Social capital is a concept that refers to obtaining various resources by means of formal and informal networks. Social capital usually exerts a positive influence on societies that possess it. The purpose of this article is to reveal several negative aspects of social capital present in transitional economies. It is argued that the relational and cognitive dimensions of this phenomenon create a fertile environment for undeclared work in Latvia. The study is based on three commonly accepted dimensions of social capital; the benefits and risks associated with these dimensions are considered, and the specifics of forming social capital in developing societies are emphasized. The findings of this research project are based on a recent survey about undeclared work in Latvia conducted by the University of Latvia within the framework of the European Union's structural funds national program 'Labor Market Researches'. The main results suggest that social capital in Latvia is not being expanded into trust in official institutions as is the case in countries with long-established democratic traditions. Moreover, attitudes prevalent in a society and associated with relational and cognitive social capital contribute to a climate of corruption and the perpetuation of undeclared work, or unregistered employment.