Important amendments to the Law on the Prevention of Money Laundering and Terrorist Financing

On 3 November 2019, the Seimas of the Republic of Lithuania adopted the amendments to the Law on the Prevention of Money Laundering and Terrorist Financing (Law).

These amendments will transpose the provisions of the 5th EU Anti-Money Laundering Directive into the national law. The Directive has been adopted for the purpose of taking further measures to ensure the increased transparency of financial transactions, of corporate and other legal entities, as well as of trusts with a view to improving the existing preventive framework and to more effectively countering terrorist financing.

The key aspects that will change after the Law becomes effective

1. The procedure of identification of beneficiaries will become stricter.

 When identifying beneficiaries, financial institutions and other obliged entities will have to use the Information System of Participants of Legal Entities (JADIS).

If the information on the customer’s (legal entity’s) beneficiaries available to financial institutions and other obliged entities does not correspond to the information provided to JADIS or the said information is not provided to JADIS at all, business relationships or monetary operations and transactions with this customer could not be initiated and carried out.

This amendment to the Law should encourage legal entities to more actively update information on JADIS; therefore, JADIS data will be more accurate and relevant.

If any discrepancies between available information and information provided to JADIS are identified, the obliged entities will have to notify the customer thereof and suggest updating information on JADIS. Information obtained from JADIS will have to be undersigned by the customer.

JADIS is going to be connected to the European Central Platform, which will create a possibility to obtain information on the beneficiaries of legal entities established across the European Union. Creation of a common platform should significantly simplify and speed up the process of identification of the beneficial owners.

2. A list of prominent public functions will be made public.

Referring to information provided by state authorities specified in the Law, the Financial Crime Investigation Service (FCIS) will have to compile lists of prominent public functions and make these lists public on its website, as well as keep them up to date upon arising of new circumstances or appearance of new information, yet at least every four years.

This amendment will facilitate the process of identification of politically exposed persons because the obliged entities will be able to verify whether the specific functions are considered to be prominent public functions and whether the person is a politically exposed person. Since the Anti-Money Laundering Directive must be transposed into the national law of all European Union Member States, the lists of prominent public functions will have to be compiled and made public in all Member States.

3. Virtual currency exchange operators and virtual currency wallet operators will have to comply with the requirements of the prevention of money laundering and terrorist financing (PMLTF).

After the amendments to the Law become effective, virtual currency exchange operators and virtual currency wallet operators will have to take PMLTF measures.

In addition to other commonly applied PMLTF measures, these entities will have to perform the following duties:

  • to identify their customers before carrying out currency exchange operations, concluding transactions in virtual currency or depositing virtual currency into deposit accounts and withdrawing it from them if the amount of these operations equals or exceeds EUR 1 000 or an equivalent amount in foreign or virtual currency;
  • to keep a register of monetary operations carried out by the customer;
  • to store information, according to which a virtual currency address could be related to the identity of the owner of virtual currency, for eight years from the date of execution of the monetary operation or conclusion of the transaction;
  • to communicate to the FCIS information on carried out virtual currency exchange operations or transactions in virtual currency, if the value of such a monetary operation or transaction equals or exceeds EUR 15 000 or an equivalent amount in foreign or virtual currency;
  • to inform the Centre of Registers within five days having started or terminated the activities of a virtual currency exchange operator or a deposit virtual currency wallet operator.

4. There will be an obligation to apply stricter PMLTF measures to entities from high-risk third countries.

The amendments to the Law establish additional requirements for reducing the risk posed by natural persons residing in high-risk third countries specified by the European Commission or legal entities established therein.

The Law enumerates steps to be taken by financial institutions and other obliged entities when an enhanced customer identification process is carried out.

After the Law comes into force, the setting-up of branches or representative offices of financial institutions or other obliged entities, established in high-risk countries, in the Republic of Lithuania will be prohibited, if there is no guarantee that their activities are completely separated from the activities of parent undertakings in the countries of origin. Financial institutions and obliged entities established in the Republic of Lithuania will be able to set up their branches in high-risk countries only if their activities are completely separated.

The amendments to the Law imply that the virtual currency market is taken seriously in both the Republic of Lithuania and the European Union and its supervision will be reinforced. Preventive measures laid down in the Law are aimed at reducing the anonymity of the participants of the cryptocurrency market and enhancing the transparency of this market.

The concentration of data on beneficiaries in the information systems of participants of legal entities of all European Union Member States will contribute to quicker and more efficient identification of beneficial owners, and making public the lists of prominent public functions will facilitate the identification of politically exposed persons.

A big share of these amendments are targeted at reducing the risk while concluding transactions and establishing business relationships with citizens residing in high-risk third countries, specified by the European Commission, and legal entities established therein.

***

 The following should be done before the amendments to the Law come into force:

1. Financial institutions and other obliged entities should update their PMLTF procedures and:

  • supplement the procedures with a requirement to verify information about beneficiaries on JADIS;
  • specify the list of information and documents to be obtained from the customer;
  • adjust the procedure of enhanced customer identification;
  • introduce a list of prominent public functions as a source to be referred to when identifying politically exposed persons.

2. The participants of the cryptocurrency market should:

  • draw up and approve their internal PMLTF procedures;
  • appoint a person responsible for PMLTF and inform the FCIS;
  • introduce registers;
  • inform the Centre of Registers about the performance of activities.

3. All legal entities should update information about beneficiaries on JADIS.

Experience