Explanation of Beneficial Owners

In accordance with Section 1, Clause 5(a) of the Law on the Prevention of Money Laundering, Terrorism and Proliferation Financing (hereinafter – the Law), a beneficial owner is a natural person who is the owner of a legal person or who controls a legal person, or on whose behalf, in whose interest, or in whose name a business relationship is established or an occasional transaction is carried out, and this is, at least with regard to legal persons, a natural person who, through direct or indirect participation, holds more than 25 per cent of the shares of the share capital or voting shares of the legal person or who directly or indirectly exercises control over it.

The characteristics of a beneficial owner are set out in the above‑mentioned provision, i.e., a beneficial owner is always a natural person who owns or in whose interests a specific legal person has been established or operates, or who directly or indirectly exercises control over the legal person. It should be noted that in the case of direct participation or control, the beneficial owner controls the legal person directly, whereas in the case of indirect participation or control, control is exercised through another person – a natural or legal person.

In the Financial Action Task Force (FATF) guidelines “Beneficial Ownership of Legal Persons”, issued in March 2023, a beneficial owner is explained as a natural person who “ultimately” owns or controls a “client” and/or the natural person on whose behalf a transaction is conducted. The definition also includes persons who exercise ultimate control over a legal person. The expressions “ultimately owns or controls” and “exercises ultimate control” refer to situations where ownership/control is exercised through ownership rights or other means of control that are not direct control. An essential feature of the definition of a beneficial owner is that it goes beyond formal ownership and legal control. FATF places emphasis on the natural person who actually owns the legal person and exercises the powers of senior management or the assets of the legal person, as well as on the natural person who actually exercises control, regardless of any official position.

The Law does not contain specific regulation regarding these obligations depending on the nature, type or purpose of the activities of the legal person.

The definition of a capital company is set out in Section 134 of the Commercial Law. A capital company is a commercial company whose share capital consists of the total nominal value of shares of the share capital or shares. A capital company is either a limited liability company or a joint‑stock company. A limited liability company is a closed company whose shares are not objects of public trading, whereas a joint‑stock company is an open company whose shares may be objects of public trading. Accordingly, the beneficial owner of a capital company is primarily identified by establishing the direct or indirect owners of shares or stocks.

Taking into account the definition of a beneficial owner, in capital companies a beneficial owner can always be identified in cases where more than 25 per cent of the shares or stocks of the capital company are directly or indirectly owned by at least one natural person. Unless such a natural person acts on behalf of another natural person, that individual is the beneficial owner of the respective capital company. It is self‑evident that if there are several (no more than three) natural persons in a capital company who meet the above criteria, all of them shall be regarded as beneficial owners of that capital company.

It should be noted that the 25 per cent threshold referred to in the Law is the absolute minimum at which it is always possible to identify a beneficial owner. At the same time, in practice there may be numerous and diverse situations in which actual control over a capital company manifests itself differently.

Example No. 1: several members (shareholders) have agreed on the procedure for exercising voting rights, including but not limited to:

1. agreeing that one of the members (shareholders) will always vote in the same manner as another member (shareholder);
2. agreeing that a member (shareholder) with a large proportion of shares or stocks will not participate in meetings, thereby allowing a member (shareholder) with a smaller proportion to effectively make decisions;
3. agreeing on the right to unilaterally appoint the majority of members of the supervisory board or the management board, etc.

Example No. 2: A situation may also exist where one natural person directly or indirectly owns less than 25 per cent of the shares (stocks), but the percentage ownership of the remaining members (shareholders) is so small, and those members (shareholders) do not actually attend meetings, that it can be established that the natural person with the highest percentage of shares (stocks) effectively controls the capital company.

Example No. 3: Control in a capital company may also be identified where several members (shareholders) are legal persons that are themselves controlled by the same natural person. In such a situation, taking into account the natural person’s actual ability to exercise voting rights or influence decision‑making in all relevant legal persons as a whole, that natural person may be recognised as the beneficial owner.

It should be noted that it is not possible to exhaustively list all possible forms of control, as each case is individual, and the management board of the legal person has a duty to verify and determine whether any natural person has actual control over the legal person.

Additionally, it should be taken into account that if the owner of shares or stocks of a capital company is a legal arrangement (for example, a type of legal entity not recognised in the Republic of Latvia – a trust), the definition of a beneficial owner laid down in Section 1, Clause 5(b) of the Law shall apply. According to that provision, a beneficial owner is a natural person who owns or in whose interest a legal arrangement has been established or operates, or who directly or indirectly exercises control over it, including the founder, trustee (manager), supervisor (if any), beneficiary or, where beneficiaries have not yet been determined, the group of persons in whose interest the legal arrangement has been established or operates, as well as any other natural person who directly or indirectly controls the legal arrangement.

It should be noted that a legal person is a legal fiction, behind which in every case there are natural persons who organise, manage or control it; therefore, a situation where a beneficial owner does not exist is not possible – it may only be impossible to identify one in accordance with the definition set out in the Law. Consequently, the Law does not provide for the registration in the registers maintained by the Enterprise Register of information stating that a legal person does not have a beneficial owner.

In cases where a capital company has used all possible means of identification and has concluded that it is not possible to identify any natural person – a beneficial owner – in accordance with the definition, and where doubts that the capital company has a beneficial owner have been excluded, this must be certified in the application, indicating the justification.

At the same time, it should be borne in mind that in cases where it is not possible to identify the beneficial owner of a legal person, pursuant to Section 18, Paragraph Seven of the Law, the subjects referred to in Section 3 of the Law (for example, credit institutions, outsourced accountants, sworn notaries, etc.) may consider as the beneficial owner the person who holds a position in the senior management body of the legal person. Accordingly, in cases where the Enterprise Register has registered information that it is not possible to identify the beneficial owner of a legal person, the legal person, when completing customer due diligence questionnaires (for example, at a credit institution), will be required to indicate one, several or all members of the management board as beneficial owners, taking into account the assessment made by the respective subject of the Law regarding the material circumstances.

