The Latvian Financial Crimes Investigation Service (FNTT) has fined crypto payment service provider Payeer a record $10 million for violating EU sanctions imposed on Russia. This decision aims to address concerns about the use of cryptocurrencies to circumvent sanctions.

FNTT’s official statement reveals that Payeer clearly violated EU sanctions. Payeer has made it possible to evade sanctions by facilitating access to crypto wallet services for individuals and companies in Russia. This weakens the effectiveness of sanctions and could lead to funding for the war in Ukraine.

The investigation revealed that Payeer allowed Russian customers to purchase cryptocurrencies using rubles and bank transfers through sanctioned banks. These activities continued for a year and a half and show the company’s persistent non-compliance with sanctions.

Interestingly, although Payeer was registered as a company in Lithuania in October 2022, it has operated in Estonia in the past. However, Estonian authorities revoked Payeer’s license for cryptocurrency exchange activities. This indicates that the Lithuanian registration may be an attempt to evade sanctions.

FNTT emphasizes that Payeer’s fine is not limited to sanctions violations. The company was also found to have violated anti-money laundering (AML) and counter-terrorism financing (TF) protocols. FNTT alleges that Payeer does not conduct sufficiently stringent identity checks on its customers to protect its revenue stream. This deficiency creates a serious security vulnerability in addition to sanctions violations.

The EU is taking an increasingly strict stance against cryptocurrencies used to circumvent sanctions. In October 2022, the EU banned European crypto wallets from providing services to Russians as part of its eighth sanctions package. The subsequent sanction packages further restricted Russians’ access to crypto services. These measures aim to block the flow of funds financing the Ukrainian war.

Latvia’s sanctions violation is not the only case. Investigations are also ongoing against other crypto companies in Estonia and Latvia on suspicion of crimes such as fraud schemes, money laundering, sanctions evasion and even financing of Russian paramilitary organization such as Wagner Group. These investigations demonstrate how important it is to ensure AML and sanctions compliance in the cryptocurrency industry.

The EU plans to tighten regulations in response to these problems in the cryptocurrency sector. The European Council and Parliament have agreed on new regulations requiring crypto firms to implement stricter customer identity checks. These regulations will require strict supervision, especially for transactions worth more than €1,000. This decision aims to prevent the use of cryptocurrencies to circumvent sanctions and finance illegal activities.

The EU’s sanction on Payeer is a clear indication that it is taking a stricter approach to sanctions compliance in the cryptocurrency industry. This decision could have important consequences for the future of cryptocurrencies.