In accordance with Section 1(5)(a) of the Law on the Prevention of Money Laundering and Terrorism Financing (hereinafter referred to as the Law), the true beneficiary is a natural person, the owner of a legal person, or who controls the client, or on behalf of which, a transaction relationship is established or a transaction of an occasional nature is carried out, and it is at least in relation to in the case of legal persons, a natural person who, in the form of a direct or indirect holding, holds more than 25 per cent of the capital shares or voting shares of the legal person or who controls them directly or indirectly. The 25 per cent criterion, by analogy, for the purposes of clarifying the size of a qualifying holding, may also be applied to other legal entities, not only to capital companies. That provision lays down the characteristics of the true beneficiaries, i.e. the true beneficiary is always the natural person who owns or is in the interest of which a particular legal person is established or operates, or whose direct or indirect control over the legal person is exercised. In the case of direct participation or control, the true beneficiary shall be directly controlled by the legal person, while in the case of indirect participation or control, the control shall be exercised through another person, whether natural or legal.
In the guidelines 'Transparency and true beneficiaries' issued by the Financial Transaction Task Force (FATF) in October 2014, the true beneficiaries are interpreted as the natural person who 'ultimately' owns or controls the 'client' and/or the natural person for whom the transaction is being carried out. It also includes those persons exercising final control over the legal person. 'Ultimately owned or controlled' and 'exercising final control' refers to situations where ownership/control is exercised through ownership or other means of control other than direct control. A fundamental feature of the definition of the beneficiary is that it goes beyond legal ownership and control. The FATF definition focuses on a natural person who actually owns a legal person, who exercises the powers of senior management of a legal person or the assets of a legal person, as well as a natural person exercising effective control over the legal person (whether or not the person holds an official position in the legal person).
In the case of direct participation or control, the true beneficiary shall be directly controlled by the legal person and may result from the exercise of ownership or lawful control (e.g. a member of the Management Board). However, in the case of indirect participation or control, the control shall be exercised through another person, whether natural or legal. Indirect control can be exercised by a variety of means, such as a mutually concluded contract or by means of a dominant influence (such as the dominant influence of a member in a cooperative society), by financing a cooperative society through creative links or contractual obligations. Members of the cooperative society may also cooperate with each other in order to increase such indirect control through another person through formal or informal agreements.
The law does not contain a specific framework for the obligations specified, depending on the nature, nature or purpose of the legal person's activities. It should also be noted that the legal person is a legal fiction, followed in each case by natural persons who organise, manage or control it, so that there is no situation where the true beneficiary is not — it may not be possible to clarify it according to the definition set out in the Law. Consequently, there cannot be a situation and the Law does not provide for the registration of information in the registers carried by the Enterprise Register regarding the fact that a legal person does not have a genuine benefit.
The basic principles for the operation of cooperative societies are laid down in Section 3 of the Law on Cooperative Companies. According to that provision, the activities of a cooperative society shall be managed by its members, participating actively and democratically in the management of the company, and each member of the cooperative society shall have one vote at the general meeting of members. The capital of a cooperative society shall be formed and controlled, as well as the profits obtained shall be distributed by its member
In view of this, and in applying the abovementioned participation threshold by analogy, the natural persons concerned should be considered to be the true beneficiaries of cooperative societies with 2-3 members. Where those members act in the exercise of control on behalf of another person, the co-operative society shall indicate as the true beneficiary the natural person concerned on whose behalf the member acts. In the case of 2-3 members of a cooperative society, natural persons who, through the legal persons concerned, control the cooperative society in the form of indirect participation should be regarded as the true beneficiaries.
The 25% threshold referred to in the Law shall be stated to be the absolute minimum when the true beneficiary is always identified. At the same time, there can be many and different cases of control over cooperative societies in practice. For example, several members have agreed on the decision-making arrangements, including but not limited to:
- by agreeing that any of the members will always take decisions in the same way as another member;
- by agreeing that any of the members refrain from taking decisions to allow another member to take decisions;
- by agreeing that someone may single-handedly deny other rights of representation, etc.
Similarly, control in the cooperative society shall be established in cases where the members are legal persons controlled by the same natural person.
In other cases, it shall be assessed whether there are natural persons who, in accordance with Article 1(5)(a) of the Law, control the co-operative society concerned. It should be noted that it is not possible to provide an explanation of all situations, since each case is individual and the board of the legal person needs to know (to be clarified) whether a natural person has real control in the legal person.
In addition, it should be noted that:
- if the owner of a member of the co-operative society is a legal arrangement (for example, a type of rightholder not recognised in the Republic of Latvia - trust), the definition of the true beneficiary referred to in Article 1(5)(b) of the Law shall apply to the clarification of the true beneficiary. According to that provision, the true beneficiary is a natural person who is the owner of a legal person or who controls a legal person, or on whose behalf a business relationship is established or a case-by-case transaction is carried out, and is at least, in the case of legal arrangements, the natural person who owns or in the interest of whom a legal arrangement has been established or operated or exercising, directly or indirectly, control over it, including which is the founder, trustee or supervisor (manager) of such a arrangement. In the light of this, it is necessary, in such a case, to identify the true beneficiary in the legal arrangement in accordance with the above definition;
- according to the Law 18. For Section 2, Paragraph six, a legal person may not provide the Enterprise Register of the Republic of Latvia with information about the true beneficiary if the true beneficiary is a shareholder in a stock company whose shares are listed on the regulated market and the way in which control over the legal person is exercised arises only from the status of the shareholder. In the light of the above, if one of the members of the co-operative society is subject to the case mentioned above, the co-operative company may indicate, when submitting information to the true beneficiary in the Enterprise Register of the Republic of Latvia, that the true beneficiary is a shareholder in a stock company whose shares are listed on the regulated market and the way in which control over the legal person is exercised. the status of the shareholder only arises.
