MONEY LAUNDERING AND TERRORIST FINANCING PREVENTION 2017

Transcription

1 MONEY LAUNDERING AND TERRORIST FINANCING PREVENTION 2017 REPORT

2 Page : 2 Money Laundering and Terrorist Financing Prevention INTRODUCTION Financial Crime Investigation Service (hereinafter referred to as FCIS or the Service) is the principle institution supervising the enforcement of money laundering prevention measures in the Republic of Lithuania. Proper enforcement of money laundering prevention measures is one of the priority areas of activities of the Service. Pursuant to the Republic of Lithuania Law on the Prevention of Money Laundering and Terrorist Financing (hereinafter the Law), FCIS collects the information about the customer s monetary operations and transactions and about the customer carrying out such operations and transactions. Information collected is analysed and, if data that raises doubts about lawful activities of the person is sufficient, communicates it to law enforcement and other state institutions. In implementation of the preventive measures, FCIS conducts pre-trial investigation of legalisation of the funds and property derived from criminal activity (also known as money laundering); cooperates and exchanges information with foreign public authorities and international organisations which implement money laundering and/or terrorist financing prevention measures and performs other functions established by the Law. FCIS delegates the implementation of the money laundering prevention measures to its specialised division, i.e. the Money Laundering Prevention Board (hereinafter MLPB or the Board). In implementation of the tasks assigned to it, MLPB performs the following functions: implements money laundering and terrorist financing prevention measures conducive to the prevention such criminal offences or to the disclosure of offences that were already committed; collects and analyses the information related to the implementation of money laundering and terrorist financing prevention measures and provides proposals to institutions on a systematic improvement of such measures; collects data about assets, transactions and financial operations of a person and other natural and legal persons related to him, and about the location of assets in order to find the assets which might have been obtained in criminal or illegal manner for the purpose of using it to secure a civil claim or seizure of property; performs supervision of activities of financial institutions and other entities, provides them with methodological assistance and information about the criteria of recognition of money laundering and terrorist financing as well as suspicious monetary operations or transactions, drafts guidance aimed at the prevention of money laundering and terrorist financing for the afore-mentioned institutions. Pursuant to the regulations approved by the Director of FCIS, the Board also reviews the practice of the application of laws, resolutions of the Government of the Republic of Lithuania, orders of the Minister of the Interior and other legal acts related to the prevention of money laundering and terrorist financing, drafts proposals for amendments and supplements thereto. Within the limits of its competence, the Board cooperates and exchanges information with both foreign financial intelligence units or international organisations and law enforcement bodies and other institutions of the Republic of Lithuania. It should be noted that MLPB has been granted the powers to handle the cases of administrative violations of law in the area of prevention of money laundering and terrorist financing.

3 Money Laundering and Terrorist Financing Prevention Page : 3 1. DATA ABOUT SUSPICIOUS TRANSACTIONS MLPB received 833 reports about suspicious monetary operations or transactions (hereinafter suspicious transaction report or STR report) in NUMBER OF STR REPORTS RECEIVED More than a half of reports (509 STR reports) were received from the banking sector (302 in 2016 and 222 in 2015 respectively) whereas 293 reports were received from other subjects. Foreign financial intelligence units (hereinafter FIUs) submitted 33 reports (21 and 13 in 2016 and 2015 respectively), other reports were received from notaries (32), casinos (66), money transfer system Western Union (71). As compared with 2016, the number of STR reports sent by Western Union went up slightly as 71 reports were received in 2017; meanwhile, the number of such reports in 2016 was 68. STR SENDER NUMBER PERCENT CREDIT INSTITUTIONS OTHER SUBJECTS MONEY TRANSFER SYSTEM WESTERN UNION 71 7 CASINOS 66 7 FOREIGN FINANCIAL INTELLIGENCE UNITS 33 3 NOTARIES 32 3 The reports mainly concern Lithuania nationals and companies (654 natural persons and 247 legal persons). Reports also deal with more than 330 natural persons and 120 legal persons from other countries. The majority of foreign entities indicated in STR reports are from Latvia, Russia, Ukraine, Belarus, Nigeria, Ghana, Armenia, Kirghizia, Estonia, France, Poland, Turkey, the British Virgin Islands, Uzbekistan, Cyprus. Based on all STR reports received, 233 reports were forwarded to FCIS units and other public and foreign institutions for a follow-up investigation in 2017 (207 and 203 in 2016 and 2015 respectively).

