RegRally Insights: Your Guide to AML/CTF Compliance, March 2025

ECOVIS ProventusLaw welcomes you to its monthly newsletter on Anti-Money Laundering and Counter-Terrorist Financing dedicated to everyone who wants to understand the latest trends and developments, get tips from our experts and deepen their knowledge.

EU&IBM Promontory Report on Embedded Supervision in DeFi

On February 14, 2025, the European Commission and IBM Promontory released a report on embedded supervision in Decentralized Finance (DeFi), highlighting its transformative impact on the financial sector and the need for regulatory adaptation. The report explores a hybrid supervisory model that leverages blockchain transparency while integrating traditional financial oversight expertise.

Key Highlights:

Real-Time Oversight: Public blockchains provide direct access to transaction data, enabling continuous monitoring of DeFi activities.
Regulatory Challenges: Pseudonymous wallets, diverse protocols, and lack of standardised reporting create supervision difficulties.
Prototype System Development: A test model for automated monitoring of major DeFi protocols demonstrated potential and limitations.
Risk-Based Approach: Oversight should focus on the largest DeFi protocols and liquidity pools to balance effective regulation with innovation.
Data Integration Needs: Combining blockchain transaction data with off-chain financial records, such as centralised exchange reports, is crucial to closing regulatory gaps.
Collaboration Imperative: Regulators, DeFi developers, and traditional financial institutions must work together to establish a sustainable and effective supervisory framework.

Fraud Cases Surge in Lithuania Despite Increased Prevention Efforts

In 2024, Lithuania experienced a sharp increase in fraud cases, with financial institutions blocking over $15 million in suspicious transactions and recovering more than EUR 2.6 million. However, public losses reached EUR 17.3 million as fraud attempts hit record levels.

Scammers targeted $35 million and obtained over EUR 20 million, with cases rising from 7,881 in 2022 to 13,691 in 2024. Illicit transfers also surged from EUR 11.8 million to EUR 20 million. Investment and telephone fraud were the most damaging schemes, causing nearly EUR 10 million in losses.

Latvijas Banka and Finance Latvia Issue Guidelines to Combat Financial Fraud

Latvijas Banka, in partnership with the Finance Latvia Association, has introduced new guidelines to strengthen fraud prevention in Latvia’s financial sector. These guidelines provide a unified, risk-based framework for credit institutions, payment institutions, and electronic money institutions, enhancing their ability to detect and mitigate financial fraud risks.

Key Highlights:

Risk-Based Approach: Establishes fraud risk management standards for financial institutions in Latvia.
Fraud Prevention Measures: These include recommendations on fraud risk management, complaint handling, payment order suspensions, and information exchange.
Regulatory Alignment: Ensures compliance with evolving best practices and regulatory requirements through regular updates.

Recommendations:

Develop a Strong Fraud Risk Management Framework: Implement robust internal controls to identify and prevent fraudulent activities.
Enhance Complaint Handling: Establish clear procedures to address customer concerns and improve response efficiency.
Improve Information Sharing: Strengthen collaboration among financial institutions to detect and prevent fraud more effectively.
Continuous Monitoring: Regularly assess fraud risks and update strategies to maintain sector-wide resilience.

How AI Can Unmask UBO Networks

Uncovering Ultimate Beneficial Owners (UBOs) in complex corporate structures remains a significant challenge in financial crime compliance. Criminals exploit shell companies and offshore accounts to obscure ownership, while regulatory bodies like FATF mandate financial institutions to verify UBOs through Know Your Customer (KYC) and Customer Due Diligence (CDD) processes. However, fragmented data across jurisdictions complicates compliance efforts.

Recommendations:

Adopt Advanced Technologies: Implement entity resolution, graph databases, and AI-driven analytics to enhance UBO identification.
Strengthen Due Diligence: Develop more robust verification processes to detect hidden ownership structures and mitigate financial crime risks.
Automate Risk Monitoring: Deploy AI-driven risk assessment and transaction monitoring to improve detection of suspicious activities and ensure reporting accuracy.

Transparency International’s 2024 Corruption Perceptions Index Highlights Global Risks

On February 11, 2025, Transparency International released the 2024 Corruption Perceptions Index (CPI), assessing 180 countries. The report reveals that two-thirds of nations scored below 50 out of 100, with a global average of 43. A key concern is the growing risk of climate-related corruption, particularly the misuse of climate funds.

