Money Laundering Prevention and International Sanctions
1. What is money laundering?
Money laundering - the process of concealing or disguising the existence, source, movement destination or illegal application of illicitly-derived property or funds to make them appear legitimate. Such acts are usually perpetrated by drug dealers, organised criminals, terrorists, cyber criminals, tax plunderers, contrabandists, corrupt officials and their close associates or other persons.
Prevention of money laundering - means the implementation of measures aimed at the prevention of money laundering.
2. Principle "Know Your Customer"
The Republic of Lithuania Law on the Prevention of Money Laundering and Terrorist Financing stipulating what preventive measures and when should be taken by banks and other entities to prevent money laundering and terrorist financing and specifying the particular cases in which the Bank must identify the customer, and the secondary legislations related to this Law, including the Money Laundering and (or) Terrorist Financing Prevention Guidelines for Credit, Electronic Money and Payment Institutions Guidelines approved by Resolution No 03-17 of the Board of the Bank of Lithuania of 12 February 2015, establish the obligation for banks to implement the principle "Know Your Customer" with respect to its customers, because banks must:
- Know the customer's activities (type of business) and analyse them;
- Know the beneficial owners of the customer, i.e. natural persons in whose interests or for whose benefit transactions are carried out (in the case of a legal entity the beneficial owner shall also be identified to the level of the natural person(s), irrespective of the number of controlling undertakings);
- Perform the ongoing monitoring of the customer's business relationships, including the investigation of the transactions concluded during such relationships, seeking to ensure that the performed transactions correspond to the information possessed by the credit institution about the customer, his business (business types, business partners, business territory, etc.) and the type of risk;
- Understand the source (origin) of monetary funds of the customer.
Banks must guarantee that money laundering and/or terrorist financing risk assessment is carried out on the basis of the most recent and precise information; therefore, it must continuously revise and update information about customer and the beneficial owner. This provision shall apply to both, new and already existing customers of banks. About any changes of their data customers' must notify the bank.
When entering into business relationships with a bank, a customer must complete, respectively, the natural or legal person's declaration. This declaration must also be completed when the customer's data are updated.
Banks shall guarantee that the information and data provided by a Customer in relation to their mutual business relationships shall be treated like any other information constituting the bank secret.
The comprehensive information on legislative acts regulating the prevention of money laundering and terrorist financing is available on the internet website of the Financial Crime Investigation Service under the Ministry of the Interior of the Republic of Lithuania. All legislative acts applicable in the Republic of Lithuania are also publicised on the internet website.
3. The international sanctions: restrictions (prohibitions) on the fulfilment of payment orders and international lists of terrorists and other entities subject to sanctions
International sanctions are non-military restrictive measures aimed at preventing the illegal activities (terrorism, drug dealing) or policies and at ensuring the international peace, security and respect for human rights.
In implementing the international sanctions, acting in the interests of its customers and seeking to protect their monetary funds, Swedbank, AB, being part of Swedbank Group, is acting in accordance with sanctions announced by the European Union (hereinafter - EU) and the Office of Foreign Assets Control (hereinafter - OFAC) of the US Treasury Department. Sanctions to the specified entities are applied within the limits established by the organisations announcing them.
Sanctions implemented by the Bank are of two types: sanctions prohibiting any relationships (commercial, financial) with the entity subject to sanctions, or sanctions restricting only certain particular transactions (e.g., export of certain goods), or applicable only to certain regions, etc.
3.1. Application of sanctions prohibiting all business relationships with entities subject to sanctions
The Bank shall not establish and maintain any business relationships with entities (natural and legal persons) and shall not fulfil payment orders in the following cases:
- When entities are subject to the financial sanctions of the European Union (EU) (freezing of monetary funds or economic resources, prohibitions of financial transactions)
Information on entities subject to financial sanctions of the EU is available here
- When entities are inscribed on the Specially Designated Nationals List (SDN)* administrated by the USA OFAC, or entities that are not on this list, but are related (including subsidiaries) to the entities inscribed on the SDN List.
SDN List of the USA OFAC is available here
*The List of Specially Designated Nationals (SDN) is announced by OFAC. Monetary funds of entities inscribed on this List shall be frozen and performance of any transactions with these entities shall be prohibited.
