining momentum. The context is often complicated enough that it can be misinterpreted, and a single cause can be wrongly believed to be responsible for a number of completely unrelated effects.
That is why meeting with businesspeople in person is so valuable — it helps sort out the myths and answer pressing questions. I specified during the meeting, and I can repeat now for all Dienas Bizness readers, that claims such as “banks refuse to open accounts for normal companies” or “normal companies are having their accounts closed” are inaccurate, to say the least. At our bank, 99% of accounts terminated last year and so far this year were closed down because they were related to fraudulent VAT schemes, and these actions could by no means be called unjustified.
To reduce frustration, an accurate and detailed explanation of a series of unconnected events would be useful.
Let’s begin. There are three main issues that we would like to make clear on behalf of the banking industry: 1) sanctions, why they are imposed and how they affect services provided to bank clients, 2) banks’ aspirations to implement particular business strategies and 3) shell companies and their presence in Latvia.
To speak briefly about the sanctions — in essence, this is a matter of foreign policy. It is not true that banks can initiate sanctions. Banks, like all other companies, have to comply with sanctions and with the restrictions they put in place. Restrictions may take the form of a ban on collaboration with certain countries or certain industries, or, even more specifically, with certain companies in certain countries due to the status of their true beneficiaries or related private individuals.
To turn to banks’ approaches to strategy and risk management: before starting to provide services to a client, banks carry out certain “know your customer” procedures. This has been routine practice for several years, and this hasn’t changed. In most cases, we are talking about standard research. In-depth research is carried out in accordance with the requirements of the Financial and Capital Market Commission if a bank considers a particular customer to be a high-risk client. This status is determined by the client’s business relations to high-risk countries or industries, as well as whether related individuals are politically exposed persons, and is evaluated in accordance with the internal methodological procedures of each bank. Complex and non-transparent ownership structures, it not being possible to verify beneficiaries, the origin of company’s funds being unclear, companies being owned or related to politically exposed persons or persons at a high corruption risk — these are among the most important factors that can impede Latvian banks being able to provide services to a company.
In my experience, the most common reasons for terminating cooperation with a company are suspicious transactions that are related to tax evasion (these are also reported to Latvian Office for Prevention of Laundering of Proceeds Derived from Criminal Activity). Decisions on beginning or terminating cooperation are rarely made single-handedly — they are taken by banks’ collective institutions (committees). For example, at SEB Bank, the approval of the bank’s board or directors or its member is required.
With regard to undesirable shell companies, their goal and particular form is irrelevant. What is important is that these entities have no real connection to doing business or creating added value for the economy. Shell companies are created for dishonest purposes, such as avoiding taxes. It is important to note that the new regulation has nothing to do with Latvian companies that carry out real economic activity in our country. There are no good or bad jurisdictions — shell companies need to be evaluated in substance by their actual economic activities and financial statements. Shell entities created for the purpose of strategic management of companies and that are included in companies’ financial statements will not be affected by the new law.
I call for all businesspeople who wish to get beyond entangled speculations that are often dictated by certain interests, to actively express their opinions and report particular cases to the business organizations that represent the position of business owners and cooperate with banks. It is much easier to separate the wheat from the chaff in an open and honest discussion.


Associate members