The definition of the beneficial owner (BO) in Section 1, Clause 5 of the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing (hereinafter - the Law) was established in accordance with the provisions of Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, 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), Section 3, Clause 6. In particular, point (a) lists the criteria to be considered when identifying BOs in corporate entities—legal persons whose ownership structure allows for a mathematical calculation to establish the control aspect based on the participation threshold. However, points (b) and (c) outline the criteria for identifying the BO in trusts, foundations, and other legal entities, as well as legal arrangements similar to trusts. In particular, for these legal persons (entities), a mathematical calculation of the ownership structure is not relevant. The “ultimate BO” is defined as the natural person(s) holding equivalent or similar positions to those referred to in point (b), such as the settlor, the trustee(s), the protector (if any), the beneficiaries or class of persons, or any other natural person exercising ultimate control over the trust through direct or indirect ownership or by other means.

The legal system of the Republic of Latvia does not recognise trusts or similar legal arrangements, so no trust is legally registered in the Republic of Latvia. However, the Republic of Latvia recognizes and registers foundations, including funds, which, in their structure and principles of operation, have characteristics equivalent to those of legal arrangements, including trusts. One of the most fundamental principles of a legal arrangement is the separation of property, or assets, that form a separate community of property. A similar provision is included in Section 2(2) of the Associations and Foundations Law, which states that a foundation, including a fund, is an aggregate of property set aside for the achievement of a goal specified by the founder, which shall not have a profit-making nature. However, Section 86(3) of the said law provides that persons who have granted property to a foundation after its entry into the Register shall not be considered founders. The Associations and Foundations Law does not stipulate that founders are obliged to contribute any sum of money or other property to the foundation's share capital. The term "aggregate of property" is therefore understood to mean the form in which financial resources are contributed from various sources during the lifetime of the foundation. The structure of a legal arrangement, including a trust, also involves a degree of separation of owners. Like a legal arrangement, including a trust, a foundation is a closed organisation which is not open to members, has no members—only founders and supporters—has separate property and one or more administrative bodies (complex governance structure) (Section 93) and, under Section 91, may determine the beneficiaries. Although most legal arrangements are established rather than registered (they do not have to be entered in public registers to be considered created), the fact of registration does not affect the existence and functioning of the legal arrangement.

At the same time, it should be noted that, in accordance with Article 288(3) of the Treaty on European Union, a directive shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods. Consequently, when transposing the provisions of the directive into national law, Member States are free to choose the form and methods of transposition in accordance with the requirements of their national legal systems, while ensuring that the transposition of the directive achieves its objective. In view of the above, and taking into account the definition and basic principles of operation of a foundation, including a fund and a legal arrangement, it follows that a foundation, including a fund, although a legal person under domestic law, should be assessed under the law in accordance with its structure, characteristics, and nature as a legal arrangement, and therefore its BOs should be identified in accordance with the provisions of AMLD IV. The fact that the national legal framework does not currently distinguish between foundations, including funds, which have the status of a legal person but whose actual structure is based on the principles of a legal arrangement, does not provide a legal basis for applying the definition of a legal person to the identification of their BOs, which is inherently incompatible with the nature of a foundation.

The purpose of the BO definition, both under national and European Union legislation and under the international standards of the Financial Action Task Force (FATF), is to identify those natural persons who ultimately exercise effective control over a legal person or entity. Therefore, the definition of a BO is not only based on the legal status of the legal person, but also on the principle of its structure and nature. At the same time, the application of the Law’s definition of legal arrangements to the identification of foundations, including funds, does not change the legal status of foundations, including funds, in Latvia - these legal entities are legal persons with all the rights and obligations arising therefrom in their relations with third parties.

Obligation to determine the BO

As in the case of other legal entities, in the case of foundations, including funds, a natural person who has reason to believe that he/she has become a BO of a foundation, including a fund, is obliged to notify the administrative body of the foundation, including a fund, of this fact in accordance with the procedure provided for in Section 18.¹ of the Law. The administrative body of a foundation, including a fund, has a duty to ascertain, on reasonable grounds, whether it has a BO and whether the information received (ascertained) about the BO is true, applying the provisions of Section 1, Clause 5, Sub-clause (b) of the Law. In other words, the BO in relation to legal arrangements means a natural person who owns or in whose interests a legal arrangement has been established or operates, or who directly or indirectly exercises control over it, including who is the settlor, the trustee (manager), the protector (if any), the beneficiary of such legal arrangement or, if the natural persons who are beneficiaries have not been determined yet, the group of persons in the interests of which a legal arrangement has been established or operates, and also another natural person who directly or indirectly exercises control over a legal arrangement.