3.2. Application of territorial and sectoral sanctions
By applying the territorial sanctions (e.g., sanctions imposed on activities of certain regions/territories) and the sectoral sanctions (e.g., sanctions imposed on certain areas of economic activity (imports/exports of certain goods, prohibition to trade in financial instruments issued by certain entities), the Bank may suspend the customer's payment order in order to find out whether the given payment order is not related with the regions, groups of goods, etc. that are covered by sanctions. In such cases the fulfilment of the payment order may last longer, because the Bank may ask the customer to provide more information on the circumstances of the money transfer and carry out internal verification and investigation actions.
- It should be noted that the aforementioned sanctions are also implemented by correspondent banks; therefore, the fulfilment of payment orders may also last longer because of restrictive measures applied by correspondent banks.
- To allow a smoother performance of international money transfers, the Bank recommends its customers to specify in the English language the purpose of settlement in the particulars of the money transfer (specifying the goods and/or services for which the settlement is made, rather than indicating only the contract).
- Taking into account the rules of correspondent banks and other partner banks all payments to and from Russia and Ukraine must contain a full address of the beneficiary if the funds are sent to Ukraine or Russia and a full address of the sender if the funds are sent from Ukraine or Russia. Full address shall mean the street, city names and the country information. If a full address is not provided as requested or the bank has a reason to believe that the address is not correct or has been intentionally altered then payment may not be executed. This decision has been made to protect the interests of clients and Swedbank in order to mitigate the risks related to the imposed international sanctions.
4. Politically exposed natural persons
Where a customer or his/her close family members (the spouse, cohabitant, parents, brothers, sisters, grandparents, grandchildren, children and children's spouses, children's cohabitants), close associates (persons with whom a person has joint business, maintains other official or business relationships), currently holds, or has held during the last twelve months, the below specified prominent public functions in any countries and/or international institutions, the business relationships/monetary operations of such customer shall be subject to the enhanced due diligence by the Bank:
- the Head of the State, Head of the Government, minister, vice-minister, deputy minister, State Secretary, Chancellor of the Parliament, Government or ministry;
- member of the parliament;
- a member on the Supreme Court, the Constitutional Court or any other supreme judicial authority, whose decisions are not subject to appeal;
- a member of the management body of the professional organisation of auditors or of the board of the central bank;
- the ambassador, the chargé d'affaires ad interim or the high-ranking military officer;
- a member of the administrative, management or supervisory body of a state-owned enterprise;
- the head, deputy head member of the administrative , management or supervisory body of international intergovernmental organization;
- a leader, deputy leader, member of the administrative, management body of the political party.
5. Refusal of a Customer to provide information or provision of false information
If a Customer refuses to provide, or avoids providing, the information requested by the Bank, or provides incomplete information, the Bank shall not perform, or shall suspend the performance of, such Customer's operations or transactions, because otherwise the Bank would infringe the fulfilment of requirements of the Republic of Lithuania Law on the Prevention of Money Laundering and Terrorist Financing and other legislative acts. Furthermore, failing to receive the required information from the Customer, the Bank may terminate business relationships with Customer. Where, acting in accordance with the Republic of Lithuania Law on the Prevention of Money Laundering and Terrorist Financing, it can be assumed that suspicious monetary operations are being carried out the Bank must notify to the effect the Financial Crime Investigation Service under the Ministry of the Interior of the Republic of Lithuania.
If a bank fails to comply with the legislative acts regulating the prevention of money laundering and terrorist financing the above referred Financial Crime Investigation Service may take sanctions, also foreign countries may recommend their credit institutions to terminate their relationships with such bank.
We would like to note that Swedbank, AB acts in strict observance of ethical and moral principles and deals only with those customers, whose monetary funds and assets are legitimate, and their legality does not arise any doubts, and the origin of monetary funds held in their bank accounts and used for monetary operations is not related to any criminal (illegal) acts, or the operations are not aimed at concealing the origin of such monetary funds. The Bank also carries out the prevention of unintentional and indirect criminal offences.
In order to prevent money laundering and terrorist financing, the Financial Crime Investigation Service under the Ministry of the Interior of the Republic of Lithuania controls the relationships between banks and their customers. Furthermore, the compliance of the preventive procedures of the Bank with legislative acts of the Republic of Lithuania is also supervised and verified by the Bank of Lithuania and independent auditors.
7. Useful links7.1. Links
- Comprehensive information on sanctions applied in the EU
- Comprehensive information on sanctions applied in the USA
- Internet tool to search for entities subject to sanctions of the USA
- Clarification of the imposition of sanctions on companies controlled by entities subject to sanctions
The implementation of international sanctions in Lithuania is coordinated by the Ministry of Foreign Affairs of the Republic of Lithuania. More information is available here.