Latvia -- Travel Rule Implementation Regulatory Overview

Latvia, as an EU member state, has adopted and implemented the FATF Travel Rule requirements into its national anti-money laundering and counter-terrorist financing (AML/CFT) framework. This implementation is largely driven by the EU's AML Directives, which incorporate FATF standards.

Here's a breakdown of the status in Latvia:

1. Adoption and Effective Date

• Adopted: Yes. The FATF Travel Rule requirements are incorporated into Latvian law, primarily through the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing (NILLTPFN).
• Effective Date: The legal framework for regulating Virtual Asset Service Providers (VASPs) and requiring their registration in Latvia became effective on July 1, 2021. This included the obligation for VASPs to comply with AML/CFT requirements, which encompass the Travel Rule.
  • The Financial and Capital Market Commission (FCMC), which was the primary regulator for financial services (now merged into Latvijas Banka), issued detailed Recommendations for virtual asset service providers in implementing the requirements of the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing in July 2021, providing practical guidance for implementation.

2. Threshold Amounts

Latvia follows the FATF guidance on thresholds:

• VASP-to-VASP Transfers: For transfers between two VASPs, the Travel Rule information (originator and beneficiary details) must be obtained and transmitted regardless of the amount of the transaction. There is no minimum threshold for VASP-to-VASP transfers.
• Transactions Involving Unhosted Wallets: When a VASP sends virtual assets to or receives virtual assets from an unhosted (self-hosted) wallet:
  • If the transaction value is EUR 1,000 or more, the VASP must apply enhanced customer due diligence (CDD) measures to ascertain the identity of the owner of the unhosted wallet.
  • For transactions below EUR 1,000, VASPs still need to apply a risk-based approach, but enhanced CDD for identifying the unhosted wallet owner is not automatically triggered by a threshold.

3. Which VASPs Are Covered

The NILLTPFN and FCMC guidance define "virtual asset service provider" broadly, covering entities that engage in:

• Exchange between virtual assets and fiat currencies.
• Exchange between one or more forms of virtual assets.
• Transfer of virtual assets.
• Custody and/or administration of virtual assets or instruments enabling control over virtual assets.
• Participation in and provision of financial services related to an issuer's offer and/or sale of a virtual asset.

This includes, but is not limited to, cryptocurrency exchanges, custodial wallet providers, and certain types of brokers dealing in virtual assets.

4. Technical Implementation Requirements

Latvian legislation and FCMC guidance emphasize the outcome rather than prescribing a specific technical solution. VASPs are required to:

• Collect Information: Obtain the necessary originator and beneficiary information as prescribed by the Travel Rule (e.g., name, account number/wallet address, physical address, national ID number/customer ID, date of birth for individuals; legal name, registered address, registration number for legal entities).
• Store Information: Maintain records of this information securely and in a manner that allows for retrieval and submission to competent authorities upon request, for a period of at least five years (and potentially up to 10 years).
• Transmit Information: Have robust internal control systems and procedures to securely transmit the required information to the beneficiary VASP during or before the transaction execution.
• Risk Assessment: Implement effective risk management procedures for transactions involving virtual assets, especially those involving unhosted wallets or high-risk jurisdictions.
• Data Protection: Ensure compliance with personal data protection regulations (e.g., GDPR) when collecting, storing, and transmitting personal data related to virtual asset transactions.

While no specific technical solution is mandated, VASPs are expected to adopt interoperable solutions that facilitate the secure and compliant exchange of information with other VASPs, such as those developed by industry groups (e.g., TRP, Travel Rule Universal Protocol, Sygna Bridge, Veriscope).

5. Penalties for Non-Compliance

The NILLTPFN provides for significant penalties for non-compliance with AML/CFT requirements, including those related to the Travel Rule. These can include:

• Administrative Fines:
  • For legal entities, fines can be up to EUR 5,000,000 or up to 10% of the total annual turnover (whichever is higher), in serious or repeated cases.
  • For individuals (e.g., board members), fines can be up to EUR 700,000.
• Other Administrative Measures:
  • Withdrawal or suspension of a VASP's registration/license.
  • Public statements (naming and shaming) about the non-compliant entity and the nature of the breach.
  • Ordering cessation of illegal practices.
  • Appointment of temporary administrators.
• Criminal Liability: In cases of severe and intentional money laundering or terrorism financing, individuals involved can face criminal charges and imprisonment under the Latvian Criminal Law.

References and Legislation

• Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing (NILLTPFN):

  • Official Latvian text: https://likumi.lv/ta/id/296716-noziedzigi-iegtu-lidzeklu-legalizacijas-un-terorisma-un-proliferacijas-finansesanas-noversanas-likums
  • Note: An official English translation may not be directly available online for free; however, the FCMC (now Latvijas Banka) guidance provides the practical application.

• FCMC (now Latvijas Banka) Recommendations for virtual asset service providers:

  • Overview page: https://www.bank.lv/en/financial-stability/aml-cft/financial-institutions-supervision/virtual-asset-service-providers
  • Direct link to the English PDF document (dated 14 July 2021): https://www.bank.lv/en/images/stories/publikacijas/norm_akti/fktk_ieteikumi_vasp_anglu_valoda.pdf
    • Section 7, "Requirements for Money or Virtual Asset Transfers," specifically addresses the Travel Rule, including thresholds and information requirements (pages 20-22 of the PDF).

Latvia has a robust legal framework and regulatory guidance in place for VASPs to comply with the FATF Travel Rule, aligning with broader EU and international AML/CFT standards.