Denmark (90), Finland (88), and Singapore (84) ranked highest, while South Sudan (8), Somalia (9), and Venezuela (10) had the lowest scores. Bahrain and Côte d’Ivoire improved most, while Eswatini and Austria recorded the most significant declines. Financial institutions are advised to update geographical risk assessments, avoid redundant CPI weightings in AML evaluations, and strengthen internal controls to mitigate corruption risks.

MONEYVAL Recognizes Lithuania’s Progress in AML/CFT Compliance

Lithuania has received a favourable assessment from MONEYVAL for strengthening its anti-money laundering and counter-terrorist financing (AML/CFT) framework. The latest report acknowledges improvements in addressing deficiencies in Recommendation 6 on targeted financial sanctions.

Key advancements include enhanced legislation for freezing assets linked to terrorism and compliance with UN Security Council Resolution 1373. With the fifth assessment cycle completed, Lithuania is preparing for the sixth, focusing on further strengthening its AML/CFT measures to align with international standards.

FinCEN Warns Against Rising Relationship Investment Scams

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has warned financial institutions about the growing threat of relationship investment scams as part of its #DatingOrDefrauding campaign. Scammers, often using fake identities on dating apps, social media, and text messages, defrauded victims of over $650 million in 2023.

Recommendations:

Enhance Transaction Monitoring: Implement advanced systems to detect suspicious activities, particularly those involving virtual currency, sudden large withdrawals, or third-party fund transfers.
Staff Training: Educate employees on red flags, such as unusual financial behaviour, inconsistent transaction patterns, or customers being coerced into making payments.
Public Awareness: Raise customer awareness about relationship investment scams to prevent financial losses and reduce fraud risks.

Latvia’s FIU Strengthens Efforts to Combat Environmental Crime and Money Laundering

With support from an EEA grant, the Financial Intelligence Unit of Latvia (FIU) is enhancing its capacity to detect and prevent financial crimes linked to environmental offences. As part of this initiative, the FIU is organising specialised training sessions and collaborating with national and international experts to integrate best practices in combating environmental crime and money laundering.

Key Highlights:

Environmental Crime Risk: Environmental crime generates over €250 billion annually, and its connection to money laundering is increasing, as highlighted in Latvia’s National Risk Assessment (2020-2022).
Training and Collaboration: The FIU hosts seminars and engages in international knowledge exchanges with experts from countries such as Iceland and Norway to better understand financial activities linked to environmental crimes.
International Conference: The initiative will conclude with an International Conference on Environmental Crime in Riga on March 24-25, where leading investigators will discuss innovative strategies for tackling illicit financial flows from environmental offences.

Recommendations:

Enhance Due Diligence and Monitoring: Implement more robust due diligence processes and transaction monitoring to identify financial links to environmental crimes.
Integrate Environmental Crime Risk into AML Frameworks: Incorporate environmental crime typologies into anti-money laundering (AML) and risk assessment systems for more comprehensive detection.
Specialized Training for Compliance Teams: Provide training to compliance staff focused on identifying and reporting suspicious transactions related to environmental crimes.
Adopt Global Best Practices: Leverage international cooperation and advanced technologies to identify illicit financial flows associated with environmental offences.

FATF Updates Recommendations to Strengthen Global AML/CFT Standards and Combat Proliferation Financing

The Financial Action Task Force (FATF) has updated its Recommendations (February 2025), reinforcing global standards on anti-money laundering (AML), combating terrorist financing (CFT), and addressing proliferation financing. Key updates include a strengthened risk-based approach, greater emphasis on data-driven risk management, and enhanced powers for authorities to freeze and confiscate illicit assets, including cryptocurrency, without the need for conviction. The revisions also impose stricter corporate transparency requirements, including centralised registries for beneficial ownership, and extend AML obligations to Virtual Asset Service Providers (VASPs) equivalent to traditional financial institutions.

Additionally, the FATF has expanded measures to combat terrorist financing and sanctions evasion, requiring enhanced oversight of non-profit organisations and correspondent banking relationships. International cooperation has been emphasised, focusing on improving financial intelligence sharing and aligning with United Nations Security Council Resolutions. These updates aim to strengthen global financial crime prevention efforts.