50% ownership - Latvian court judgment on ownership/control

The Latvian Administrative District Court has dismissed a company’s application to be removed from the list of sanctioned entities maintained by the Latvian Financial Intelligence Unit (FIU).   

• https://www.fid.gov.lv/en/news/court-upholds-fiu-latvia-position-half-ownership-in-a-company-is-sufficient-to-apply-sanctions

The Latvian FIU publishes a list of entities which it has determined are owned, held or controlled by a person designated on the EU sanctions list and are therefore subject to an asset freeze in Latvia.

The FIU included the applicant’s name on this list of entities because a person sanctioned by the EU owned 50% of its shares.

The company challenged the FIU’s decision to include it on the list, arguing that a 50% share did not mean that a sanctioned person owned or controlled the company.

The court rejected the company’s claim. It said that a sanctioned person who owns a 50% share in a company controls that company because the 50% share allows the sanctioned person to influence company decisions and prevent the use of company funds under Latvian commercial law.

Longer read

1. A significant precedent has been established in Latvia in the field of sanctions implementation – the Administrative District Court has dismissed the application of a legal entity registered in Latvia for its removal from the list of sanctioned entities maintained by the Financial Intelligence Unit of Latvia (FIU Latvia). The legal entity is 50% indirectly owned by a person listed in the sanctions.
2. In rejecting the claim for more than one million euros in damages, the Court concluded that the actions of the institutions involved, in publishing information about the applicant in the list of sanctioned entities, were lawful.
3. The Court also found no direct causal link between the institutions’ actions and the applicant’s inability to meet its obligations, which resulted in enforcement action being taken against a helicopter owned by the applicant.
4. Marta Tilhena, Head of the FIU Latvia Sanctions Implementation Division, said:-
• “This judgment is an important step in strengthening Latvian case law in the implementation of sanctions. It confirms that 50% ownership in a legal entity is sufficient grounds to freeze the assets of such a legal entity, even if it is not on the sanctions list itself.
• Importantly, the Court confirmed the need to interpret the element of control broadly to prevent the circumvention of sanctions.
• This ensures that attempts by sanctioned persons to move assets through front persons, trusts, shell companies, or other means to avoid the application of sanctions are unsuccessful.”
5. According to the European Union’s (EU) legal framework and best practices, 50% ownership is sufficient to apply the same restrictions to a person not directly included in the sanctions list as to a listed person, including the freezing of funds and economic resources.
6. Therefore, FIU Latvia’s actions in confirming the lawfulness of freezing the applicant’s assets and including it in the list of sanctioned entities maintained by FIU Latvia in this case were deemed lawful.
7. The Court, referring to provisions of the Commercial Law, noted that ownership of 50% of the share capital or shares gives the ability to determine the composition of the management board, influence or block company decisions, and control the use of funds and resources, which fully meets the definition of control under EU sanctions regulations.
8. A broad interpretation of the concept of control is necessary to prevent the circumvention of sanctions.
9. The Court drew attention to real-life situations where assets can be transferred in a short period and, therefore, identified ways in which a listed person may exercise control over an entity not included in the list (for example, majority shareholding, the use of front persons, trusts, shell companies, and limited liability companies).

The FIU Latvia website provides access to sanctions lists and other helpful information.

• https://sankcijas.fid.gov.lv/

Since April 2024, FIU Latvia has been the national competent authority for sanctions implementation in Latvia.

Source

https://www.fid.gov.lv/en/news/court-upholds-fiu-latvia-position-half-ownership-in-a-company-is-sufficient-to-apply-sanctions