Insights

Legal requirements for the prevention of money laundering are usually addressed ONLY to private businesses. Should the provisions of these legal requirements, namely the identification of final beneficial owner, really only apply to the private sector and not to the public? After all, it is a public secret that in all countries, not only in Lithuania, public sector procurements are carried out in accordance with the relevant provisions of the public procurement laws and millions, and often much more, are spent there.

The legal requirements for the prevention of money laundering[1] provide that the provisions of this law regarding the identification of the final beneficial owner shall apply to other obliged entities. The list of obliged entities[2] is exhaustive, it contains thirteen positions (auditors, judicial officers, notaries, some FEZ companies, depository virtual currency money operators, etc.).

Legal provisions of money laundering prevention applies to all companies, regardless of its legal form, but the final beneficial owner identification provision applies ONLY to the private sector, which is thirteen items on the list of other obliged entities.

The Law on the Prevention of Money Laundering and Terrorist Financing (hereinafter - the Law) itself states very clearly (and many times) both the concepts of “client” and “final beneficial owner” separately and the relationship between them in relation to the identification of the client and the final beneficial owner, but there is not a single word about the reverse option - the identification of the supplier and the final beneficiary.

The above insights suggest that the potential or prospective customer and the final beneficial owner need to be looked at particularly carefully, but not the suppliers, as they are not even mentioned in the Law. It goes without saying that if there is no such legal requirement in the Law (due to the identification of the final beneficial owner of the supplier), no company will voluntarily do so.

The law is not of Lithuanian origin - at the end of this document the implemented legal acts of the European Union are indicated[3]. Therefore, it can be assumed that what is provided for in the legal acts of the European Union has been transposed into Lithuanian law and, as a result, it is possible that not everything is fully integrated (identification of the supplier and the final beneficial owner).

Generally speaking, the final beneficial owner should be a natural person or, in rare cases, it could also be a legal person (if the final owner is the state, etc.). An equal sign is often placed between the shareholder and the final beneficial owner, however, this is far from the case. Management schemes for large companies are very complex, especially when it comes to offshore organizations. Tracing who is the ultimate beneficial owner can be extremely difficult.

Taking into account the existing uncertainties in the application of the provisions of the Law, we submitted a request to the Ministry of Justice of the Republic of Lithuania. I would like to single out two interesting aspects of the answer:

1. The Ministry of Justice seems to agree with the idea that the provisions of the Law could theoretically be applied not only to private business, but also to the public sector.
2. The Ministry of Justice also sent a copy of its reply and the request of UAB Raimda auditas to the Public Procurement Office for the following reasons:
   • The final answer on the identification of the final beneficiary applicable to suppliers should be taken by the Public Procurement Office;
   • The Ministry of Justice argues that, on the one hand, the Law does not oblige suppliers to identify the final beneficial owner. On the other hand, the Ministry of Justice recognizes that, from a moral point of view, the supplier would have an obligation to name the final beneficial owner. Thus, it appears that the Ministry of Justice left the question open and forwarded a copy of its response and UAB Raimda auditas request to the Public Procurement Office for its verdict.

The Law on Public Procurement of the Republic of Lithuania, which applies to public sector procurement, does not contain a single word about the identification of the final beneficiary. The response of the Public Procurement Office was overly formal (indeed, I expected that response): procurement by public sector companies is not subject to non-statutory requirements, ie there is no legal obligation to identify the final beneficiary in public procurement.

I would consider the answer of the Ministry of Justice of the Republic of Lithuania to be quite bold, because in the official answer to UAB Raimda auditas the Ministry expressed the idea that from the point of view of moral society expectations, identification of the supplier-final beneficiary could be important.

The Public Procurement Office of the Republic of Lithuania, meanwhile, only follows the letter of the law - what is not in the law must not be demanded.

Lithuania is a small country and in order to improve, we must make responsible and courageous decisions. Will our state institutions be able to take at least a moral (or perhaps legal? ..) step forward to make us more transparent? To this day, the question remains open.

In the annexes:

1. UAB Raimda auditas Request submitted to the Ministry of Justice of the Republic of Lithuania on 23 October 2020
2. Response from the Ministry of Justice of the Republic of Lithuania received on 18 November 2020
3. Response from the Public Procurement Office of the Republic of Lithuania received on 9 December 2020

[1] Law of the Republic of Lithuania on Prevention of Money Laundering and Terrorist Financing No. VIII-275 of 19 June 1997 (current wording 10 July 2020)
[2] Paragraph 10 of Article 2 of the Law
[3] At the end of the Law there is a reference to five legal acts (directives and regulations) of the European Union implemented by this Law