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From 29 June this year, following the entering into force of the new Money Laundering Prevention Act in Lithuania, the responsibility of management for implementing money laundering prevention in its organisation has considerably increased.

What should a manager know, and what is expected of him in the field of money laundering prevention?

1. First of all, the manager should have a good knowledge of the regulations, money laundering risks, and prevention measures applicable. The manager is responsible for overall risk management in a company, so the level of perception required will be different from that of someone at a lower level. This should be taken into account when planning training programmes for executives and employees.

2.The manager must constantly assess the risk of money laundering in the organisation. It is important to bear in mind that the level of risk depends on many factors, and they are constantly changing. Therefore, an evaluation should be carried out periodically, taking into account the changing internal and external circumstances of the company, and it should include at least: (a) the characteristics of the client; (b) the characteristics of the services, transactions, products and channels offered by the company; and (c) the characteristics of the countries that determine the size of the risk assumed by the company. A manager can choose different specialists to make the assessment, but it is up to him to make decisions about the acceptable level of risk for the company, and to provide measures to reduce and/or eliminate it.

3.Based on the risk assessment, a manager should ensure that the company has implemented risk-based prevention procedures and processes.

4.The manager is responsible for appointing a competent compliance specialist. He must ensure that s/he has the necessary powers to implement preventive measures in the company effectively. The person responsible should have sufficient knowledge in the field of money laundering prevention, access to necessary information, the support of management, and all the assistance s/he needs.

5. If the company has appointed a person to implement the prevention of money laundering, it is still the responsibility of the manager to supervise the effectiveness of the prevention, and to ensure that the procedures and processes are constantly reviewed and refined. This can be implemented through an internal audit or independent external evaluation of efficiency, reporting to management.

6. The manager is responsible for the effective dissemination of information in the company. Information has to travel not only upwards, from the staff to the senior manager, but also down the line. Employees should take part in specialised training programmes, and should be continuously informed about significant changes in the company’s activities and procedures, and they must be provided with de-personalised information about significant incidents and the lessons learned. In turn, the Compliance Officer should periodically provide managers with information on the risk of money laundering in the company, compliance incidents, suspicious transaction statistics, proposals to improve performance, and so on. All levels of staff should be given the opportunity to inform managers anonymously about non-compliance within the company, and other allegations of non-compliance.

7. The dissemination of information relates directly to one of the most important responsibilities of the manager: the incorporation of compliance into the culture of the company. The measures to achieve this are diverse, but everything starts with an appropriate and open-minded approach to leadership, reinforced by an adequately arranged promotion system. Employee remuneration should depend not only on the financial goals achieved, but also on employee knowledge in risk management, customer risk, quality of customer data collected, and other efforts to ensure compliance within the company. In this way, compliance principles are actually implemented and promoted throughout the company, and the climate of a ‘healthy’ organisation is formed

8. Finally, the manager should ensure that the resources required for compliance are available. Like any other process, money laundering prevention is based on the cost of implementing it, human resources, IT systems, training budgets, and so on, which should be commensurate with the size of the company’s risk.The consequences of non-compliance can be very painful, both for the manager and the organisation as a whole, and for those who have invested in it. Huge fines reaching millions of euros are most common, which can be imposed on the manager, the shareholder and the company itself, but it should be borne in mind that the consequences may go even further:

Damage to the company’s reputation and brand

Loss of company valueLoss of a business license

Financial penalties for the company and obligations to invest in correcting deficiencies

Administrative and criminal liability.

„Nordgain“ believes that business has to make contributions to society, most importantly – be part of growing a happy & capable young generation. Our cornerstone belief is that every child, no matter what is his family’s social status, has the right to receive a full – fledged education & have access to all necessary learning material. This is why we are glad to be a part of VIRACT’S (Vilnius International Rotaract Club) project “Pirmoji kuprinė” (en. First backpack).

The goal of the project is to provide 30 school children from poverty – stricken families with necessary school inventory (backpacks, a uniform or other clothes, sportswear, sports bag, stationery). VIRACT in cooperation with social workers, chose the first graders from various regions in Lithuania where the unemployment rate, poverty and other social problems are the most widespread.

The project „Pirmoji kuprinė“ (en. First backpack) was created this year, but VIRACT, as well as, „Nordgain“ hopes that it will grow and become continuous. We want help our children to grow in a friendly and education – encouraging environment.