It should be noted that if the sole member or shareholder of a capital company is a legal person whose beneficial owners cannot be identified, the beneficial owner of the capital company itself can nevertheless, in most cases, be identified. Namely, unless there are specific internal decision‑making arrangements, the persons entitled to represent the respective member (shareholder) control decision‑making in the capital company and, accordingly, shall be regarded as the beneficial owners of that capital company.

Pursuant to Section 18.2, Paragraph Six of the Law, where the final entity of a capital company – a joint‑stock company – has its shares included in a regulated market and control over the company arises solely from shareholder status, the company is not required to submit information on the beneficial owner to the Enterprise Register if the relevant information on shareholders is already available in accordance with the rules of the regulated market. This exception does not apply to situations where beneficial owners cannot be identified for other objective reasons – it applies only where shareholder information is publicly available in accordance with the legal acts governing regulated markets.

Identification of Beneficial Owners

In accordance with the procedure laid down in Section 18.1 of the Law, a natural person who has reason to believe that he or she has become the beneficial owner of a capital company has an obligation to notify the capital company thereof. Likewise, members or shareholders of a capital company who act on behalf of another person have an obligation to disclose this fact to the management board of the capital company. The management board of the capital company has an obligation, where there is a reasonable basis, to determine whether the capital company has beneficial owners and to verify that the information received (identified) on beneficial owners is true and corresponds to the actual circumstances.

Time Limits

Pursuant to Section 18.1, Paragraph Four and Section 18.2, Paragraph One of the Law, a capital company must immediately, but no later than 14 days from the date on which the relevant information became known, submit an application to the Enterprise Register for the registration of information on beneficial owners.

It should be noted that, in accordance with the first sentence of Section 18.2, Paragraph Two of the Law, when submitting an application to the Enterprise Register for the registration (establishment) of a capital company or for changes in the members (shareholders) or members of the management board of a capital company, the application must include information on the beneficial owners of the capital company in accordance with the requirements of Section 18.2 of the Law.

Taking into account the above:

• when registering a new capital company, information on beneficial owners must be included in the registration application;
• when submitting an application regarding changes in the composition of members (shareholders) or the management board of a capital company, information on beneficial owners must be included in the application;
• a capital company must immediately, but no later than 14 days from the date on which information on beneficial owners or changes to such information became known, submit an application to the Enterprise Register for the registration of information on beneficial owners or the registration of the relevant changes.

Information to Be Submitted

The information on beneficial owners to be retained by a capital company is laid down in Section 18.1, Paragraph Four of the Law. In accordance with Section 18.2, Paragraph One of the Law, the same information must also be submitted to the Enterprise Register.

At the request of the Enterprise Register, in order to verify the reliability of the submitted information, the capital company shall submit:

• documentary evidence of the exercised control;
• documents confirming the accuracy of the identifying information of the beneficial owner, including:
  • a notarised copy of an identity document;
  • a certificate from a foreign population register;
  • other documents equivalent to those listed above;
• documents substantiating the certification that it is not possible to identify the beneficial owner.

It should be noted that, in accordance with Section 18.1, Paragraph Four of the Law, information on beneficial owners (including documentary evidence of exercised control) must also be retained by the legal person itself.

Information Registered in the Enterprise Register

The following information regarding the beneficial owners of capital companies shall be registered in the registers maintained by the Enterprise Register:

1. given name;
2. surname;
3. personal identity number (if unavailable – date, month and year of birth, identity document number and date of issue, country and issuing authority);
4. nationality;
5. country of permanent residence;
6. manner in which control over the capital company is exercised:
   1. through status in the legal person (if the beneficial owner is a direct owner or directly controls the legal person):
      1. as a member;
      2. as a shareholder;
   2. as a separate controlling person (if the beneficial owner is an indirect owner or indirectly controls the capital company):
      1. on the basis of an authorisation agreement;
      2. on the basis of ownership rights (e.g. if the beneficial owner is the owner of a legal person that is a member or shareholder of the capital company);
      3. on the basis of a business relationship;
      4. through a legal arrangement as founder;
      5. through a legal arrangement as trustee (manager);
      6. through a legal arrangement as supervisor (if any);
      7. through a legal arrangement as beneficiary or category thereof;
      8. other (free text field allowing an undefined type);
7. information on the person through whom control is exercised (to be indicated when any of the types referred to above is specified):
   1. for a natural person – given name, surname, personal identity number (if unavailable – date, month and year of birth);
   2. for a legal person (including a foreign legal person) – name, registration number and legal address.

It should be noted that the threshold of more than 25 per cent laid down in Section 1, Clause 5(a) of the Law, where shares are owned by a natural person, is the minimum threshold from which identification of a beneficial owner is mandatory. That is, where a natural person participates to such an extent, there can be no objections that a beneficial owner cannot be identified or that such a person would not be a beneficial owner. An exception is possible only where the relevant natural person is controlled by another person or where another form of control exists (for example, an agreement on the distribution of control) among members (shareholders). Taking this into account, in cases where several members (shareholders) in a capital company meet the above definition of a beneficial owner, a situation in which only one member (shareholder) exercises control over the capital company through status as a member or shareholder is not possible. In such situations, another method of exercising control must exist and must be indicated in the application for the registration of the beneficial owner, including information on the person through whom such control is exercised.

Pursuant to the second sentence of Section 18.2, Paragraph Two of the Law, where a capital company has used all possible means of identification and has concluded that it is not possible to identify any natural person – a beneficial owner – and doubts that the capital company has a beneficial owner have been ruled out, this must be certified in the application, indicating the justification. In such a case, the Commercial Register will record that it is not possible to identify the beneficial owner.

Taking into account that state and municipal capital companies (capital companies in which all shares or voting stocks belong to one public person) are also registered in the Commercial Register maintained by the Enterprise Register, the following should be noted.

In accordance with Section 1, Paragraph 1 and Paragraph 2 of the Law on the Structure of State Administration, a public person is the Republic of Latvia as the original legal person governed by public law and derived public persons. They operate in accordance with the principles of public law, whereas a derived public person is a municipality or another public person established by law or on the basis of law, to which autonomous competence is granted by law, including the formation and approval of its own budget, and which may own property.

