Lithuania’s FIU Uncovers 20x Increase In Suspicious Transaction Reports

November 9, 2021
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Lithuania has transformed into one of the EU’s hubs for fintech, but as a result is increasing the volume of suspicious transactions — have payment institutions and the regulators got the resources they need to cope?

Lithuania has transformed into one of the EU’s hubs for fintech, but as a result is increasing the volume of suspicious transactions — have payment institutions and the regulators got the resources they need to cope?

From January until September 2021, the number of suspicious transaction report (STR) notifications increased 20 times compared with the same period last year, while the number of requests to suspend monetary transactions has almost tripled compared in the same period.

As in reports, according to Lithuania’s Financial Intelligence Unit (FIU), the office received the largest number of STRs from electronic money and payment institutions, which accounted for 95 percent of all notifications received during this period.

Meanwhile, the number of reports of suspicious monetary transactions received in the first nine months of 2021 from virtual currency exchange operators increased 1.2 times, companies providing cash transfer services increased 2.4 times, and notifications from foreign FIUs increased 1.6 time compared with the same period last year.

Such growth is associated with a sharp increase in investment, telephone and other types of fraud, where criminals are trying to transfer money lured from people or companies to accounts in foreign financial institutions, warned Antoni Mikulskis, Lithuania’s FIU director, in a statement.

“It is necessary to continue investing in smart solutions in order to ensure high-quality prevention of money laundering in Lithuania,” he said.

However, there are additional reasons why the numbers have shot up, according to Eimantas Vytuvis, director of Lithuania’s Center of Excellence in Anti-Money Laundering, with these being Brexit and the growth of electronic money institutions (EMIs) in the Baltic state.

“After Brexit, some fintech companies moved their main offices to Lithuania, meaning all reporting also moved here,” he told VIXIO.

One of the most prominent post-Brexit moves was made by Revolut, but Yapily and Curve have also set up shop in the country following the UK’s departure from the EU.

Lithuania’s central bank also established a regulatory sandbox, echoing the efforts of the UK’s Financial Conduct Authority to help fintechs scale up.

“With growth, new risks also arise,” said Vytuvis. “Overall, these changes in numbers are a sign of Lithuania’s growth as a financial hub in Europe. My prediction is that in the near future, numbers will stay similar or increase slightly as we see financial institutions grow in the country.”

Most of the EMIs and fintechs that are based in Lithuania have a focus on serving the global market or at the very least the entire EU market, noted Marius Čegys, AML team lead at Mistertango, a fintech company that specialises in IBAN accounts. “Thus, naturally, increasing the number of market participants results in a larger number of STRs submitted for our local FIU,” he said.

“It would be very worrying if there was no large increase in the number of reports, as it would indicate poor AML compliance and lack of cooperation with law enforcement,” he said, adding that this increase indicates the maturity of market participants.

All the risks now need to be managed and addressed with appropriate action, said Vytuvis. “All this will not be possible to achieve without the proper government involvement and its focus to handle future risks.

“Looking at this from a longer-term perspective, the aim should be to decrease the general numbers of STRs, constantly improve the quality of them and implement new technologies into STRs investigations.”

However, Vytuvis struck a positive tone about the progress that has been made so far, believing that the government is taking the issue seriously, as well as industry, with self-regulation initiatives having been developed by Lithuania’s banking and fintech associations respectively.

“We also see that the Lithuanian central bank has a strong AML expert team, and the FIU’s resources have also increased; however, not as fast as they could be,” he said.

More supervisory resources needed

That the FIU is unlikely to grow at the same rate as the private sector is a cause for concern, agreed Čegys. “In order to properly deal with increasing AML/CFT threats, Lithuania’s FIU would have to grow faster than the financial sector, and as we all know, public institutions are usually unable to scale fast or effectively,” he pointed out.

In addition, there is very little guidance from the FIU on how to submit high-quality STRs, as well as a lack of feedback to financial institutions and publicly available data on the overall quality of STRs, Čegys warned. “This raises strong concerns that while the number of STRs is increasing, the quality of them might not be.”

However, Čegys said that the efforts of the Bank of Lithuania and the private sector, such as through the establishment of Vytuvis’ Center for Excellence in Anti-Money Laundering, soothe these worries.

“Additional resources are necessary, but active public and private sectors initiatives and a big focus on AML regime improvement indicate a promising future for money-laundering prevention,” summarised Vytuvis.

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