INSIGHT: How Latvia avoided the FATF grey list and became an international AML leader

WHEN Latvia’s delegation survived the near-greylisting of 2019–2020, becoming the first European country to fully comply with all 40 FATF Recommendations, we called ourselves “from zero to hero” – a private joke born of exhaustion and relief.

That framing was unfair. Latvia was never zero. Three decades of deliberate choices shaped the system: a financial sector built on CIS capital flows, cycles of reform and reputational laundering, absorbed warnings – until the 2018 reckoning became unavoidable.

None of us imagined then that five years later the story would shift from crisis management to benchmark setting. Latvia did not simply find itself first in the queue – it requested early evaluation, voluntarily stepping forward before others had done so. That choice, under a stricter methodology and with full transparency about the period being assessed, reflects the condition of the system. Countries confident in their reforms go first. 

Latvia did not waste its crisis. Leadership across every key AML/CFT institution was replaced. The non-resident banking model was abolished. The government-mandated AML Systems Reform Working Group rebuilt 34 structural elements of the system between 2018 and 2020.

Today, we can see how these measures paid off.

MONEYVAL, the Council of Europe’s AML body, has just published a new Mutual Evaluation Report which praised Latvia for ‘transforming’ its AML system.

New round, new standards

MONEYVAL assesses how countries comply with the 40 recommendations from the FATF (Financial Action Task Force), the body which sets international AML standards.

Latvia’s assessment covered the period 2018–2023, with the on-site visit in November 2024. MONEYVAL conducted it under the 2022 FATF Methodology, which governs the current global evaluation round.

The Methodology’s most consequential change for Latvia was the deliberate separation of financial sector supervision (IO.3) from DNFBP (Designated Non-Financial Businesses and Professions) supervision (IO.4) into two distinct Immediate Outcomes.

Under the previous methodology, assessed together, weaknesses in gatekeeper supervision were masked by stronger banking results.

Latvia – which had transformed its banking sector completely while DNFBP supervision lagged – became the first country assessed under this more demanding, more transparent framework. Choosing to go first was itself a statement of confidence.

The results

Assessing how Latvia complies with the 40 FATF Recommendations, the country received Five High Effectiveness ratings. Five Substantial. One Moderate. No downgrades. No Low ratings.

Compared to the 2018 baseline – zero High, one Substantial, eight Moderate, two Low – this represents one of the most substantial improvements any MONEYVAL jurisdiction has achieved in a single evaluation cycle.

Both IOs rated Low in 2018 – IO.5 (Legal Persons and Arrangements) and IO.11 (Proliferation Financing Financial Sanctions) – reached High Effectiveness in 2024. Not a single Immediate Outcome declined. Technical compliance: Compliant or Largely Compliant on 39 of 40 Recommendations. The sole exception – Recommendation 25 on beneficial ownership of legal arrangements – reflects a recent FATF standard revision rather than systemic weakness, and Latvia’s exposure to foreign legal arrangements remains minimal in practice.

The practitioner’s handbook: what effectiveness looks like

For practitioners preparing for the current round of FATF and MONEYVAL assessments, Latvia’s MER is among the most instructive reference documents available. What follows distils the key lessons by Immediate Outcome.

IO.1 – Risk, Policy and Coordination  –  HIGH

Two full National Risk Assessments (NRAs) completed during the assessment period. Three distinct risk profiles developed and operationalised. The evaluators used an unusual phrase: genuine curiosity. In FATF language, that signals a system where risk understanding drives operational decisions – documented action plans at agency level, resource allocation aligned with NRA findings, and well-functioning coordination mechanisms including public–private cooperation. No Key Recommended Actions (KRAs).

IO.5 and IO.11 – From Low to High

IO.5 reflects the dismantling of shell-company architecture: banned accounts, a public beneficial ownership register, criminal sanctions for false declarations. IO.11 reflects Latvia’s post-2022 national security posture combined with the legislative overhaul completed between 2018 and 2020. Both moved from Low to High Effectiveness within one evaluation cycle – a shift of rare magnitude. No KRAs.

IO.6 – Financial Intelligence – HIGH

The transformation of FIU Latvia is central to the reform story. In 2018, it was under-resourced and reactive. By 2024, it is intelligence-led and operationally embedded – initiating investigations rather than merely supporting them. Proactive disseminations, predictive risk work, deep integration with law enforcement, and structured public–private engagement are now routine. The Egmont Group recognised this transformation with its award for outstanding contribution.

The International Financial Intelligence Taskforce (IFIT), created and coordinated by Latvia, illustrates what this model produces at scale: 25 FIUs, six operational meetings, over 400 disseminations, and more than €100 million frozen globally. No KRAs.

Confiscation and supervision

IO.8 – Confiscation – HIGH

Over €3 billion seized. Over €300 million confiscated – 98% through non-conviction-based mechanisms. Asset recovery is not incidental; it is embedded in national action plans and institutional mandates. Legal powers alone do not produce such results. Political prioritisation does. No KRAs.

IO.3 – Supervision of Financial Institutions – SUBSTANTIAL

Supervisors fundamentally reshaped the financial sector risk landscape. The banking sector has been transformed. The Other Recommended Actions (ORAs) identified by assessors concern calibration within a functioning system: stronger fit-and-proper legal bases, deeper inspection coverage outside the banking core, more granular institutional risk data, stronger entry barriers for criminal actors. These are the refinements expected of mature supervisory regimes. No KRAs.

