Latvia Professor Criticizes Removal of Construction Funding Transparency Rule

Arnis Sauka, professor at the Stockholm School of Economics in Riga and researcher of the shadow economy, has voiced criticism regarding the recent decision to eliminate the requirement for natural persons to disclose the origin of funding for construction projects in Latvia. Sauka characterized the move as a “big step backwards” and questioned the rationale behind it during a discussion organized by the State Audit Office concerning the nation’s efforts to combat the shadow economy.

Decision Details

Amendments to the Construction Law, approved at the end of last year, now exempt individuals from indicating the source of funds when applying for construction permits. The changes were supported by 57 members of parliament representing the Union of Greens and Farmers (ZZS), the “Latvija first” party, “Apvienėta saraksta,” and “Stability.” 31 MPs from the “Latest Unity” and “Progressives” coalitions opposed the amendments.

Previously, individuals undertaking self-built projects were also required to declare their funding sources within the Construction Information System (BIS). This requirement, implemented in November 2023, was intended as a preventative measure to deter illicit financial activity within the private construction sector, which is believed to have a significant “grey share.”

The BIS offered four options for declaring funding origins: “Income from paid work,” “Income from economic activity,” “Loan,” or “Other type of income.” The State Revenue Service initially proposed the declaration as part of the Shadow Economy Limitation Plan 2024-2027, aiming to encourage individuals to consider the legality of their construction funds.

Arguments for the Change

Proponents of the amendments argue that the previous requirement was disproportionate, given the potential for funding sources to change over the often lengthy duration of a construction project.

About Arnis Sauka

Arnis Sauka is a Professor and the Director of the Centre for Sustainable Business at the Stockholm School of Economics in Riga, Latvia. His research focuses on the shadow economy, strategic management, and entrepreneurship. He holds a Dr. Rer.pol. Degree from the University of Siegen (Germany). Stockholm School of Economics in Riga, Google Scholar, ResearchGate, Academia.edu