Analysis: Money laundering risk profiles differ in the Baltic states

TALLINN - The Estonian Financial Intelligence Unit (FIU), in cooperation with its Latvian and Lithuanian counterparts, has published a joint analysis of payment service providers and the risks of money laundering and terrorist financing in the Baltic states, noting that each Baltic country has a distinct risk profile shaped by the structure of its client base, the nature of the financial services offered, and its geographical location.

The results indicate that Estonian payment services are concentrated in the banking sector, where the client base is predominantly domestic. Exposure to high-risk non-residents has significantly decreased due to the reduced risk appetite of banks and anti-money laundering and counter-terrorist financing (AML/CFT) measures.

Despite this, the Estonian payment environment is most threatened by the risk of cross-border money laundering, which is amplified by the existence of correspondent relationships in banking. "The analysis confirms that some payment service clients are moving to neobanks or other, less regulated payment and e-money service providers. A continuing concern is the non-transparent provision of correspondent services to crypto-asset service providers," said Toomas Plaado, Deputy Head of the Financial Intelligence Unit.

Financial flows between the Baltic states are closely intertwined and are increasingly characterized by cross-border and digital financial services. This development further emphasizes the importance of regional cooperation and a coordinated risk-based approach to monitoring financial flows and AML/CFT risks in the Baltic states.

"We are committed to cooperating with our colleagues in Latvia and Lithuania to have a clear and up-to-date overview of the region's money laundering risks," said Plaado.

The analysis, titled "Changing Payment Landscapes and AML Challenges in the Baltic States," is based on survey data from Estonian and Latvian financial institutions, Lithuanian national payment statistics, publicly available information, and information from the financial intelligence units. It builds on the analysis of cash flows in the Baltic states published in 2023.