Taking the above into account, as well as considering the definition of a public person, it is not possible to identify a beneficial owner in state and municipal capital companies, provided that the capital company operates in compliance with regulatory enactments. A public person is not a private natural person, and it is not possible to attribute to it the control of a natural person which would be required for the application of the definition of a beneficial owner.

Accordingly, where it is not possible to identify the beneficial owner of a state or municipal capital company, the application for the registration of beneficial owners must certify that the identification of the beneficial owner is not possible, indicating the justification and assuming responsibility for the accuracy of the information provided.

In accordance with Section 1, Clause 5(a) of the Law on the Prevention of Money Laundering, Terrorism and Proliferation Financing (hereinafter – the Law), a beneficial owner is a natural person who is the owner of a legal person or who controls the client, or on whose behalf, in whose interest a business relationship is established or an occasional transaction is carried out, and, at a minimum with regard to legal persons, is a natural person who, through direct or indirect participation, holds more than 25 per cent of the shares of the share capital or voting shares of the legal person or who directly or indirectly exercises control over it. By analogy, the 25 per cent criterion for identifying the extent of significant participation may also be applied to other legal persons, not only capital companies.

The above‑mentioned provision defines the characteristics of a beneficial owner, i.e. it is always a natural person who owns or in whose interest a specific legal person has been established or operates, or who directly or indirectly exercises control over the legal person. It should be noted that in the case of direct participation or control, the beneficial owner controls the legal person directly, whereas in the case of indirect participation or control, control is exercised through another person – a natural or legal person.

In the guidelines “Beneficial Ownership of Legal Persons” issued in March 2023 by the Financial Action Task Force (hereinafter – FATF), a beneficial owner is explained as the natural person who “ultimately” owns or controls the “client” and/or the natural person on whose behalf a transaction is conducted. The definition also includes persons who exercise ultimate control over a legal person. The expressions “ultimately owns or controls” and “exercises ultimate control” relate to situations where ownership/control is exercised through ownership rights or other means of control that are not direct control. An essential feature of the definition of a beneficial owner is that it exceeds formal ownership and legal control. FATF emphasises the natural person who actually owns the legal person and uses its senior management powers or assets, as well as the natural person who actually exercises control, regardless of any official position.

The Law does not contain a specific regulation regarding the indicated obligations depending on the nature, type or objectives of the activities of the legal person.

The basic principles of the operation of cooperative societies are laid down in Section 3 of the Law on Cooperative Societies. In accordance with this provision, the activities of a cooperative society are governed by its members, who actively and democratically participate in the management of the society, and each member of the cooperative society has one vote at the general meeting of members. The capital of a cooperative society is formed and controlled, and the profit earned is distributed, by its members. Taking this into account, and by analogy applying the above‑mentioned participation threshold, in cooperative societies with 2–3 members who are natural persons, these natural persons shall be regarded as beneficial owners. If those members act while exercising control in the cooperative society on behalf of another person, the respective natural person on whose behalf the member acts shall be indicated as the beneficial owner. If a cooperative society has 2–3 members that are legal persons, the beneficial owners shall be the natural persons who, through the respective legal persons, indirectly control the cooperative society.

It should be noted that the 25 per cent threshold referred to in the Law is the absolute minimum at which it is always possible to identify a beneficial owner. At the same time, in practice there may be many and varied cases in which actual control over a cooperative society manifests itself differently.

Example No. 1: Several members have agreed on the procedure for decision‑making, including, but not limited to:

• agreeing that one of the members will always make decisions in the same manner as another member;
• agreeing that certain members refrain from decision‑making in order to allow another member to make decisions;
• agreeing that one member has the right to unilaterally deny other members representation rights, etc.

Example No. 2: Control in a cooperative society may also be identified in cases where the members are legal persons that are controlled by the same natural person.

In other cases, it must be assessed whether there are natural persons who, in accordance with Section 1, Clause 5(a) of the Law, exercise control over the relevant cooperative society. It should be noted that it is not possible to exhaustively describe all conceivable situations, as each case is individual, and the management board of the legal person has a duty to determine whether any natural person has actual control over the relevant legal person.

In addition, it should be taken into account that where the owner of a member – a legal person – of a cooperative society is a legal arrangement (for example, a type of legal entity not recognised in the Republic of Latvia – a trust), the definition of a beneficial owner laid down in Section 1, Clause 5(b) of the Law shall apply for the identification of the beneficial owner. In accordance with this provision, a beneficial owner is a natural person who owns or in whose interest a legal arrangement has been established or operates, or who directly or indirectly exercises control over it, including the founder, trustee (manager), supervisor (if any), beneficiary or, where the beneficiaries have not yet been determined, the group of persons in whose interest the legal arrangement has been established or operates, as well as any other natural person who directly or indirectly controls the legal arrangement.

It should be noted that a legal person is a legal fiction, behind which in every case there are natural persons who organise, manage or control it; therefore, a situation where a beneficial owner does not exist is not possible – it may only be impossible to identify one in accordance with the definition laid down in the Law. Consequently, the Law does not provide for the registration in the registers maintained by the Enterprise Register of information stating that a legal person does not have a beneficial owner.

Identification of beneficial owners

In accordance with the procedure laid down in Section 18.1 of the Law, a natural person who has reason to believe that he or she has become a beneficial owner of a cooperative society has an obligation to notify the cooperative society thereof. Likewise, members of a cooperative society who act on behalf of another person have an obligation to disclose this fact to the management board of the cooperative society. The management board of a cooperative society has an obligation, where there is reasonable basis, to establish whether the cooperative society has beneficial owners and to verify whether the received (identified) information on beneficial owners is true and corresponds to the actual circumstances.

Time limits

Pursuant to Section 18.1, Paragraph Four and Section 18.2, Paragraph One of the Law, a cooperative society must immediately, but no later than 14 days from the date when the relevant information became known, submit an application to the Enterprise Register for the registration of information on beneficial owners.

It should be noted that, in accordance with the first sentence of Section 18.2, Paragraph Two of the Law, when submitting an application to the Enterprise Register for the registration (establishment) of a cooperative society or for changes in the members of the management board, the application must obligatorily indicate information on the beneficial owners of the cooperative society in accordance with the requirements of Section 18.2.