It should be noted that in the case of direct ownership or control, the BO controls the legal person directly, which may result from the exercise of ownership (e.g. by the founder of the foundation) or legal control (e.g. by a member of the board or other administrative body (if one has been established)). In the case of indirect ownership or control, the control is exercised through another person, whether natural or legal. Indirect control can be exercised through various means, such as a contract between the parties or through dominant influence (e.g., a board member's dominant influence in the foundation, financing the foundation through kinship or contractual ties). Members of the foundation's administrative bodies may cooperate with each other to increase such indirect control through another person, whether through formal or informal contracts, or by exercising their power to appoint senior management of the foundation.

In view of the above, the BO of a foundation, including a fund, according to the assessment carried out in the specific actual situation, in concluding which natural person or several natural persons actually control the foundation, including a fund, pursuant to Section 1, Clause 5, Sub-clause (b) of the Law, could be both the founder of the foundation, a member of the board, a member of another administrative body (if any), a beneficiary or a group of beneficiaries (class of persons), as well as another person exercising ultimate control over the foundation, including a fund.

Deadlines

Pursuant to Sections 18.¹(4) and 18.²(1) of the Law, a legal person must immediately, but not later than within 14 days from getting to know the relevant information, submit to the Enterprise Register of the Republic of Latvia the application for the registration of information on the BO.

It should be noted that pursuant to the first sentence of Section 18.²(2) of the Law, when submitting an application to the Register of Enterprises of the Republic of Latvia for registration (incorporation) of a foundation, including a fund, or changes in the members of the management body, the application must contain information on the BOs of the foundation, including the foundation, as required by Article 18.² of the Law.

In the light of the above:

1. when registering a new foundation, including a fund, the application must also include information concerning the BO;
2. a foundation, including a fund, must immediately, but no later than within 14 days from getting to know the relevant information, submit to the Enterprise Register of the Republic of Latvia the application for the registration of information on the BO or for the registration of changes to such information.

Information to be submitted

The information to be retained by the foundation, including the fund, is specified in section 18.¹(4) of the Law. According to the Section 18.²(1) of the Law, the information referred to in the Section 18.1(4) shall also be submitted to the Register of Enterprises of the Republic of Latvia

The information to be kept by the foundation, including the fund, is specified in Section 18.¹(4) of the Law. Pursuant to Section 18.²(1) of the Law, the information specified in Section 18.¹(4) must also be submitted to the Register of Enterprises of the Republic of Latvia.

Upon request of the Register of Enterprises of the Republic of Latvia, in order to ascertain the credibility of the information submitted, a foundation, including a fund, must provide:

1. the documentary justification of the control exercised;
2. the documentary justification of an information identifying the BO:
   1. a notarised copy of the personal identification document;
   2. a statement from a foreign population register;
   3. other documents equivalent to the above-mentioned documents.

It should be noted that pursuant to Section 18.¹(4) of the Law, the information on the BO (including the documentary justification of the control exercised) must also be stored by the legal person itself.

The following information must be recorded regarding the BO of the foundation, including the fund (such as the founder, member(s) of the board, member(s) of other administrative bodies (if any), beneficiary, and other natural persons exercising control over the foundation or the fund):

1. name, surname, personal identity number (if the person has no personal identity number - the date, month, year of birth, the number of the personal identification document and the date of issue thereof, the country and body issuing the document);
2. Manner of exercising control over the legal person:
   1. through a status in the legal person:
      1. as a founder of foundation;
      2. as a representative of the executive or administrative institution.
   2. As a separate person who controls (if the BO indirectly controls the founders, the members of the executive or administrative institution, or other administrative body (if any)):
      1. on the basis of an authorization agreement;
      2. on the basis of an ownership right;
      3. on the basis of a business relationship.
   3. Another manner of control (free text field with the option to enter an undefined type of control):
      1. as a beneficiary;
      2. as a representative of a supervisory or other administrative body;
3. Information regarding the person with whose intermediation the control is being exercised:
   1. for natural persons - name, surname, personal identity number (if the person has no personal identity number - the date, month, year of birth;
   2. for legal persons (which may also include foreign legal persons) - the name, registration number, and registered address.