4 Page : 4 Money Laundering and Terrorist Financing Prevention NUMBER OF STR REPORTS SENT FOR FOLLOW-UP INVESTIGATION Having carried out the analysis, MLPB sent 67 reports on suspicious financial activity (50 in 2016) to FCIS regional boards for further verification of the information. 135 reports (125 in 2016) were sent to other institutions for a follow-up investigation/verification, including 83 reports sent to the tax administrator (65 in 2016) and 52 reports sent to other public authorities (60 in 2016). 31 reports (32 in 2016) were sent to foreign agencies concerning suspicious financial activity of foreign natural persons and legal entities. Pursuant to Article 16 of the Law on the Prevention of Money Laundering and Terrorist Financing (LPMLTF), the amount of more than EUR 12 million was withheld in the course of the analysis including EUR 4.1 million on which temporary restriction of ownership was imposed according the Code of Criminal Procedure. On the basis of the reports sent concerning suspicious financial activities, FCIS units initiated 11 pre-trial investigations according to Article 182 (Swindling), Article 183 (Misappropriation of Property), Article 184 (Squandering of Property), Article 189 (Acquisition or Handling of Property Obtained by Criminal Means), Article 202 (Unauthorised Engagement in Economic, Commercial, Financial or Professional Activities), Article 220 (Provision of Inaccurate Data on Income, Profit or Assets), Article 222 (Fraudulent Management of Accounts), Article 300 (Forgery of a Document or Possession of a Forged Document) of the Criminal Code of the Republic of Lithuania. In 2017, FCIS units initiated 12 pre-trial investigations according to Article 216 of the Criminal Code of the Republic of Lithuania.

5 Money Laundering and Terrorist Financing Prevention Page : 5 2. ANALYTICAL WORK 2.1. Analysis of Specific Sectors In 2017, MLPB carried out target analyses of specific sectors aimed at identifying the current risk. Non-profit organisations Every year MLPB of FCIS receives reports from financial institutions about suspicious financial transactions of non-profit organisations and institutions (hereinafter NPO). Analyses of such reports often reveal that funds transferred to NPO accounts are cashed out in ATMs, which is often done by NPO managers. It is not to be excluded that this is the way other companies make use of NPOs, whereby they transfer funds to an NPO as if it is donation, which is later cashed out; thus, taxes are avoided and funds of criminal origin are potentially legalized. It should be noted that international experts hold an opinion that NPOs are often used to finance terrorists. The potential of making use of NPOs in the schemes of financial crimes is also covered in the National Money Laundering and Terrorist Financing Risk Assessment Report. According to the data of Statistics Lithuania, in the beginning of 2017 as many as 4,350 public establishments, 7,555 associations and 239 charity and support foundations were registered in Lithuania, which amounts to 12,144 NPOs in these corporate forms. With respect to the above-mentioned money laundering and terrorist financing risk which NPO financial transactions entail, a target analysis of large amounts cashed out by NPO sector was carried out. Once the analysis was carried out and collected relevant data was assessed, information on 56 NPO financial transactions was forwarded to FCIS regional boards and other law enforcement and public institutions. Transit and other monetary transactions in the accounts of foreign companies registered in offshore jurisdictions (hereinafter referred to as offshore companies) According to the data available, the biggest number of off-shore companies that have accounts in the Lithuanian banks was 1, companies were shortlisted for a detailed analysis of financial activities, which had not been analysed so far. Place of registration of off-shore companies The majority of off-shore companies that have accounts in the Lithuanian banks were registered in the United Kingdom (41), the British Virgin Islands (17), Belize (13), the Seychelles (10), Hong Kong (9), Cyprus (7), the USA (6), Dominica (6), Panama (6). Also, one company was registered each in the Cayman Islands, Saint Vincent and the Grenadines, Turks and Caicos, the UAE, Anguilla, Saint Kitts and Nevis, and the Bahamas: It was established that the majority of NPOs that met the criteria for a detailed analysis of financial activities had their activity declared in the areas of sports (34) and politics (17), whereas some of them work in the areas of culture (4) and religion (2).