Taking into account the above:

• in the case of registering a new cooperative society, information on beneficial owners must also be included in the registration application;
• when submitting an application for changes in the composition of the management board of a cooperative society, information on beneficial owners must be included in the application;
• a cooperative society must immediately, but no later than 14 days from the date when information on beneficial owners or amendments to such information became known, submit an application to the Enterprise Register for the registration of information on the beneficial owner or the registration of the relevant amendments.

Information to be submitted

The information on beneficial owners to be retained by a cooperative society is laid down in Section 18.1, Paragraph Four of the Law. In accordance with Section 18.2, Paragraph One of the Law, the same information must also be submitted to the Enterprise Register.

At the request of the Enterprise Register, in order to verify the credibility of the submitted information, the cooperative society shall submit:

• documentary evidence of the exercised control;
• documents confirming the compliance of the identifying information of the beneficial owners:
  • notarised copy of an identity document;
  • certificate from a foreign population register;
  • other documents equivalent to those mentioned above;
• a document substantiating the certification that it is not possible to identify the beneficial owner.

It should be noted that, in accordance with Section 18.1, Paragraph Four of the Law, information on beneficial owners (including documentary evidence of exercised control) must also be retained by the legal person itself.

The following information regarding the beneficial owners of cooperative societies shall be registered in the registers maintained by the Enterprise Register:

1. given name;
2. surname;
3. personal identity number (if unavailable – date, month and year of birth, identity document number and date of issue, country and issuing authority);
4. nationality;
5. country of permanent residence;
6. the manner in which control over the cooperative society is exercised:
   1. through status in the legal person (if the beneficial owner is a direct owner or directly controls the legal person):
      1. as a member of the cooperative society;
      2. as a representative of the executive or management body;
   2. as a separate controlling person (if the beneficial owner is an indirect owner or indirectly controls the cooperative society):
      1. on the basis of an authorisation agreement;
      2. on the basis of ownership rights (for example, if the beneficial owner of the cooperative society is the owner of a member – a legal person);
      3. on the basis of a business relationship;
      4. through a legal arrangement as founder;
      5. through a legal arrangement as trustee (manager);
      6. through a legal arrangement as supervisor (if any);
      7. through a legal arrangement as beneficiary or category thereof;
      8. other (free text field allowing an undefined type);
7. information about the person through whom control is exercised (to be indicated where any of the above‑mentioned types are specified):
   1. for a natural person – given name, surname, personal identity number (if unavailable – date, month and year of birth);
   2. for a legal person (including a foreign legal person) – name, registration number and legal address.

Pursuant to the second sentence of Section 18.2, Paragraph Two of the Law, where a cooperative society has used all possible means of identification and has concluded that it is not possible to identify any natural person – a beneficial owner – and doubts that the cooperative society has a beneficial owner have been ruled out, this must be certified in the application, indicating the justification. In such a case, the Commercial Register will record that it is not possible to identify the beneficial owner.

In accordance with Section 1, Clause 5(a) of the Law on the Prevention of Money Laundering, Terrorism and Proliferation Financing (hereinafter – the Law), a beneficial owner is a natural person who is the owner of a legal person or who controls the client, or on whose behalf, in whose interest a business relationship is established or an occasional transaction is carried out, and, at least with regard to legal persons, is a natural person who, through direct or indirect participation, holds more than 25 per cent of the shares of the share capital or voting shares of a legal person or who directly or indirectly exercises control over it. By analogy, the 25 per cent criterion for determining the extent of significant participation may also be applied to other legal persons, not only capital companies.

The above-mentioned provision defines the characteristics of a beneficial owner, i.e. it is always a natural person who owns or in whose interest a specific legal person has been established or operates, or who directly or indirectly exercises control over the legal person. It should be noted that in the case of direct participation or control, the beneficial owner controls the legal person directly, whereas in the case of indirect participation or control, control is exercised through another person – a natural or legal person.

In the guidelines “Beneficial Ownership of Legal Persons” issued in March 2023 by the Financial Action Task Force (hereinafter – FATF), a beneficial owner is explained as the natural person who “ultimately” owns or controls the “client” and/or the natural person on whose behalf a transaction is conducted. The definition also includes persons who exercise ultimate control over a legal person. “Ultimately owns or controls” and “exercises ultimate control” refer to situations where ownership/control is exercised through ownership rights or other means of control that are not direct control. An essential feature of the definition of a beneficial owner is that it goes beyond formal ownership and legal control. FATF places emphasis on the natural person who actually owns the legal person and uses its senior management powers or assets, as well as on the natural person who actually exercises control, regardless of any official position.

Indirect control may be exercised by various means, for example, by a mutually concluded agreement, by using dominant influence (for example, the dominant influence of a member of an association or a member of the management board within an association), by financing an association, by family ties, by using other contractual obligations that ensure significant actual influence. Likewise, members of an association may cooperate with each other in order to increase indirect control through another person, including by concluding formal or informal agreements that coordinate the exercise of voting rights or decision-making, using their powers to appoint the highest management of the association, thereby obtaining decisive influence over the governance of the association.

The Law does not contain specific regulation regarding the indicated obligations depending on the nature, type or purpose of the activities of the legal person. It should also be noted that a legal person is a legal fiction, behind which in every case there are natural persons who organise, manage or control it; therefore, a situation in which there is no beneficial owner is not possible – it may only be impossible to identify one in accordance with the definition laid down in the Law. Consequently, there cannot be such a situation and the Law also does not provide for the registration in the registers maintained by the Enterprise Register of information stating that a legal person does not have a beneficial owner.

In the event that members of an association exercise their rights only as members of the association in accordance with the rights and obligations laid down in the Law on Associations and Foundations, such a member shall not be regarded as a beneficial owner. A case where members of an association do not exercise their rights only as members of the association may be, for example, a situation where members of an association act in order to achieve a different objective than the objective laid down in the articles of association. It must be taken into account that the objective of an association is set out in the articles of association; it is limited by compliance with the Constitution, laws and international agreements binding on Latvia, and it may be aimed both at the public benefit (public benefit) and at the interests of its members. It should be noted that, for an association’s objective to be aimed at the overall benefit of society, the association is not required to be registered as a public benefit organisation.

