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Lithuania’s Financial System Under Scrutiny After ŪKIO Bankruptcy

The investigation into the bankruptcy of Lithuanian bank ŪKIO has shed light on a worrying lack of supervision in the country’s financial system, raising concerns about its vulnerability to money laundering and corruption.

Investigation Findings

Although investigators found that ŪKIO’s main owner had embezzled funds using fake loans and shell companies before fleeing to Russia, there is no evidence to suggest a larger money laundering scheme was at play. However, experts warn that the bank’s collapse highlights significant shortcomings in Lithuania’s financial supervision.

Criticisms of Bank of Lithuania

The Bank of Lithuania, responsible for prudential and anti-money laundering supervision, has been criticized for its risk-based approach, which relies heavily on annual reports from financial institutions and limited off-site inspections. The OECD and FATF have both flagged these issues, recommending more frequent on-site inspections and sufficient resources to ensure effective supervision.

Single Staff Member

The investigation into ŪKIO’s bankruptcy also raised concerns about the Bank of Lithuania’s reliance on a single staff member allocated to anti-money laundering and counter-terrorism financing systems, information technology, and operational risk across all financial market participants.

Experts’ Warning

Experts warn that these shortcomings could have severe consequences if not addressed. “If we don’t improve our supervision, we may fail to detect similar schemes in the future,” said a financial expert.

Recommendations

To prevent another ŪKIO-style scandal, authorities must take immediate action:

• Investigate suspicious transactions and accounts linked to ŪKIO and Swedbank
• Share findings with other countries to track the origin and destination of laundered funds
• Improve risk-based supervision, including regular on-site inspections and sufficient resources
• Provide guidance and training on customer due diligence and suspicious transaction reporting

Transparency International’s Call for Action

Transparency International urges authorities to prioritize transparency and accountability in their efforts to combat corruption and money laundering. Lithuania’s reputation has been tarnished by the revelations surrounding Swedbank and ŪKIO, and its financial sector must work to regain trust from citizens, customers, and partners.

What’s Next?

• Investigate suspicious transactions and accounts linked to ŪKIO and Swedbank
• Share findings with other countries to track the origin and destination of laundered funds
• Supervisory bodies must improve risk-based supervision, including regular on-site inspections and sufficient resources
• Guidance and training must be provided on customer due diligence and suspicious transaction reporting
• Transparency International urges authorities to prioritize transparency and accountability in their efforts to combat corruption and money laundering.