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Lithuania Grapples with Cryptocurrency Regulation Challenges

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Lithuania, a financial hub, has become a hotbed for cryptocurrency companies. However, this rapid growth has also raised concerns about money laundering and criminal activities.

Background

In October 2022, two individuals were arrested in Estonia for defrauding over half a billion euros in a cryptocurrency scheme. This led to the tightening of licensing regulations, prompting many “virtual entrepreneurs” to relocate to Lithuania. Today, Lithuania is home to over 500 cryptocurrency companies - the largest number in the European Union.

Challenges

“We’re leading in the European Union, but it’s not something we should be proud of,” said Gediminas Šimkus, Chief of the Bank of Lithuania. “It’s a signal that we’re facing a serious challenge.”

  • Almost half of these companies have failed to file a single transaction report.
  • The Financial Crimes Investigation Service (FNTT) and the Bank of Lithuania believe cryptocurrencies can be used for money laundering, financing criminal activities, and circumventing sanctions imposed on Russia and Belarus.

Concerns

In a physical check, more than a dozen companies were found to be registered at the same address, while over a third had only one or two employees. Shareholders came from more than 60 countries, with Ukraine, the UK, and Estonia being the largest groups.

  • Who uses their services is a concern. “We’re seeing traffic on blockchain platforms going to third countries, including China, Russia, and others,” said Simonas Krėpsta, Board Member of the Bank of Lithuania.

Regulation

The collapse of major cryptocurrency businesses such as FTX and Binance has raised concerns about lax regulation. Although the European Union’s new cryptocurrency regulation is set to come into force in 2025, the Lithuanian government has drafted its own legislation expected to be passed by the end of the year.

  • “Until the EU regulation comes into force, we need to have tools at our national level so that our institutions can function and this sector can be regulated and controlled,” said Interior Minister Agnė Bilotaitė.