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The Ministry of Finance, together with financial regulators, has prepared amendments to the country’s anti-money laundering (AML) laws that are aimed at strengthening the operating conditions of crypto service providers.
The Baltic country’s Ministry of Finance, together with the Bank of Lithuania, the Financial Crime Investigation Service (FNTT) and the Money Laundering Prevention Competence Center, have announced that they are laying down new laws that will enhance the management and transparency of crypto service providers, ultimately bringing in stricter regulations.
“Recently, we are seeing a rapidly changing situation in the virtual currency sector and a significant increase in the number of entities engaged in this activity in Lithuania,” said Mindaugas Liutvinskas, deputy finance minister.
Given the risks to the sector related to aspects of money laundering, fraud or circumvention of international sanctions, decisions had to be taken to tighten regulation, he said. "This is a first and important step, pending the adoption of an EU regulation establishing an EU-wide licensing regime for virtual currency service providers."
The EU has two incoming laws related to this. The Markets in Crypto Assets (MiCA) Regulation, which will introduce crypto-specific licences, as well as increased consumer protection, and its new AML package, which will mandate the travel rule for crypto-asset transactions throughout the trading bloc.
Lithuania is currently experiencing a very rapid growth in the number of new companies engaged in cryptocurrencies.
In 2020, eight new crypto-asset service providers were established in the country. In 2021, this jumped to 188 companies, and in the first few months of this year, another 40 companies were set up.
According to the data from the countries Centre for Registers, as of March 16, a total of 252 companies were operating in the EU member state.
The number of reports of suspicious monetary transactions and cash transactions is growing every year, said Mindaugas Petrauskas, deputy director of FNTT.
“The FNTT is currently conducting a sectoral strategic analysis of virtual currency operators to identify and assess the risks posed by the sector in the prevention of money laundering and terrorist financing. Inspections will also be carried out, but stricter regulation of the sector is also needed.”
The rapid growth of the crypto-asset market segment and the constant emergence of new products require additional attention from the responsible authorities to manage the risks associated with money laundering.
“The Bank of Lithuania announced its official position on cryptographic assets back in 2017. and already at that time made it clear that financial services must be distinguished from services related to virtual currencies,” said Simonas Krėpšta of the Bank of Lithuania.
Since then, the sector has repeatedly proven to be risky, and this has been recognised by authoritative international organisations, Krėpšta continued. “Risks related to money laundering and terrorist financing and fraud have been identified and, recently, the risk of non-compliance with international sanctions has been increasing.”
This is not the first warning about this in the EU. Earlier this week, the European Central Bank’s Christine Lagarde told the Bank for International Settlements’ Innovation Summit that crypto-asset service providers may be an “accomplice to” circumventing sanctions against Russia, and crypto-assets have been and remain a threat to society.
Lagarde said the amount of Russian rubles going into crypto and stablecoins has been on the rise, indicating that there could be a link. However, her peers across the Atlantic have played down the possibility of this being the case, suggesting that evasion via crypto-assets was not a realistic possibility.
Indeed, experts recently argued that fears of sanction busting crypto are unwarranted.
Incoming legislation expected this year
Amendments to the Law on the Prevention of Money Laundering and Terrorist Financing are expected to be submitted for consultation to market participants, interested institutions and the government for consideration in the near future, the institutions confirmed.
The prepared draft law is planned to be submitted to this spring session of the Seimas, Lithuania’s parliament and, subsequently, the changes to the law are anticipated to take effect later this year.
"The preparation of the new law is extremely significant. In accordance with the money laundering and terrorist financing prevention policy, we must maintain high regulatory standards in Lithuania in order to prevent possible risks related to money laundering in a timely manner,” emphasised Eimantas Vytuvis, head of the Money Laundering Prevention Competence Center.
Change is inevitable, he continued. “The dynamic development of the crypto-asset sector encourages institutions to respond and seek to manage the rapidly growing risks at national level. In this case, only continuous regulatory changes, based on EU regulatory experience, can help protect consumers, so the activities of the crypto sector must be more closely regulated and controlled.”
Lithuania is not the only Baltic country that is set on stricter rules for the crypto industry.
Estonia, which was one of the first countries in Europe to take a more liberal stance on crypto use, has this year set about introducing rules regarding increased due diligence, audits and higher levels of capital for crypto firms.
