Lithuania's banking world cannot escape its dirty reputation

Lithuania continues to be a focal point for issues within the Eurozone's banking system, particularly concerning its reputation for handling illicit funds. Tax authorities recently reported that one in ten customers of a digital bank operating in Finland is linked to the grey economy. Sources indicate this bank is the British-based Revolut, which operates within the Eurozone via Lithuania and serves approximately 200,000 customers in Finland.

The European Central Bank (ECB) intervened last year concerning Revolut's methods for assessing product risks. Revolut is no longer a small entity, boasting around 68 million consumer customers and managing approximately 58 billion euros in deposits and investments. Its operation within the Eurozone from Lithuania is not coincidental, given the country's history.

Lithuania gained notoriety for systematically laundering Russian criminal money between 2006 and 2013, with at least four billion euros of funds stolen or otherwise dubious from Russia entering the Eurosystem through Lithuanian banks. Despite past scandals, a lax approach to banking supervision appears to have persisted. In 2022, a Lithuanian financial institution was again targeted in a raid involving the laundering of about two billion euros through a scheme originating in Italy.

In recent years, Lithuania has become a hub for fully digital "neobanks" like Revolut, attracted by "light operating licenses" and rapid approval processes. It seems that some of these digital banks have continued the country's questionable traditions regarding illicit money. However, the net of supervision is tightening, posing a problem not just for Lithuania but for all of Europe, as anti-money laundering efforts are only as effective as their weakest link.

Revolut has faced deficiencies in verifying the beneficial ownership of accounts and the origin of funds. The Bank of Lithuania fined the bank 3.5 million euros a year ago for these issues. While the ECB has led unified supervision of Eurozone banks for over a decade, focusing on combating money laundering, the responsibility for identifying money laundering problems at smaller banks like Revolut largely falls to national supervisors. This division of responsibility, where the ECB oversees solvency but national bodies handle money laundering detection, presents a challenge for smaller countries like Lithuania.