Cody McGrath 
Lithuania decided to take action before EU rules that could ban non-custodial wallets take effect.
Lithuania, a 2.8-million-person country, intends to increase its scrutiny of cryptocurrency to combat money laundering risks and possible schemes by Russian elites to circumvent financial sanctions.
According to the local Ministry of Finance, various ministries of the Lithuanian government approved legal amendments to anti-money laundering (AML) and counter-terrorism financing in the crypto sector on Wednesday, June 8. If approved by the Seimas, Lithuania’s legislature, the amendments to the current law would tighten the guidelines for user identification and prohibit anonymous accounts.
The new regulations would also increase the requirements for exchange operators, requiring them to register as a corporate body with at least 125,000 euros in nominal capital by January 1, 2023. Such companies’ senior management would have to be permanent residents of Lithuania.
The announcement justifies the tightened regulations by citing the crypto industry’s rapid growth and specific geopolitical risks:
“More nuanced regulation of the suppliers of crypto-services is also important considering the international regulatory tendencies and the geopolitical situation in the region when many Western countries impose financial and other sanctions on Russian Federation and Belarus.”
Minister of Finance Gintar Skaist explained in her official commentary that the national steps are being taken by the upcoming pan-European regulations. The announcement highlights the country’s rapid rise in crypto companies following a regulatory tightening in neighboring Estonia — there were only 8 new crypto companies in 2020, but 188 new entities appeared in 2021.
In September 2021, Estonia announced an update to the AML act. The new law effectively prohibits non-custodial software wallets and decentralized finance products. The European Parliament approved an AML regulatory package in April 2022, which could impose stringent disclosure requirements on transactions between non-custodial wallets and crypto exchanges in the European Union.