IO.7 – ML Investigation and Prosecution – SUBSTANTIAL

Latvia investigates and convicts standalone and third-party money laundering with increasing consistency. Inter-agency cooperation is operationally embedded. The structural limitation lies in legacy laundromat cases involving non-resident offenders beyond effective jurisdictional reach. Legal persons remain under-prosecuted. These are systemic challenges recognised globally. No KRAs.

IO.2 – International Cooperation – SUBSTANTIAL

Informal and FIU-led cooperation are genuine strengths. Formal MLA, joint investigation teams, and European Investigation Orders are deployed consistently and with purpose. Latvia does not rely on declarations of cooperation; it produces operational results. The ORAs point to refinement: automating case-management systems and pursuing asset recovery more proactively in corruption cases. Under the new methodology, cooperation is measured by outcomes rather than goodwill. Latvia’s Substantial reflects that standard. No KRAs.

There is a broader observation worth making. IO.2 Substantial ratings have historically been among the most generously awarded in MONEYVAL evaluations – granted on the basis of self-reported goodwill and formal mechanisms rather than demonstrated outcomes. Under the new methodology, the standard is higher. Latvia’s Substantial reflects actual results. That distinction matters, and it sets a more demanding benchmark for this evaluation cycle.

Terrorist financing

IO.9 and IO.10 – Terrorist Financing – SUBSTANTIAL

Low TF risk in Latvia is not a passive condition – it is an actively maintained one. The legal and institutional framework is sound, coordination is effective, and the absence of prosecutions accurately reflects the risk profile rather than an enforcement gap. Targeted Financial Sanctions deficiencies identified in 2018 have been addressed. For jurisdictions where TF risk is material and the system is tested through actual disruption and prosecution, Latvia’s approach to building readiness before the threat arrives offers a distinct model. No KRAs.

The One Area to Watch: IO.4 – DNFBP Supervision – MODERATE

IO.4 is the only Moderate rating. DNFBP supervision remains structurally fragmented across multiple bodies in a country of fewer than two million people. Risk benchmarking against historically elevated banking standards has distorted calibration across the sector. Enforcement against professional enablers remains limited.

Two of the Key Recommended Actions (KRAs) issued for IO.4 – the only Immediate Outcome in the MER containing KRAs – concern supervisory architecture. The State Revenue Service (the supervisor of the largest number of DNFBPs) should review and amend its risk assessment methodology to ensure alignment with national and sectoral risk assessments, including addressing why the large majority of institutional risk assessments currently indicate low ML risk.

Risk-based approach

The Latvian Council of Sworn Advocates should collect and analyse sufficient information to understand institutional ML/TF risks and develop a fully risk-based supervisory approach supported by adequate resources.

In my view, consolidation is the structural priority. Fragmented supervision in small jurisdictions is not merely a resource problem – it is an architectural one. Harmonising risk methodologies, and where appropriate consolidating supervisory functions, would produce more durable impact than incremental inspection increases under the current fragmented model. Enforcement must also become visible: a small number of well-documented cases against professional enablers would reshape compliance culture in the legal and accounting professions more effectively than years of awareness campaigns. AMLA represents the structural opportunity to address both at EU level. Latvia should use it.

A fly in the ointment

There is a Latvian saying: a single drop of tar can spoil a barrel of honey. The English have a version too: a fly in the ointment.

Latvia’s assessment period ended in 2023. The report was published today, in February 2026. More than two years elapsed between evidence and publication. Peer-review procedures explain the delay. They do not resolve its impact.

If Mutual Evaluation Reports exist to serve practitioners – compliance officers, supervisors, law enforcement, investors deciding where it is safe to operate – timeliness is not a procedural detail. It is part of the product. Latvia stood its ground through this process – through every procedural delay, through every challenge to its earned results. That patience reflects commitment to the multilateral framework. In a world where the authority of international institutions is no longer assumed but must be earned, FATF’s credibility depends not only on its standards but on its speed and demonstrated relevance. The framework owes it in return: faster, more useful, more current.

On substance: IO.7 – ML investigation and prosecution – is the operational core of AML/CFT. Money laundering is not a compliance matter; it is the financial infrastructure of criminality. The 2022 methodology strengthened confiscation emphasis but left Recommendation 3 unchanged.

Despite persistently weak IO.7 results across the global network, the criminalisation framework remains static. There is still time within this evaluation cycle to revisit that foundation – including aligning minimum standards with the Council of Europe’s Warsaw Convention – and to use jurisdictions that demonstrate genuine operational capability as the reference point for what High Effectiveness in IO.7 actually demands.

If confiscation is the mechanism of recovery, criminalisation is the engine that makes it run. A serious AML system must invest in both.

Conclusion

Today, Latvia celebrates.

To the Latvian delegation – those who carried this process with professionalism, determination, and grace through every delay and every challenge: this is yours.

To the institutions that rebuilt themselves from 2018: FIU Latvia, Latvijas Banka, State Police, SRS, the Prosecutor’s Office, supervisors, and every agency that chose accountability over comfort.

And of course, to the colleagues and allies across the international community who understood what was being demonstrated here.

The report is on our desks. Latvia’s work is visible. And it is excellent. Congratulations!