6 Page : 6 Money Laundering and Terrorist Financing Prevention Places of registration of off-shore companies STATE NUMBER THE UNITED KINGDOM 41 THE VIRGIN ISLANDS 17 BELIZE 13 THE SEYCHELLES 10 HONG KONG 9 CYPRUS 7 THE USA 6 DOMINICA 6 PANAMA 6 THE CAYMAN ISLANDS 1 SAINT VINCENT AND THE GRENADINES TURKS AND CAICOS 1 THE UNITED ARAB EMYRATES 1 ANGUILLA 1 SAINT KITTS AND NEVIS 1 THE BAHAMAS 1 1

7 Money Laundering and Terrorist Financing Prevention Page : Information about persons authorised to manage bank accounts and beneficial owners As the information was being collected, data were received about persons who opened accounts, who were authorized to manage bank accounts and who are beneficial owners. The majority of persons who manage accounts or who are beneficial owners are the nationals of Russia (28 and 30 respectively), Lithuania (30 and 18 respectively), Ukraine (12 and 15 respectively), and Uzbekistan (10 and 10). Detailed data is provided in the following scheme. BANK ACCOUNT MANAGERS BENEFICIAL OWNERS STATE NUMBER RUSSIA 28 LITHUANIA 2 UKRAINE 10 UZBEKISTAN 2 LATVIA 12 BELARUS 2 UK 1 VIETNAM 2 KAZAKHSTAN 7 BULGARIA 1 THE CZECH REPUBLIC 1 GEORGIA 30 ISRAEL 6 SAINT KITTS 1 ESTONIA 0 ICELAND 1 CANADA 1 AZERBAIJAN 1 GREECE 1 ARGENTINA 1 GERMANY 1 SWITZERLAND 1 DENMARK 3 STATE NUMBER RUSSIA 30 LITHUANIA 2 UKRAINE 10 UZBEKISTAN 2 LATVIA 2 BELARUS 15 UK 2 VIETNAM 1 KAZAKHSTAN 2 BULGARIA 5 THE CZECH REPUBLIC 1 GEORGIA 1 IZRAELIS 18 SAINT KITTS 6 ESTONIA 6 ICELAND 4 CANADA 3 AZERBAIJAN 3 GREECE 1 ARGENTINA 1 GERMANY 1 SWITZERLAND 1 DENMARK 5