In cases where members of an association act to achieve their separate objectives, the number of members must also be assessed. Taking the above into account, in the case of associations, if members exercise their rights only as members of the relevant legal person and the objective of the association is aimed at the public benefit, or if the objective of the association is aimed at the interests of members but the number of members is large, – it will not be possible to identify beneficial owners, unless the relevant legal person is in fact, in accordance with the definition of a beneficial owner, controlled by specific natural persons.

Example No. 1: If the objectives of an association cover a wide range of persons, it will not be possible to identify beneficial owners in the specific case, unless the association is in fact, in accordance with the definition of a beneficial owner, controlled by specific natural persons. In this case, the number of members of the association is irrelevant;

Example No. 2: If the objectives of an association are aimed at the interests of its members, but the number of members is large – it will not be possible to identify beneficial owners in the specific case, unless the association is in fact, in accordance with the definition of a beneficial owner, controlled by specific natural persons;

Example No. 3: If the objectives of an association are aimed at the interests of its members and the number of members is small (up to 4 members) – the members shall be declared as beneficial owners of the association, unless the association is in fact, in accordance with the definition of a beneficial owner, controlled by other specific natural persons.

Accordingly, when identifying beneficial owners of associations, essential importance is attached to the objective of the association – whether the activities of the association are aimed at the overall benefit of society or at the interests of its members, as well as to the number of active members in the association.

By analogy, taking into account the definitions of political parties and trade unions laid down in the regulatory framework applicable to the relevant legal persons, as well as the requirements set for objectives and the number of members, a similar situation also applies to these legal persons. Taking the above into account, in the case of associations, trade unions and political parties, if their members exercise their rights only as members of the said legal persons, it will not be possible to identify beneficial owners, unless the relevant legal person is in fact, in accordance with the definition of a beneficial owner, controlled by specific natural persons, for example, members of the executive body.

For example, in situations where members of an association no longer actively exercise their membership rights and, in substance, the association is managed only by members of the executive body, all decisions are taken and all transactions are carried out in the interests and for the benefit of one (or several) specific persons, rather than taking into account the objective of the association and the interests of the members united therein. These persons may be either members of the association or members of the executive bodies of the association (direct control), as well as persons who are neither founders nor members nor members of the executive bodies (indirect control). Control may also be presumed even if it is not actually exercised, but, for example, one person uses and benefits from the financial assets of the association.

Taking the above into account, the situation in each legal person must be assessed individually, namely, whether, according to the actual situation, there is a natural person who controls the relevant legal person. In most associations, trade unions and political parties it will nevertheless not be possible to identify beneficial owners.

If an association, trade union, political party has used all possible means of identification and has concluded that it is not possible to identify any natural person – a beneficial owner – in accordance with the definition, and doubts that the association, trade union, political party has a beneficial owner have been ruled out, this must be certified in the application, obligatorily indicating the justification.

At the same time, it should be taken into account that in cases where it is not possible to identify the beneficial owner of a legal person, pursuant to Section 18, Paragraph Seven of the Law, the subjects referred to in Section 3 of the Law (for example, credit institutions, outsourced accountants, sworn notaries, etc.) may consider as the beneficial owner of the legal person the person who holds a position in the senior management body of the legal person. Accordingly, in cases where the Enterprise Register has registered information that it is not possible to identify the beneficial owner of a legal person, the legal person, when completing customer due diligence questionnaires (for example, at a credit institution), will have to indicate one, several or all members of the management board as the beneficial owner, taking into account the assessment made by the relevant subject of the Law regarding the material circumstances.

Identification of beneficial owners

As in other legal persons, also in associations, trade unions and political parties, in accordance with the procedure laid down in Section 18.1 of the Law, a natural person who has reason to believe that he or she has become the beneficial owner of an association, trade union or political party has an obligation to notify the respective legal person thereof. The management of an association, trade union or political party has an obligation, where there is reasonable basis, to establish whether it has a beneficial owner and whether the received (identified) information on the beneficial owner is true.

Time limits

Pursuant to Section 18.1, Paragraph Four and Section 18.2, Paragraph One of the Law, the legal person must immediately, but no later than 14 days from the date on which the relevant information became known, submit an application to the Enterprise Register for the registration of information on the beneficial owner.

It should be noted that, in accordance with the first sentence of Section 18.2, Paragraph Two of the Law, when submitting an application to the Enterprise Register for the registration (establishment) of an association, trade union or political party, the application shall indicate information on its beneficial owner in accordance with the requirements of Section 18.2.

Taking the above into account:

• in the case of registration of a new association, trade union or political party, the registration application must also obligatorily include information on the beneficial owner;
• when submitting an application regarding changes in the composition of the management board of an association, trade union or political party, the application must obligatorily include information on beneficial owners;
• an association, trade union or political party must immediately, but no later than 14 days from the date on which information on beneficial owners or changes to such information became known, submit an application to the Enterprise Register for the registration of information on the beneficial owner or the registration of the relevant changes.

Information to be submitted

The information on the beneficial owner to be retained by the legal person is laid down in Section 18.1, Paragraph Four of the Law. In accordance with Section 18.2, Paragraph One of the Law, the same information must also be submitted to the Enterprise Register.

At the request of the Enterprise Register, in order to verify the reliability of the submitted information, the association, trade union or political party shall submit:

• documentary evidence of the exercised control;
• a document confirming the compliance of the identifying information of the beneficial owners:
  • a notarised copy of an identity document;
  • a certificate from a foreign population register;
  • other documents equivalent to those mentioned above;
• a document substantiating the certification that it is not possible to identify the beneficial owner.

It should be noted that, in accordance with Section 18.1, Paragraph Four of the Law, information on beneficial owners (including documentary evidence of exercised control) must also be retained by the legal person itself.

