Court upholds FIU Latvia position: half ownership in a company is sufficient to apply sanctions

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. 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.

“This judgment is an important step in strengthening Latvian case law in the implementation of sanctions. It clearly 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 in order 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,” explained Marta Tilhena, Head of the FIU Latvia Sanctions Implementation Division.

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. 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.

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.

A broad interpretation of the concept of control is necessary to prevent the circumvention of sanctions. The Court drew attention to real-life situations where assets can be transferred in a short period of time 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 useful information.

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