8 Page : 8 Money Laundering and Terrorist Financing Prevention 2.3. Observed trends The analysis of STR reports received reveal that trends remain the same as in the previous year: - Fictitious companies and suspicious monetary operations Like every year, Lithuanian entities whose the representatives withdrew large amounts of money from their accounts are identified during the analysis of financial transactions. In 2017, 22 cases related to activities of the companies which allegedly were fictitious were established. Such entities, as a rule, are either newly set up or have new owners. They have only one employee or several employees and activities of such entities are doubtful. Funds to the accounts of such entities are usually transferred by different enterprises of Lithuania, and immediately after the transfer they are withdrawn from the accounts or transferred to other analogous companies involved in the chain. Almost in all such cases, cash withdrawals, as a rule, were made from ATMs operating in Lithuania. The analysis has shown that 50 natural persons residing in Lithuania and 52 legal persons domiciled in Lithuania were related to possibly fictitious companies and cashing out operations. The activities of the these companies covered a particularly wide range of areas, such as international freight, construction, consultancy, repair of vehicles etc. - Social engineering fraud The trend has maintained, but the nature of the trend has changed; earlier STR stated that this type of social engineering fraud manifests by psychological manipulation and use of the power of persuasion (generally, during telephone conversations) with a goal to convince the victim to perform certain actions; recently, correspondence between companies is intercepted by someone pretending to be a partner and asking to direct cash settlements to other credit institutions and the accounts opened in them. The accounts opened by attackers at banks in the name of recently incorporated Lithuanian companies in which no significant monetary transactions, settlements related to business activities are carried out and no payments to employees are made etc. are used to this end. Such companies usually have no employees and their managers, who open accounts, are often young persons or foreigners. The funds of defrauded companies are directed namely to the afore-mentioned accounts and the perpetrators make every effort to immediately transfer such funds to foreign accounts or cash out. Recently a number of cases have increased when natural persons who are EU nationals open their bank accounts in Lithuania; they visit Lithuania only for procedures of opening an account. Later the funds that were obtained by criminal means are immediately transferred or cashed out abroad. In every case of such monetary transactions, Lithuanian credit institutions sooner or later receive SWIFT reports from the banks claiming that the transfers were illegal. It is to be noted that the amounts of seized funds which earlier amounted to hundreds of thousands of Euros have now decreased; today, such funds amount to several thousand or several dozens of thousands of Euros. - Money Mules Typical operations of Money Mules are operations where perpetrators find and hire persons for performing of monetary transactions. Reports continue to be received in 2017 on persons receiving or transferring money through money transfer systems. The analysis carried out showed that such funds usually originate from countries outside the EU. They are later cashed out by Lithuanian or foreign nationals. In 2017, 71 reports concerning 49 nationals of Lithuania and 45 foreign nationals were received from Western Union (68 reports in 2016). A total of 46 STR reports were received in 2017 concerning potential money laundering cases that involve nationals of African countries. These reports identified 30 Lithuanian nationals. The main cash flows went from Lithuania to Uganda, Nigeria, Ghana and Benin; a big part of them came from the USA, the UAE, Australia, Canada, Saudi Arabia, Belgium, Curaçao, Iraq, Russia, Turks and Caicos and other countries (see the diagram).

9 Money Laundering and Terrorist Financing Prevention Page : 9 Having carried out the analysis of these reports, information on 11 cashing out cases was sent to law enforcement institutions.

10 Page : 10 Money Laundering and Terrorist Financing Prevention 3. COOPERATION WITH OTHER INSTITUTIONS In 2017 MLPB further cooperated with State Tax Inspectorate on the platform of Risk Analysis Centre (hereinafter RAC) regarding the issues concerning the analysis. In 2017, meetings and discussions were organised regarding the transfer of 102 files (79 in 2016) to State Tax Inspectorate (hereinafter STI) for the monitoring of financial transactions; 83 files of material concerning possible tax infringements were transferred to STI for a followup risk assessment (65 in 2016). In order to improve the cooperation between FCIS and STI, MLPB appointed officers who communicated directly on the issues concerning ongoing investigations. 68 enquiries for information (60 in 2016) were received from the police units. Upon the analysis of information, MLPB transferred 25 files of material concerning possible criminal offences (36 in 2016) to competent police units. In 2017, MLPB transferred 135 files of material (125 in 2016) to other public institutions for a follow-up examination. In 2016, MLPB received 184 enquires for available information (175 in 2016) from the Police, State Security Department, Special Investigation Service, State Tax Inspectorate, and other law enforcement authorities. The majority of enquiries were submitted by State Security Department, i.e. as many as 102 (92 in 2016). NUMBERS OF ENQUIRIES FOR INFORMATION RECEIVED IN : INSTITUTIONS POLICE DEPARTMENT (AND OTHER DIVISIONS), LITHUANIAN CRIMINAL POLICE BUREAU STATE SECURITY DEPARTMENT SPECIAL INVESTIGATION SERVICE STATE TAX INSPECTORATE CUSTOMS (BORDER) OTHER REPORTS CONCERNING POTENTIAL CRIMINAL OFFENCES AND OTHER IRREGULARITIES SENT IN : INSTITUTIONS POLICE DEPARTMENT (AND OTHER DIVISIONS), LITHUANIAN CRIMINAL POLICE BUREAU STATE SECURITY DEPARTMENT SPECIAL INVESTIGATION SERVICE 2 STATE TAX INSPECTORATE OTHER TOTAL

