BLOCKED ACCOUNT: WHAT TO DO?

Much has been written about cases where a personal bank account is blocked by order of a bailiff, but a company account can also be blocked due to various violations or even before seemingly suspicious transactions.

For example, if you have not paid your taxes on time, the SRS (State Revenue Service) can secure the blocking of your account to retain incoming funds by sending a collection order to the bank for the specific amount of unpaid taxes.

Recovery proceedings may be initiated against you by sworn bailiffs, which can result in the account being blocked to retain incoming funds or the account balance.

Meanwhile, the company has no way to perform its daily transfers. It is also impossible to open a new account in other Latvian banks.

Certainly, problems can be solved temporarily by opening an account in other countries, preferably within the European Economic Area, but the underlying issues will have to be addressed in any case.

It is a different matter if the bank itself closes the account without explanation.

In our experience, there is not much point in asking for explanations or pleading, as there are so many other banks—both in Latvia and in other European countries!

Banks try to “get rid” of even the slightest suspicion, because what else can they do under the FCMC’s magnifying glass? Thus, bankers here are slowly turning into tax inspectors.

Which cases do banks consider risky? When does your company look like a “shell company” that should be closed?

#1 No tax payments

A relatively negligible portion of the turnover is paid in taxes, or no taxes are paid through the bank at all.

To avoid suspicion, we recommend submitting contracts with cooperation partners to the bank.

#2 No transfers related to administrative expenses

We recommend transferring rent, communication, and utility expenses through the same account used for your actual business millions.

#3 Large cash withdrawals

This looks like participation in a money laundering scheme, especially if the entire amount that just arrived is withdrawn immediately.

We recommend making settlements via transfers or payment cards, practically abandoning cash operations.

#4 Minimum wages

Wages are paid in the minimum amount set by the state or even less.

If you have a justified reason for such a salary, warn the responsible bank employee in advance, but this will certainly not exclude the interest of the SRS in this matter, as the shadow economy in our country, unfortunately, remains at a high level.

#5 Dubious cooperation partners

Banks have their own “blacklists” of fictitious companies and their board members. It will be much safer if you consult with your bank regarding the reputation of a potential partner in banking circles.

#6 Sudden large transfer

In our practice, there was a case where one of the Latvian banks froze half a million received by a client for real estate for 9 months. It was later unblocked. Of course, without explanation.

Therefore, we recommend consulting with your bank before an unusually large transfer.

For example, a Latvian company received approximately 5 million euros in its account from a resident of the US state of Delaware as a prepayment for a regular order, but the bank was not warned about it. Consequently, the money was frozen for 11 months without any explanation. Naturally, the company became insolvent during that time…

Therefore, once again—do warn your bank and submit documents justifying the origin of the funds in a timely manner!

Think about the sources of your funds daily and at every step.

P.S. But next time, we will look at practical examples of which tax is more economically advantageous for you: CIT or MET!