Last week the Lithuanian Parliament debated the draft amendment of the Law on Money Laundering and Terrorist Financing Prevention, by which is sought to expand the list of documents used in the customer identification process (e.g., EU\EEA issued driver’s license) as of 1st of May, since it is a common practice in other European Union countries, such as Great Britain, Ireland, France, Denmark, Sweden, Estonia, and others. Adoption of such amendments is essential in the context of Brexit, as UK based Electronic Money Institutions and other financial \ payment institutions that utilize KYC measures may transfer their clients to Lithuania licensed companies.
Also, the amendments would allow to use identity documents that do not specify nationality. Nonetheless, entrusted companies will have the duty to assess the client's geographical risk factors based on other reliable and independent sources (e.g., information received from the civil registry, and so on.).
This draft bill attracted many discussions and has been deliberated for the second time. Presently, the Special Investigation Service is asked to assess whether the proposed regulation will ensure required security of interests. While the EU’s 5th AML Directive must be transposed into national law of the Member-States by 2020, it is likely that the Lithuanian will achieve it much earlier, at least partially this April.
In the aftermath of the ICO wave around the world, the Ministry of Finance is proposing to further expand the list Obligated Persons and to apply AML rules not to companies that engage in virtual currency, including purchase and sale and exchange to FIAT currency, but also to companies that exchange virtual currency, virtual currency to another or are engaged in ICO activities.
Hence, since September, 2019, such companies will be required to comply with AML requirements, i.e., perform client and beneficiary identification and conduct further monitoring of the business relations. The aim is to ensure transparent and clear terms for virtual currency operators and to reduce the risk of money laundering to investors and users.
The proposed amendments should also significantly shorten the time of the client identification. At present, financial institutions and other obligated entities must in all cases require an identity document or a residence permit in Lithuania, and in the case of legal persons - identity documents, or copies of these documents, certified by a notary. The amendments should do away with these documents, if the client or the beneficiary can be identified through state information systems and registers. The client will have to only confirm the information received by a signature, while certain exceptions will apply.
Settlements in virtual currency (such as Bitcoin, Ethereum, Litecoin, etc.) are increasing. Virtual currency provides high anonymity and thus, may be used for illegal purposes. EU’s 5th AML Directive provides that AML rules will apply to the virtual exchange and electronic wallet services. Companies will need to determine identity of the virtual currency user and the beneficial owner and to conduct further monitoring of operations or business relations.
The Directive will apply to certain individuals as well, such as tax consulting services providers, real estate agents, arranging real estate lease transactions, as well as art dealers and brokers, including art galleries, auction houses and free ports.
Information about the beneficiaries will be accessible not only to the competent authorities or obligated entities, but also to the general public, even in the absence of declared reason of interest. Such information will include at least the beneficiary's name, year of birth and the month, the country of residence and citizenship, as well as user rights, nature and scope. Only exception is regarding information on Trust Funds and similar beneficiaries. Such information will be available upon legitimate reason of interest.
In addition, it is planned that the Lithuanian Legal Entities Information System (JADIS) and foreign central registries that collect and stores information about the beneficiaries will be connected via the European Central platform. This will ensure the availability of accurate and timely information about beneficiaries of foreign legal entities.
So far, it has been difficult to identify political exposed persons in foreign countries, because the Directive only provided a generalized list of important public responsibilities. In this context, it was not clear what kind of public functions in different countries are considered important. To set politically customized enhanced customer identification and additional mitigation measures regarding these clients is extremely important, because it poses higher money laundering and terrorist financing risks. Thus, the Directive imposes an obligation on all Member States to draw up and update a list of important public responsibilities. These lists will be made public.
If you want to know more about legislative requirement and thinking of perusing financial license in Lithuania, please do not hesitate to contact Gencs Valters Law Firm in Vilnius and write to us at info@gencs.eu