11 Money Laundering and Terrorist Financing Prevention Page : INTERNATIONAL COOPERATION In 2017, 193 enquires for information about foreign entities as well as natural and legal persons of the Republic of Lithuania were received from foreign financial intelligence units (175 in 2016) and other foreign institutions and 368 enquiries were sent (318 in 2016). Furthermore, upon the completion of the analysis, 31reports of suspicious financial transactions were sent to the FIUs (32 in 2016) and 33reports of suspicious financial transactions were received from the FIUs (21 in 2016). The majority of enquiries were received from Latvian (28), British (28), Estonian (11), Moldovan (10) foreign intelligence units, as well as from Russian (9), Dutch (9), Ukrainian (8), Belorussian (7), Italian (5), German (5), Belgian (4), Czech (4), Polish (4) and Swedish (4) FIUs.

12 Page : 12 Money Laundering and Terrorist Financing Prevention ENQUIRIES RECEIVED FROM FOREIGN AGENCIES STATE NUMBER LATVIA 28 UNITED KINDGDOM OF GREAT BRITAIN AND NORTHERN IRELAND 28 ESTONIA 11 MOLDOVA 10 RUSSIA 9 THE NETHERLANDS 9 UKRAINE 8 BELARUS 7 ITALY 5 GERMANY 5 BELGIUM 4 THE CZECH REPUBLIC 4 POLAND 4 SWEDEN 4 SLOVENIA 3 SYRIA 3 BANGLADESH 3 KAZAKHSTAN 3 FRANCE 3 Other 42 STATE ENQUIRIES SENT TO FOREIGN AGENCIES NUMBER LATVIA 64 UNITED KINDGDOM OF GREAT BRITAIN AND NORTHERN IRELAND 41 ESTONIA 29 GERMANY 26 SWITZERLAND 19 POLAND 19 THE CZECH REPUBLIC 12 CYPRUS 12 THE USA 10 HONG KONG 7 THE UAE 7 MALTA 7 RUSSIA 6 FRANCE 6 THE NETHERLANDS 5 BELIZE 5 AUSTRIA 4 BULGARIA 4 SPAIN 4 ITALY 4 CANADA 4 NIGERIA 4 TURKEY 4

13 Money Laundering and Terrorist Financing Prevention Page : LAWMAKING The recast of the Law on the Prevention of Money Laundering and Terrorist Financing was adopted on 29 June 2017, whereby the provisions of the Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (hereinafter the Directive) were transposed to the national law. New regulation creates legal means for a more effective implementation of money laundering and terrorist financing prevention measures, develops intolerance towards and unfavourable environment for the emergence of money laundering and terrorist financing, and enforces the provisions of the Directive: The risk-based approach to the stringency of preventive measures is established; in other words, the stringency of customer identification measures will depend on the risk factors identified by the European Commission, Lithuania and the financial institutions and other entities themselves. The number of entities obliged to implement money laundering and terrorist financing prevention measures is increased: the provisions of the law will be applicable to all gambling and lottery companies and real estate agents. The regulation of identifying the customer or beneficial owner is established at the legislative level, i.e. the means of customer of beneficial owner identification are transposed to a law from the Government Decision No. 942/2008 Possibilities of remote identification of the customer or beneficial owner are regulated, i.e. the identity of the customer or beneficial owner is established remotely in the following manner: 1) by using information provided by reliable third parties about the customer of beneficial owner, 2) by using electronic identification means issued in the European Union, 3) when information about person s identity is confirmed by a qualified electronic signature, 4) by using electronic means that enable video streaming, 5) when the payment is made from the account in the name of the customer in the credit institution and a certified copy of identity document is provided.

