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EU Agency Cracks Down on €2 Billion Money Laundering Scandal in Lithuania

A major money laundering scandal has been brought to an end after a concerted effort by law enforcement agencies across Europe, with over €2 billion laundered through a Lithuanian electronic money institution (EMI). The EMI, which was shut down in 2022 for non-compliance with anti-money laundering (AML) regulations, had been operating since 2017 and had created a global network of shell companies to facilitate the laundering of criminal proceeds.

The Scandal

According to Eurojust, the European Union Agency for Criminal Justice Cooperation, the EMI laundered an estimated €2 billion during its operational period, which was used by thousands of criminals across the EU. The operation was led by an Italian organized crime group (OCG), with two main suspects and a third operating in Italy being arrested during the same operation.

How it Worked

The EMI created fictitious transactions via a global network of shell companies and enterprises, run by strawmen, to launder the proceeds of various criminal activities, including tax evasion, drug trafficking. The criminal enterprise also purchased luxury vehicles and real estate in Lithuania and Latvia.

Alarming Insights

What is alarming about this case is that the EMI held a banking license until 2022 and appeared to operate as a legitimate payments service provider. Despite ticking the right boxes for AML compliance, it was able to fly under the radar of regulators and law enforcement for several years before being shut down.

The Importance of Effective Compliance

The scale of the scandal highlights the dangers of viewing compliance as a purely tick-box exercise and the importance of implementing actionable financial crime prevention processes at financial institutions (FIs). The criminal activities of this EMI in Lithuania raise an alarming question about the effectiveness of AML compliance requirements in the EU.

Detection and Prevention

Detecting suspicious, potentially criminal intent via onboarding, Know Your Customer (KYC) checks, and transaction monitoring is a requirement that all FIs are obligated to comply with. However, what happens when, as it did in Lithuania, the FI itself is facilitating and profiting from financial crime?

Best Practices for Compliance

To prevent money laundering, banks and other regulated entities must demonstrate effective AML frameworks and show greater commitment to supplying the right training and tools to their employees. Manual processes put unnecessary strain on compliance teams and increase the risk of AML breaches.

Regulatory Enforcement Actions

In response to this scandal, Lithuanian authorities issued €2.4 million in enforcement fines to financial institutions for non-compliance with AML regulations in 2023. This represents a huge uptick in activity, which Lithuanian-based FIs, particularly payments providers, should take note of as all but two of the fines issued were to payments firms.

Enhancing Risk Management and Compliance

Enhancing risk management and compliance processes is crucial to preventing money laundering. Fenergo’s Client Lifecycle Management (CLM) solution provides regulated firms with a 360-degree client view to improve risk management processes and reduce silos. The solution digitally orchestrates client journeys through every stage of the client lifecycle, from initial onboarding and KYC to ongoing transaction monitoring and perpetual KYC reviews.

Conclusion

For more information on regulatory enforcement actions and priorities in Lithuania and other regions, read Fenergo’s data analysis on how AML enforcement actions surged in 2023. Discover Fenergo CLM today.