„Lewben Group“ – an international provider of business and wealth management solutions, will now provide a Regulatory Risk, Compliance and AML services for the Lithuanian market. According to Vilius Kavaliauskas – CEO of „Lewben Group“– the company recognized a demand for law compliance services while analyzing global compliance strengthening tendencies for private business, especially in the money laundering prevention field. This service became extremely important in light of proposed changes in Lithuania’s Money Laundering and Terrorist Financing Prevention Act.

„Regulation demands are becoming increasingly stricter globally. Once legal changes will come into force in the end of June, even wider range of Lithuanian businesses will be obliged to dedicate much more attention and resources for compliance. Not doing so might cause significant financial and reputation losses. “ – says V. Kavaliauskas.

For startups or businesses who recently fell into the regulation area „Lewben Group“ provides full Regulatory Risk, Compliance and AML service package which includes designing and implementing of AML/CTF policy and procedures, control processes, selection of suitable IT vendors and outsourcing of further compliance procedure maintenance.

The client is introduced to applicable regulation, consulted on how to implement complicated requirements, adapt them to business specifics, special training sessions are being organized for staff and management.

For businesses who already have the AML/CTF policy and program in place and dedicated compliance officer, „Lewben Group“ offers to independently review the AML/CTF program and assess the effectiveness of controls. The in-house personnel cannot perform this assessment on its own due to independency requirement. „Lewben Group“ can also perform AML/CTF risk assessment, consult on ways to improve existing control procedures and remediate weaknesses.

Toma Zaržeckytė Director of Compliance Services says that with new law in force companies, management and even shareholders are to face heavy fines for incompliance. Management and owners of financial institutions risk receiving a fine up to € 5,1 million, the fine issued for managers of non – financial bodies can go up to to €1,1 million or more. The main issue for companies will be meeting all statutory requirements and still remain effective, focusing most of their attention and resources on business development.

“Regulatory institutions are facing a lack of recourses, this is why they cannot provide all proactive help that is necessary to private sector, such as targeted trainings, sharing of best – practice examples and recommendations for the sector they supervise. Businesses will have to act proactively, find additional resources, seek trustworthy partners for consultations and improve their internal procedures. “ – asserts Toma Zaržeckytė.

In today’s world of modern technology, money laundering methods are improving every day, and the forecasts for laundered sums are at a record high.According to the United Nations, about 5% of the world’s Gross Domestic Product (GDP) is laundered annually. The Western world is concerned about the rising number of terrorist attacks, and the fact that the amount of money needed to carry them out is decreasing.For example, 2,600 euros was the cost of the terrorist attacks that took place in Nice. When the sums are as low as this, even the best-developed bank prevention systems cannot detect them.And all this despite three decades of tightening regulation, and the huge cost of preventive measures and technology implemented. Compliance requires an enormous amount of public and private resources each year.Financial institutions are already spending up to 5% of their gross income on compliance, and these costs are projected to increase.Unfortunately, the goal of preventing crime and ensuring citizens’ security has side effects: an occasionally disproportionate administrative burden on business, rising prices of services for end users, and the decreasing attractiveness of a country for foreign investors, due to the high regulatory burden.

Business owners and CEOs face huge fines

At the end of June, the implementation of the 4th EU Directive on Money Laundering Prevention will entail the stricter enforcement of the Money Laundering and Terrorist Financing Prevention Act in Lithuania, which will regulate closely the obligations of economic agents in the area of ​​money laundering, and provide extremely strict sanctions for non-compliance. According to the latest version of this draft law, financial institutions might be subjected to a fine of up to 10% of the financial group’s total income, or up to 5.1 million euros (whichever is the greater). Enterprises outside the financial sector may have to pay up to 5% of their revenue or pay a fine (the benefit derived from the infringement multiplied by two) of up to 1.1 million euros, depending on which is higher. Corporate executives and shareholders will also be fined: management and owners of financial institutions up to 5.1 million euros; and 1.1 million euros or more (if the benefits from the infringement multiplied by two exceed 1.1 million) for owners and management of non-financial institutions. In addition, according to the law, inspections and penalties can be imposed by a range of very different institutions: the Financial Crime Investigation Board (FNTT), the Bank of Lithuania, the Department of Cultural Heritage, the Chamber of Bailiffs, and the Chamber of Auditors.