14 Page : 14 Money Laundering and Terrorist Financing Prevention When identifying the customer and beneficial owner without their physical presence, the duty to apply enhanced identification measures will not be applicable. Enhanced identification applies where transactions are carried out or business relations are established with all politically exposed natural persons. When identifying the beneficial owner, financial institutions and other obliged entities are entitled to additionally use the Information System on Members of Legal Entities (JADIS) and other information systems, registers in which data on the members of legal entities is stored. In the enforcement of the Law on Money Laundering and Terrorist Financing Prevention, draft decrees to repeal 4 Decisions of the Government of the Republic of Lithuania were drawn up (to repeal the Decision of the Government of the Republic of Lithuania No. 562 of 5 June 2008, the Decision No. 942 of 24 September 2008, the Decision No. 677 of 9 July 2008, the Decision No of 23 September 2009). Also, as the Law on Money Laundering and Terrorist Financing Prevention came into effect, bylaws that specify this Law were drafted and adopted, i.e. 8 Orders of the Director of the Service and the Order of the Minister of Interior. The information storage period is shortened (8 years). National Money Laundering and Terrorist Financing Risk Assessment shall be carried out no less frequently than every 4 years, which will establish measures to manage and reduce such risk. The recast Law sets forth that the enforcement of money laundering and terrorist financing prevention means shall be supervised by competent institutions, and assigns rights and duties to these institutions. The supervision of the enforcement of money laundering and terrorist financing prevention meaures is carried out by the following: Financial Crime Investigation Service (in charge of supervising financial institutions and other obliged entities), the Bank of Lithuania (in charge of supervision of entities indicated in Article 4(1) of the Law, Department of Cultural Heritage, Gaming Control Authority, Lithuanian Chamber of Auditors, Lithuanian Chamber of Notaries, Lithuanian Chamber of Judicial Officers, Lithuanian Assay Office (all of them in charge of supervision of obliged entities according to their competence). Effective fines and other measures were established that are imposed for breaches of the procedure of implementing money laundering and terrorist financing prevention measures.

15 Money Laundering and Terrorist Financing Prevention Page : SUPERVISION OF ENTITIES In exercise of the supervision of the enforcement of money laundering prevention measures, MLPB carried out inspections of 23 companies in 2017 (instant credit companies (4), companies engaged in trade of real property (2), e-money institution (1), companies engaged in the sale of vehicles when transactions are made in cash (7), currency exchange offices (2), gambling companies (7). Infringements were found in 9 companies; their managers and responsible persons received records of administrative offences drawn up according to Article 198 of the Code of Administrative Offences of the Republic of Lithuania. The total amount of fines imposed by the courts in 2017 is EUR 18,153. Two cases are pending. 7. TRAINING In 2017, like every year, MLPB staff provided methodological assistance and organised trainings for financial institutions and other entities. MLPB attended the training organised by the Bank of Lithuania of the financial sector, and organised 10 trainings to the employees of the Lithuanian Post, e-money institution, gambling sector, management company, as well as to auditors, judicial officers, attorneys, notaries, representatives of associations of Lithuanian accounting companies and Lithuanian accountants and auditors who are in charge of the implementation of money laundering and terrorist financing prevention means. Over 260 people attended the trainings. MLPB officers also participated in international events, trainings and seminars in Belgium, France, Poland, the Netherlands, South Korea etc.

16 Page : 16 Money Laundering and Terrorist Financing Prevention 8. NATIONAL RISK ASSESSMENT In 2015, FCIS published the first Money Laundering and Terrorist Financing Risk Assessment Report of the Republic of Lithuania. The whole processes involved more than 20 representatives of institutions, public and private sectors. 81 types of risk in the following four assessed sectors were identified: law enforcement, supervision/regulation, finances and other than finances. During 16 June 2016 meeting of the Task Force on Coordination of Money Laundering and Terrorist Financing Prevention Activities formed by 2 May 2013 Ordinance No. 154 of the Prime Minister (its composition was changed by 30 July 2015 Ordinance No. 141 of the Prime Minister), the Action Plan for the Mitigation of Risk of Money Laundering and Terrorist Financing of the Republic of Lithuania for was approved. MLPB continued to coordinate and supervise the implementation of this Action Plan in 2017 by reviewing the information provided by responsible institutions on risk mitigation measures being adopted. MLPB also started the preparation for the risk assessment which will be carried out in 2019.