LATVENERGO GROUP COMPLIANCE AND FRAUD RISK MANAGEMENT Kristine Arensone Compliance officer

2 Latvenergo Fraud risk management 2010 The Corruption Prevention Bureau has opened a criminal case against the Latvenergo officials 2011 Forensic audit by KPMG Baltics Investigations 2012 Significant activities to improve internal control system The first Fraud Risk Management plan approved by Management Board

The first Fraud Risk Management Plan Main activities: Revise existing code of Ethics; Prepare risk awareness programs, implement regular annual trainings; Develop fraud risk management policy and procedures Perform annual declarations of conflict of interests Establish reporting channels for fraudulent activities Other activities for fraud and corruption risk prevention and mitigation

Key topics covered by Code of Ethics Ethical working practices for staff; Gift acceptance; Corporate invitations; Job positions at other commercial companies; Declarations of conflict of interest; Ethical principles for contractors Practical implementation: Training programs, seminars, consultations Checking of Declarations of conflict of interest  Internal resistance Development of new contract forms  Contractors resistance

Ethical working practices for staff Ethical roadmap for staff. The Code of Ethics supports the company’s mission by documenting and supplying guidance about minimum standards of expected behavior. Tool that broadcasts the company’s ethical standards. If they are breached, Code of Ethics provides indicators for required disciplinary action that may be taken. The Code sent a clear message that fraud and corruption will not be tolerated and that a breach of the code will lead to prompt and impartial disciplinary action.

Employees may not accept or offer any kind of material asset, material or other benefit – including gifts, thank-you money, commission or any valuable object – as motivation or remuneration. The only exceptions are representation gifts, promotional items, or other articles of insignificant value Gift acceptance

Corporate invitations Acceptance of invitations to entertainment, cultural and other hosted events, may be acceptable if an activity is related to the cooperation between the Latvenergo Group and the inviting or invited company, and is common business practice in the relevant sector. Hosting expenses shall be commensurate to the situation. Travel and accommodation expenses incurred by employees of the Latvenergo Group as a result of hosting shall be covered by the Latvenergo Group. If, upon receiving a hosting invitation, there is or should be suspicion of a potential conflict of interest, the employee shall not accept the invitation.

Job positions at other commercial companies Without the employer’s written consent, employees must not be employed outside the Latvenergo group at other commercial companies, work for different employers, provide services outside Latvenergo through any other type of business activity. Only the employer may provide such consent in writing after evaluating: whether combining duties in this specific case would cause a conflict of interest; whether combining duties would contradict the employer’s ethical standards or impair fulfilment of the employee’s direct occupational duties.

Declarations of conflict of interest Employees and managing specialists of all levels, experts, project managers and other employees, who take part in decision-making within the framework of their occupational duties, shall once per year submit a Declaration of Conflict of Interest that approved by the relevant employee’s direct supervisor, making a decision to avoid conflict of interest if necessary. New employees of the Latvenergo Group companies provide a Declaration of Averting Conflicts of Interest in Employee’s Activities.

Ethical principles for contractors Latvenergo has summarized working practices in the Code of Ethics. The three key principles are: fair treatment; avoiding of conflict of interest situations; full compliance in fraud and corruption issues. Contractual partners of Latvenergo Group are requested to follow similar ethical principles and base cooperation on good-faith. Latvenergo Group companies ask their partners to provide assurance to follow high ethical standards in the cooperation.

Code of Ethics

Whistle - blowing Intranet

Fraud risk management committee Fraud Risk Management Committee - cross functional workgroup established to deal specifically with fraud and corruption issues and conflict of interest. Responsibilities: Organize cooperation among organisational units of the Latvenergo Group in matters regarding fraud risk management; Support a common understanding of fraud risk management among Latvenergo Group employees; Participate in development of the Company’s internal normative documents regarding matters of fraud risk management; Ensure timely fulfilment of tasks specified for the Committee in the Latvenergo Group Fraud Risk Management Plan.

Audit committee Supervisory body of Latvenergo AS, operating in accordance with Rules of the Audit Committee, provisions of the Commercial Law and Financial Instrument Market Law, observing principles of good corporate governance. Established on August 22, 2012 comprised of 3 external independent members to perform independent review of the Fraud Risk Management Plan implementation. Report to shareholders of Latvenergo AS

Fraud and corruption risk assessment methodology Fraud and corruption risk assessment in two categories: 1.The probability of the risk occurrence (frequency and predictability); 2.Significance of potential consequences (potential losses, legal obligations, sanctions and fines). What will be impact on Latvenergo Group if the particular risk occurs. When evaluating the probability of the risk occurrence, the specifics of each function must be taken into account, as well as the culture of Latvenergo Group in general.

Fraud and corruption risk mitigation and prevention measures Risk mitigation or prevention measures include organisational or technical measures that must be carried out with the goal to minimize losses caused to the Latvenergo Group, reduce legal obligations, sanctions or reputational damage: Educational measures (training, informative meetings, etc.); Measures oriented to the improvement of internal regulations (policies, procedures, etc.); Measures for the improvement of the internal control system (changes in the structure, employee rotation, monitoring measures, checks, etc.). Depending on the value of identified risk and the impact of potential negative consequences, the head of function makes the decision to carry out corrective actions or preventive measures for risk prevention/ mitigation or submits a request for review to the Fraud Risk Management Committee.

Fraud and corruption risk management today Documented fraud and corruption risk management process; Documented methodology for the fraud and corruption risk assessment; New IT solution for the fraud and corruption risk assessment; Annual fraud and corruption risk assessment; Annual trainings and seminars with focus on requirements of Code of Ethics, efficient fraud and corruption risk management; Annual declarations of conflict of interest; Evaluation of possible situations of conflict of interest; Checking and control activities of Declarations of conflict of interest; Monitoring of the reporting channels, established for reporting on fraudulent activities; Register of fraudulent events, decisions and risk mitigation activities; Checking and investigation of fraud risk incidents; Risk assessment based controls to identify possible fraud risk events

QUESTIONS

AS „Latvenergo” Pulkveža Brieža iela 12 Rīga, LV-1230 Latvija Thank you!