The following information regarding the beneficial owners of an association, trade union or political party shall be registered in the registers maintained by the Enterprise Register:

1. given name;
2. surname;
3. personal identity number (if not available – date, month and year of birth, identity document number and date of issue, country and issuing authority);
4. nationality;
5. country of permanent residence;
6. the manner in which control over the legal person is exercised:

6.1. through status in the legal person:
6.1.1. as a member;
6.1.2. as a representative of the executive body or management body;

6.2. as a separate controlling person (if the beneficial owner indirectly controls the founder, representatives of the executive body or management body):
6.2.1. on the basis of an authorisation agreement;
6.2.2. on the basis of ownership rights;
6.2.3. on the basis of a business relationship;

6.3. other (free text field allowing an undefined type);

7. information on the person through whom control is exercised (to be indicated where any of the types of exercising control referred to in Sub‑clause 6.1 or 6.2 is indicated):

7.1. for a natural person – given name, surname, personal identity number (if the person does not have a personal identity number – date, month and year of birth);
7.2. for a legal person (including a foreign legal person) – name, registration number and legal address).

Pursuant to the second sentence of Section 18.2, Paragraph Two of the Law, if an association, trade union or political party has used all possible means of identification and has concluded that it is not possible to identify any natural person – a beneficial owner – and doubts that it has a beneficial owner have been ruled out, this must be certified in the application, obligatorily indicating the justification. In such a case, the relevant register will record that it is not possible to identify the beneficial owner.

The definition of a beneficial owner in Section 1, Paragraph One, Clause 5 of the Law on the Prevention of Money Laundering, Terrorism and Proliferation Financing (hereinafter – the Law) was laid down in accordance with Article 3(6) of Directive (EU) 2015/849 of the European Parliament and of the Council (20 May 2015) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (hereinafter – AMLD IV). Namely, Sub-clause (a) of that point lists the criteria to be taken into account when identifying the beneficial owner in corporate entities – legal persons, where a mathematical calculation may be applied in the ownership structure in order to determine the control aspect arising from the participation threshold.

Sub-clauses (b) and (c) set out the identifying criteria of a beneficial owner in trusts and other legal entities such as foundations, and in legal arrangements similar to trusts. Namely, in these legal subjects (entities) a mathematical calculation is not relevant, and the “beneficial owner” within the meaning of AMLD IV is the natural person(s) who holds/hold a position(s) equivalent or similar to those referred to in point (b), i.e. the settlor, trustee(s), protector (if any), the beneficiaries or the class of beneficiaries, or any other natural person who ultimately exercises control over other legal entities such as foundations, and legal arrangements similar to trusts, through direct or indirect ownership or by other means.

The legal system of the Republic of Latvia does not recognise trusts or legal arrangements equivalent to them, therefore, legally no trust is registered in the Republic of Latvia. However, foundations, including funds, are recognised and registered in the Republic of Latvia, the characteristic features of which in their structure and operating principles are equivalent to the features of legal arrangements, including trusts.

One of the most essential basic principles of a legal arrangement is the separation of property, i.e. assets forming a separate pool of property. A similar provision is also included in Section 2, Paragraph Two of the Law on Associations and Foundations, namely, a foundation, including a fund, is a pool of property separated for the achievement of the purpose specified by the founder, which is not of a profit-making nature. In turn, Section 86, Paragraph Three of the said law provides that persons who have granted property to a foundation after it has been entered in the register shall not be regarded as founders. The Law on Associations and Foundations does not provide that founders have an obligation to pay any amount of money into the basic capital of a foundation or to invest other property value. Consequently, the term “pool of property” is to be understood as a form in which financial resources are contributed from various sources during the operation of the foundation. In the structure of a legal arrangement, including a trust, the separation of owners is also laid down. Similarly to a legal arrangement, including a trust, a foundation is a closed organisation which cannot be joined; it has no members – only founders and supporters; it has separated property and one or more governing bodies (a complex governance structure) (Section 93 of the Law on Associations and Foundations), and, in accordance with Section 91 of that law, a foundation may determine a circle of beneficiaries. Although legal arrangements are mostly established (they are not registrable in public registers in order to be considered established) rather than registered, the fact of registration does not affect the existence of a legal arrangement and its operation.

At the same time, it should be noted that, in accordance with Article 288, third paragraph of the Treaty on the Functioning of the European Union, directives are binding, as to the result to be achieved, upon each Member State to which they are addressed, but leave to the national authorities the choice of form and methods. Consequently, when transposing the provisions of a directive into the national legal system, Member States may freely choose, in accordance with the requirements of their national legal system, the form and methods of transposition, while ensuring that, as a result of the transposition, the objective of the directive is achieved. Taking the above into account, and also taking into account the definition and basic operating principles of a foundation, including a fund, and a legal arrangement, it follows that a foundation, including a fund, although it is a legal person under national regulation, within the framework of the Law must be assessed according to its structure, features and substance as a legal arrangement; therefore, its beneficial owners should be identified in accordance with AMLD IV. The fact that, in the national regulatory framework, foundations, including funds, which, although having the status of a legal person, but whose actual structure corresponds to the structural principles of a legal arrangement, are not currently distinguished separately, is not a legal basis to apply to the identification of their beneficial owners the definition applicable to legal persons, which in substance does not correspond to the nature of a foundation.

The purpose of the definition of a beneficial owner, both under national regulation and European Union legal acts, as well as under the international standards of the Financial Action Task Force (The Financial Action Task Force; hereinafter – FATF), is to disclose those natural persons who ultimately actually control a legal person or a legal arrangement. Therefore, the definition of a beneficial owner is applicable not only according to the legal status of the legal subject, but also according to its structure and substance.

At the same time, by applying the definition of a beneficial owner of a legal arrangement laid down in the Law to the identification of beneficial owners of foundations, including funds, the legal status of these subjects in Latvia is not changed – in relations with third parties, these entities are and remain legal persons, with all rights and obligations arising therefrom.

