Financial Crime World

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UK’s Financial Sector Exposed: High-Risk Clients Migrating from FSU to EMIs and PIs

A recent investigation has uncovered a disturbing trend in the UK’s financial sector. High-risk clients from the Former Soviet Union (FSU) are gradually migrating from traditional banking institutions to Electronic Money Institutions (EMIs) and Payment Institutions (PIs).

A Growing Concern

The investigation found that several businesses operating in the UK are being run by former executives and officers of Latvian non-resident banks that were previously fined for inadequate Anti-Money Laundering (AML) compliance. Furthermore, it has been revealed that the sector has become increasingly intertwined with shell company business.

The Risk Factor

The European Union’s Financial Intelligence Unit attributes EMIs and PIs a medium-to-high money laundering risk due to the progressive shift of high-risk clients to this industry. Although the number of registered EMIs in Latvia has decreased following a strengthening of supervision rules in 2018, EMIs/PIs with the freedom to provide services across the EU still pose a significant AML risk, particularly if established in countries with weaker supervisory systems.

The Need for Action

In light of these findings, Transparency International Latvia recommends that the Latvian government take the following steps:

  • Support EU Efforts: Support the European Union’s efforts to establish a supranational supervision and reporting mechanism for cross-border transactions.
  • Strengthen Monitoring and Transparency: Implement measures to strengthen monitoring and transparency in the provision of corporate services in Latvia, including:
    • Developing licensing requirements for Trust or Company Service Providers (TCSPs)
    • Setting up a public register of all TCSPs under the supervision of the Financial and Capital Market Commission (FCMC)
    • Publishing a list of disqualified TCSP owners and directors
  • Enhance Interoperability: Engage with competent authorities in Estonia and Lithuania to ensure interoperability among beneficial ownership registers and to prevent shell company activity.
  • Strengthen AML Measures: Enhance Anti-Money Laundering measures for EMIs and PIs operating in Latvia, particularly those providing services across the EU.

Conclusion

The gradual migration of high-risk clients from traditional banking institutions to EMIs and PIs highlights the need for robust regulatory oversight and effective AML measures to combat money laundering and terrorist financing in the financial sector.

Sources

  • Transparency International Latvia
  • Financial Intelligence Unit of Latvia
  • European Commission
  • OpenDemocracy.net
  • Tax Justice Network

Note: This article is based on a media publication and reflects the opinion of Transparency International Latvia.