Lithuania is among the leaders

In addition to the implementation of the 4th Directive, Lithuania will have to prepare for MONEYVAL 2018 (Council of Europe Committee on Measures against Money Laundering and Terrorist Financing). It will assess the prevention of money laundering and terrorist financing in Lithuania. After the last assessment (in 2012), Lithuania was proud to be among the leading countries in the incorporation of money laundering prevention measures in their laws. The results of this international assessment have allowed Lithuania to occupy a respectable second place on the Basel Money Laundering Prevention Index, with a significant lead over her neighbors and 148 other countries. However, staying at the top can be much more difficult than getting there. Experts from MONEYVAL who came to Lithuania at the end of April this year introduced a fundamentally changed assessment method. The main evaluation criteria will no longer be the technical transposition of recommendations regarding the prevention of global money laundering and terrorist financing into existing national laws, but the effectiveness of real precautionary systems that will have to be proven by the evaluated state itself, by providing statistical information and other evidence.

The non-financial sector will have to make a big difference

While implementing international recommendations, Lithuania carried out the National Risk Assessment of Money Laundering and Terrorist Financing in 2015. Looking at the conclusions of this assessment, it is obvious that much work will be needed in order to comply with the new efficiency test. The national assessment concluded that financial institutions and other entities do not adequately implement the requirements for the prevention of money laundering and terrorist financing in all cases. Particularly serious weaknesses were found in the non-financial sector. Most economic entities do not scrutinize the list of targeted financial and other international sanctions, they do not apply risk-based customer ratings, and they do not check lists of people involved in politics before starting or continuing business relationships with customers.

Assessment weakness is mentioned as well

The national assessment identified a number of weaknesses in the money laundering assessment sector: supervisors themselves lack knowledge, there is a shortage of appropriately qualified specialists, and technical resources and funding are a drawback as well.This is particularly important, as MONEYVAL will also assess the effectiveness of the supervision: the educational activities carried out, the number of inspections carried out, the number of penalties imposed and their impact (of a preventive nature), the number of crimes detected, the amount of illegal property seized, and other quantitative and qualitative statistical information.Obviously, Lithuanian managers will have to work hard to improve the statistics. An unfavorable conclusion would undoubtedly affect negatively Lithuania’s image on the international arena, and the attractiveness of the country to investors would be reduced as well. An unsatisfactory MONEYVAL rating would be likely to affect the country’s banking system: it may be extremely difficult to maintain correspondence and other cooperative relations with institutions abroad.This is exactly what happened to our neighbor Latvia, and most recently to Estonia, which failed to ensure the effective prevention of money laundering. Deutsche Bank has discontinued its cooperation with all domestic banks.The 100-million US dollar penalties imposed on bankers for not complying have forced the global financial industry to overestimate their appetite for risk, and has led to a wave of ‘de-risking’, that is, the full termination of relations with riskier partners (and sometimes entire regions). Needless to say, as a result of stringent customer settlements in foreign currency, the consequences for the country’s business, financial system and economy as a whole can be dramatic.

The solution? Don’t wait until it’s too late

The aim of Lithuania’s private and public sectors in this process is unanimous: to ensure the adequate prevention of money laundering by adequate means and resources, and to be able to substantiate its effectiveness during international visits. We want to believe that supervisors will be proactive: they will organize special training programmes for the private sector, and make clear recommendations on how to properly implement the complex requirements of the law. In addition, it is necessary to initiate solutions to problems that have occurred (to create a public register of people involved in politics, etc). The requirement to use a risk-based valuation is applicable not only to business entities, but also to the assessment sector; and therefore, we hope that institutions will follow a principle of proportionality, by checking and applying sanctions against business entities that vary in size and risk. However, looking at FNTT plans for the period 2016 to 2018, it is evident that there were three times more checks than training programmes. And knowing the size of the penalties for businesses, the cost for faithful institutions can be simply too high. Businesses need to look for additional resources, trust external consultants, and improve their internal processes. The biggest challenges facing the companies are: the implementation of all the requirements of the law, remaining efficient, and focusing resources directly on business development.

„Lewben Group“ – an international provider of business and wealth management solutions established a new service for fund managers. According to Vilius Kavaliauskas, the owner and CEO of Lewben Group, this service will fill the currently existing infrastructure gap, encourage the establishment of investment funds and make Lithuania more attractive to foreign investors.

“We follow the news of investment regulation tendencies in the world, every institution has its own pros and cons. We know the investment terms and conditions of many countries, and think that Lithuania is a good place to establish funds. Also the Bank of Lithuania - the main supervisor of financial market participants - is modern and open for discussions.

Agnė Daukšienė, the director of the newly established service for fund managers, says that “it is one of a kind in Lithuania.”

The uniqueness of this service is its complexity. It includes legal consultation of tax and compliance, assistance in developing new products, accounting, supervision of operations performance, and strategic planning. Because of this, it gained the unique name Fund Hotel.

Agnė Daukšienė believes that after Brexit the service will be really appealing to foreign investors. Lithuania could become a center for fund establishment.