Identification of beneficial owners

As in other legal persons – foundations, including funds – in accordance with the procedure laid down in Section 18.1 of the Law, a natural person who has reason to believe that he or she has become the beneficial owner of a foundation, including a fund, has an obligation to notify the executive body of the foundation, including the fund, thereof. The management of a foundation, including a fund, has an obligation, where there is reasonable basis, to determine whether it has a beneficial owner, and whether the received (identified) information on the beneficial owner is true, applying the definition referred to in Section 1, Clause 5(b) of the Law, i.e. with regard to legal arrangements, a beneficial owner is a natural person who owns or in whose interest a legal arrangement has been established or operates, or who directly or indirectly exercises control over it, including the settlor, trustee (manager), protector (if any), beneficiary, or, where the beneficiaries have not yet been determined, the group of persons in whose interest the legal arrangement has been established or operates, as well as any other natural person who directly or indirectly controls the legal arrangement.

Time limits

Pursuant to Section 18.1, Paragraph Four and Section 18.2, Paragraph One of the Law, the legal person must immediately, but no later than 14 days from the date when the relevant information became known, submit an application to the Enterprise Register for the registration of information on the beneficial owner.

It should be noted that, in accordance with the first sentence of Section 18.2, Paragraph Two of the Law, when submitting an application to the Enterprise Register for the registration (establishment) of a foundation, including a fund, or for changes in the management body, the application must obligatorily indicate information on the beneficial owner of the foundation, including the fund, in accordance with the requirements of Section 18.2 of the Law.

Taking the above into account:

• in the case of registration of a new foundation, including a fund, the registration application must obligatorily also include information on the beneficial owner;
• when submitting an application for changes in the composition of the board of a foundation, including a fund, the application must obligatorily include information on beneficial owners or must certify that the registered information has not changed;
• a foundation, including a fund, must immediately, but no later than 14 days from the date when information on the beneficial owner or changes to such information became known, submit an application to the Enterprise Register for the registration of information on the beneficial owner or the registration of the relevant changes.

Information to be submitted

The information on the beneficial owner to be retained by a foundation, including a fund, is laid down in Section 18.1, Paragraph Four of the Law. In accordance with Section 18.2, Paragraph One of the Law, the same information must also be submitted to the Enterprise Register.

At the request of the Enterprise Register, in order to verify the reliability of the submitted information, a foundation, including a fund, shall submit:

• documentary evidence of the exercised control;
• a document confirming the compliance of the identifying information of the beneficial owners:
  • a notarised copy of an identity document;
  • a certificate from a foreign population register;
  • other documents equivalent to those mentioned above.

It should be noted that, in accordance with Section 18.1, Paragraph Four of the Law, information on beneficial owners (including documentary evidence of exercised control) must also be retained by the legal person itself.

In respect of the beneficial owner of a foundation, including a fund (including the founder, member(s) of the board, member(s) of other supervisory bodies (if established), the beneficiary and other natural persons who exercise control over the foundation, including the fund), the following must be indicated:

1. given name;
2. surname;
3. personal identity number (if not available – date, month and year of birth, identity document number and date of issue, country and issuing authority);
4. nationality;
5. country of permanent residence;
6. the manner in which control over the legal person is exercised:
   1. through status in the legal person:
      1. as the founder of the foundation;
      2. as a representative of the executive body or management body;
      3. as a representative of the executive body or management body of the founder of the foundation – a legal person;
   2. as a separate controlling person (if the beneficial owner indirectly controls the founder, representatives of the executive body or management body, or representatives of another management body (if established)):
      1. on the basis of an authorisation agreement;
      2. on the basis of ownership rights;
      3. on the basis of a business relationship;
      4. on the basis of a court decision;
      5. through a legal arrangement as founder;
      6. through a legal arrangement as trustee (manager);
      7. through a legal arrangement as protector (if any);
      8. through a legal arrangement as beneficiary or category thereof;
   3. other (free text field allowing an undefined type):
7. information on the person through whom control is exercised (to be indicated where any of the types referred to in Sub-clause 6.1 or 6.2 is indicated as the manner in which control is exercised in a foundation, including a fund):
   1. for a natural person – given name, surname, personal identity number (if the person does not have a personal identity number – date, month and year of birth);
   2. for a legal person (including a foreign legal person) – name, registration number and legal address).

In accordance with Section 1, Clause 5(a) of the Law on the Prevention of Money Laundering, Terrorism and Proliferation Financing (hereinafter – the Law), a beneficial owner is a natural person who is the owner of a legal person or who controls a legal person (in the case of religious organisations – the religious organisation and its institution, if, in accordance with the Religious Organisations Law, it has been granted the status of a legal person), or on whose behalf, for whose benefit or in whose interests a business relationship is established or an occasional transaction is carried out, and, at least with regard to legal persons, is a natural person who, through direct or indirect participation, holds more than 25 per cent of the shares of the share capital or voting shares of the legal person or who directly or indirectly controls it. By analogy, the 25 per cent criterion for identifying the extent of significant participation may also be applied to other legal persons, not only capital companies.

The above-mentioned provision defines the characteristics of a beneficial owner, i.e., a beneficial owner is always a natural person who owns or in whose interests a specific legal person has been established or operates, or who directly or indirectly exercises control over the legal person. It should be noted that in the case of direct participation or control, the beneficial owner controls the legal person directly, whereas in the case of indirect participation or control, control is exercised through another person – a natural or legal person.

In the guidelines “Beneficial Ownership of Legal Persons” issued in March 2023 by the Financial Action Task Force (The Financial Action Task Force; hereinafter – FATF), a beneficial owner is explained as the natural person who “ultimately” owns or controls the “client” and/or the natural person on whose behalf a transaction is conducted. The definition also includes persons who exercise ultimate control over a legal person. “Ultimately owns or controls” and “exercises ultimate control” refer to situations where ownership/control is exercised through ownership rights or other means of control that are not direct control. An essential feature of the definition of a beneficial owner is that it goes beyond formal ownership and legal control. FATF places emphasis on the natural person who actually owns the legal person and uses its senior management powers or assets, as well as on the natural person who actually exercises control, regardless of any official position.

The Law does not contain specific regulation regarding the indicated obligations depending on the nature, type or purpose of the activities of the legal person.

