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Scandal-as-a-Service: AML Lessons from Lithuania’s €2 Billion Case

On February 27th, 2024, it was announced by the European Union Agency for Criminal Justice Cooperation (Eurojust) that concerted action has been taken against an online business offering large-scale money laundering-as-a-service to the tune of €2 billion. The scandal echoes other recent money laundering activity on a similar scale in Singapore that was uncovered toward the end of 2023.

How a Licensed Lithuanian Payments Firm Laundered Over €2 Billion

Eurojust did not publicize the name of the accused company, but it described it as a Lithuanian Electronic Money Institution (EMI). The EMI was shut down in 2022, for non-compliance with anti-money laundering (AML) regulations. Its banking license was revoked by Lithuanian financial and judicial authorities, and bankruptcy procedures started.

The criminal operation, which centered around the EMI, had been rumbling on since 2017 and laundered an estimated €2 billion during that time. Despite the enormous scale of this operation, this sum was laundered by just two main suspects using a global network of shell companies. A third suspect operating in Italy was arrested during the same operation at the same time, for laundering €15 million through the same EMI network – money that was gained by defrauding the Italian authorities of public funds.

Reportedly, the accused EMI created fictitious transactions via a global network of shell companies and enterprises, run by strawmen.

The organized crime group (OCG) laundered the proceeds of a variety of criminal activities, ranging from tax evasion to drug trafficking, through purchasing luxury vehicles and real estate in Lithuania and Latvia among other methods.

What’s interesting about this case is that the EMI did, until 2022, hold a banking license and appear to operate as a legitimate payments service provider. In other words, they’d ticked the right boxes as far as AML compliance which allowed them to apparently fly under the radar of regulators and law enforcement from 2017 until 2021, when investigations were initiated in Italy. In 2022, Latvian and Lithuanian counterparts were then involved via Eurojust.

The Scale of the Lithuanian Money Laundering Scandal

This one network, set up by an Italian OCG in Lithuania in 2016, connected thousands of criminals across the European bloc in the time it was operational. It advertised its professional money laundering services online as consultancy services.

Alongside the criminal ongoings in Lithuania and in Italy, the third country involved in the scandal was Latvia, where one of the two leaders of the financial institution in question resided. So, in terms of its detrimental impact, this criminal enterprise:

  • Spanned three European economies
  • Laundered over €2 billion
  • Was used by thousands of criminals across the EU 
  • Exploited the global financial ecosystem through numerous shell companies

Shutting down this criminal laundering operation was a process that took around three years, beginning in 2021. To finally bring down this OCG: 

  • 55 places were searched, 
  • 18 people were arrested,
  • 11.5 million euros in assets and bank accounts were frozen, 
  • 250 judicial representatives and law enforcement officers were active on the ground,
  • Eight coordination meetings were held to prepare for simultaneous action from Italian, Latvian, and Lithuanian authorities.

AML Compliance is not Just a Box to be Ticked

The scale of the  €2 billion banking scandal spanning Lithuania, Italy, and Latvia, 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 (FI), including EMIs. The criminal activities of this EMI in Lithuania raises an alarming question about the effectiveness of AML compliance requirements in the EU. At the point of gaining its license, this EMI seemingly met the threshold of AML compliance requirements needed to gain a banking license and, with it, access to the euro and EU’s financial ecosystem.

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

Banks and other regulated entities must demonstrate effective AML frameworks and show greater commitment to supplying the right training and tools to their employees for the prevention of money laundering. In this case, the FI itself was corrupt and criminal in nature, however this does not mean that FIs should get complacent about their compliance processes. 

When compliance teams don’t have the tools to detect and monitor financial crime in a meaningful way, their ability to prevent money laundering is severely limited. Manual processes put unnecessary strain on compliance teams and increase the risk of AML breaches and repercussions for AML officers and Money Laundering Reporting Officers (MLROs).

Enhance Risk Management with Fenergo

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In 2023, Lithuanian authorities issued $2.4 million in enforcement fines to financial institutions for non-compliance with AML regulations. This represented 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.

For more on the regulatory enforcement actions and priorities in Lithuania and other regions, read Fenergo’s data analysis on how AML enforcement actions surge in 2023.

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