It must be noted that the legal person is a legal fiction, followed in each case by natural persons who organise, manage or control it, so that there is no situation where the true beneficiary is not — it may not be possible to clarify it in accordance with the definition laid down in the Law. Consequently, the Law does not provide for the registration in the registers carried by the Enterprise Register of information that a legal person does not have a genuine benefit.
In cases where a cooperative society has made use of all possible means of clarification and has concluded that it is not possible to identify any natural person, THE PLG, as well as doubts that the cooperative society has the true beneficiary, it must be confirmed in the application, with a minimum indication of the reasons.
At the same time, it should be noted that in cases where the true beneficiary of a legal person cannot be identified, in accordance with Section 18, Paragraph seven of the Law, the entities specified in Article 3 of the Law (e.g. credit institutions, outsourcing accountants, sworn notars, etc.) may consider as the true beneficiary of the legal person the person who holds senior management in that legal person. the office of the institution. Accordingly, in cases where information is recorded in the Enterprise Register that it is not possible to identify the true beneficiary, in accordance with the Law, in order to allow entities identified in Article 3 of the Law to carry out customer research activities, the legal person, as the true beneficiary, will have to indicate one, several or all members of the Management Board when completing customer survey questionnaires, taking into account: an assessment of the subject of the Law on the essential circumstances.
Identification of true beneficiaries
According to the Law 18. The procedure laid down in Article 1 for a natural person, where it has grounds to believe that it has become the true beneficiary of a cooperative society, has an obligation to notify that fact to the co-operative society. Similarly, members of the cooperative society, if they act on behalf of another person, are obliged to disclose it to the Board of Governors of the co-operative society. The Board of the Cooperative Society shall be obliged to establish, on a reasonable basis, whether the Cooperative Society is not the true beneficiaries, and whether the information received/cleared on the true beneficiaries is true.
Under 18 of the Law. The fourth paragraph of Article 1 and 18. The first paragraph of Article 2 shall, without delay, but not later than within 14 days from the date of the information concerned, submit an application to the Enterprise Register for the registration of information on the true beneficiaries.
It shall be indicated that according to 18 of the Law. For the first sentence of the second paragraph of Article 2, when submitting an application for registration (establishment) of a co-operative society to the Enterprise Register, the application shall contain information regarding the true beneficiaries of the co-operative society in accordance with 18. The requirements of Article 2.
In the light of the above:
- in the case of registration of a new cooperative society, the application for registration must also include information on the true beneficiaries;
- the cooperative society shall, without delay, but not later than within 14 days of the date of the disclosure of the information on the true beneficiaries or of the change in the relevant information, submit an application to the Enterprise Register for the registration of information on the true beneficiaries or for the registration of any changes made to that information.
Information to be submitted
The information to be stored in the cooperative society regarding the true beneficiaries shall be specified in the Law 18. In the fourth paragraph of Article 1. According to the Law 18. Section 2, first paragraph, Law 18. The information referred to in the fourth paragraph of Article 1 shall also be submitted to the Enterprise Register.
Upon request of the Enterprise Register of the Republic of Latvia, in order to enable it to ascertain the reliability of the information submitted, the co-operative society shall submit:
- the documentary justification for the control carried out;
- a document confirming the relevance of the information identifiable to the true beneficiaries:
- a notarised copy of the identity document;
- a statement of the foreign population register;
- other documents equivalent to those documents.;
- a document supporting proof that the true beneficiary cannot be identified.
It shall be indicated that in accordance with the Law 18. The information provided for in the fourth paragraph of Article 1 concerning the true beneficiaries (including the documentary justification for the control carried out) must also be kept by the legal person himself or herself.
In the light of the above, the following information shall be recorded regarding the true beneficiaries of cooperative societies in the registers carried by the Enterprise Register:
- the personal identity number (if any - date of birth, month, year, number and date of issue of the identity document, country and authority which issued the document);
- the country of residence;
- way of exercising control over the cooperative community:
- through the status of the legal person (if THE PLG is the direct owner or directly controls the legal person):
- as a member of the cooperative society;
- as a representative of the executive or administrative body;
- as a separate person controlling (if the true beneficiary is the indirect owner or indirectly controls the cooperative society):
- on the basis of a contract of authorisation;
- on the basis of ownership (for example, if the true beneficiary of the cooperative society is the owner of the member legal person);
- through the legal arrangement as a founder;
- through the legal arrangement as a principal;
- through the legal arrangement as a manager;
- on the basis of the transaction relationship;
- another (free text field with the option of entering an undefined type);
- information on the person through whom the control is carried out (indicate if any of the methods referred to in points 6.2 or 6.3 in which control is exercised in the cooperative society is indicated):
- the name, surname, personal identity number of the natural person (if the person does not have a personal identity number - date of birth, month and year);
- the name, registration number and legal address of the legal person (may also be a foreign legal person).
Under 18 of the Law. The second sentence of the second paragraph of Article 2, where a cooperative society has used all possible means of clarification and has concluded that it is impossible to identify any natural person, THE PLG, and doubts that the cooperative society has the true beneficiary, must certify it in the application, stating the grounds. In this case, it will be registered in the Commercial Register that it is not possible to identify the true beneficiary.