The essence of the activities of religious organisations is to unite within one religious organisation or denomination in order to carry out religious activity in a specific inhabited territory. Religious activity is devotion to religion or faith, practising worship, performing religious or ritual ceremonies and preaching doctrine. The carrying out of religious activity does not provide for the possibility for any official of a congregation to be the owner of the organisation. Therefore, taking into account the nature and purpose of the activities of religious organisations, it will usually not be possible to identify the beneficial owner of a religious organisation, because in fact there is no natural person who would own the religious organisation, and it is not possible to determine the natural person or persons who control it, or on whose behalf, for whose benefit or in whose interests a business relationship is established or an occasional transaction is carried out, as provided for in the definition of a beneficial owner included in the Law.

At the same time, the above does not exclude the possibility that, also with regard to religious organisations, situations are possible where information on their beneficial owner has been received or obtained within the religious organisation. Consequently, in such a case religious organisations have an obligation to notify the Enterprise Register of information on their beneficial owner within the time limit and in the manner laid down in the Law, by submitting the information specified in the Law.

It should be noted that a legal person is a legal fiction, behind which in every case there are natural persons who organise, manage or control it; therefore, a situation in which a beneficial owner does not exist is not possible – it may only be impossible to identify one in accordance with the definition laid down in the Law. Consequently, the Law does not provide for the registration in the registers maintained by the Enterprise Register of information stating that a legal person does not have a beneficial owner.

In cases where a religious organisation or its institution has used all possible means of identification and has concluded that it is not possible to identify any natural person – a beneficial owner in accordance with the definition – and doubts that the religious organisation or its institution has a beneficial owner have been ruled out, this must be certified in the application, obligatorily indicating the justification.

At the same time, it should be taken into account that in cases where it is not possible to identify the beneficial owner of a legal person, pursuant to Section 18, Paragraph Seven of the Law, the subjects referred to in Section 3 of the Law (for example, credit institutions, outsourced accountants, sworn notaries, etc.) may consider as the beneficial owner of a legal person the person who holds a position in the senior management body of that legal person. Accordingly, in cases where the Enterprise Register has registered information that it is not possible to identify the beneficial owner of a legal person, a religious organisation or its institution (if, in accordance with the Religious Organisations Law, it has been granted the status of a legal person), when completing customer due diligence questionnaires (for example, at a credit institution), will have to indicate as the beneficial owner one, several or all members of the management body (officials), taking into account the assessment made by the relevant subject of the Law regarding the material circumstances.

Identification of beneficial owners

As in other legal persons, also in religious organisations and their institutions, in accordance with the procedure laid down in Section 18.1 of the Law, a natural person who has reason to believe that he or she has become the beneficial owner of a religious organisation or its institution has an obligation to notify the religious organisation or its institution thereof. The management of a religious organisation or its institution has an obligation, where there is reasonable basis, to determine whether it has a beneficial owner and whether the received (identified) information on the beneficial owner is true.

Time limits

Pursuant to Section 18.1, Paragraph Four and Section 18.2, Paragraph One of the Law, the legal person must immediately, but no later than 14 days from the date on which the relevant information became known, submit an application to the Enterprise Register for the registration of information on the beneficial owner.

At the same time, in accordance with the first sentence of Section 18.2, Paragraph Two of the Law, when submitting an application to the Enterprise Register for the registration (establishment) of a religious organisation or its institution, or for changes in the composition of the management body or officials, the application shall indicate information on its beneficial owner in accordance with the requirements of Section 18.2.

Taking the above into account:

• in the case of registration of a new religious organisation or its institution, the registration application must obligatorily also include information on beneficial owners;
• a religious organisation or its institution, when applying for changes in the composition of the management body or officials, must obligatorily also indicate information on the beneficial owner in the application or must certify that the registered information has not changed;
• a religious organisation or its institution must immediately, but no later than 14 days from the date on which information on the beneficial owner or changes to such information became known, submit an application to the Enterprise Register for the registration of information on the beneficial owner or the registration of the relevant changes.

Information to be submitted

The information on the beneficial owner to be retained by the legal person is laid down in Section 18.1, Paragraph Four of the Law. In accordance with Section 18.2, Paragraph One of the Law, the same information must also be submitted to the Enterprise Register.

At the request of the Enterprise Register, in order to verify the reliability of the submitted information, the religious organisation or its institution shall submit:

• documentary evidence of the exercised control;
• a document confirming the compliance of the identifying information of the beneficial owners:
  • a notarised copy of an identity document;
  • a certificate from a foreign population register;
  • other documents equivalent to those mentioned above;
• a document substantiating the certification that it is not possible to identify the beneficial owner.

It should be noted that, in accordance with Section 18.1, Paragraph Four of the Law, information on the beneficial owner (including documentary evidence of the exercised control) must also be retained by the legal person itself.

The following information regarding the beneficial owner of a religious organisation or its institution shall be registered in the registers maintained by the Enterprise Register:

1. given name;
2. surname;
3. personal identity number (if not available – date, month and year of birth, identity document number and date of issue, country and issuing authority);
4. nationality;
5. country of permanent residence;
6. the manner in which control over a religious organisation or its institution is exercised:
   1. through status in the legal person (if the beneficial owner is a member of the management body who is entitled to represent the religious organisation or its institution):
      1. as a representative of the executive body or management body;
   2. as a separate controlling person (if the beneficial owner indirectly controls a member of the management body who is entitled to represent the religious organisation or its institution):
      1. on the basis of an authorisation agreement;
      2. on the basis of a business relationship;
   3. other (free text field allowing an undefined type);
7. information on the person through whom control is exercised (to be indicated where any of the types referred to in Sub-clause 6.1 or 6.2 is indicated as the manner in which control is exercised):
   1. for a natural person – given name, surname, personal identity number (if the person does not have a personal identity number – date, month and year of birth);
   2. for a legal person (including a foreign legal person) – name, registration number and legal address).

Pursuant to the second sentence of Section 18.2, Paragraph Two of the Law, if a religious organisation or its institution has used all possible means of identification and has concluded that it is not possible to identify any natural person – a beneficial owner – and doubts that the religious organisation or its institution has a beneficial owner have been ruled out, this must be certified in the application, obligatorily indicating the justification. In such a case, the Register of Religious Organisations and their Institutions will record that it is not possible to identify the beneficial owner.