Estonia is not playing around when it comes to AML and here’s how to stay in the game
Anti-money laundering (AML) has been a hot topic among locals, e-Residents and companies in Estonia for a while now. The subject has been raised by many, starting with Bloomberg and ending with local business service providers who have all been shining light on the fact that Estonia is tightening its AML and KYC regulations for crypto companies. In other words, companies that provide a crypto-wallet service or provide crypto-fiat currency exchange services.
When Estonia first started getting noticed by startups, investors and international companies in 2014 thanks to its game-changing e-Residency program, it also attracted a lot of unwanted and dirty money laundering.
Things started getting complicated in 2017, when Estonia, Latvia, Russia, among other countries, were affected by a money laundering scandal revolving around the Estonian branch of Danske Bank. The events led to the suicide of Danske Estonia ex-CEO Aivar Rehe, and since then, Estonia has been focused on reviewing and improving its AML control protocols and mechanisms to prevent money laundering in general. The latest measures, however, came into effect in March 2020, in hopes of tightening and strengthening AML compliance, aimed especially at companies offering services that require a crypto license, including:
• Companies that require a license to provide exchange services of a virtual currency against a fiat
currency (FVR, or crypto-exchange license)
• Companies that require a license to provide virtual currency wallet services (FRK, or cryptowallet license)
It’s no secret that cryptocurrencies have the stigma of being associated with illegal or money laundering activities. These new measures implemented by the Estonian government, however, attempt to increase control over companies dealing with crypto to ensure not only that their intentions are legitimate, but also that the clients of these companies cannot use their services for money laundering, terrorist financing, or any other illegal activities.
Why is it such a big deal, and why should crypto companies in particular fall under the spotlight? Well, because the FVR and FRK licenses allow an Estonian private limited company (known as a osaühing or OÜ) act as a crypto bank, potentially handling huge amounts of cyber capital, and without the new regulations, there’s no knowing how many people could risk to lose it all. Not having an office in the country, nor any known employees working in Estonia, for example, is no longer acceptable, and rightly so. Furthermore, a capital increase has also been set to a minimum of 12,000 euros when looking to keep one of the sought-after crypto licenses that so many fintech companies are seeking to obtain. This new AML legislation in Estonia also helps to filter the numerous shelf corporations, separating the real businesses from the fakes, looking to slide through the next loophole.
Whereas companies such as Transferwise, with their own anti-money launder departments, can afford to meet these new AML regulations and protocols, others are left thinking twice as the barriers to entry become stricter, yet necessary to ensure a sustainable future for fintech and crypto companies, their investors and their clients. Make no mistake, Estonia still welcomes new crypto exchange platforms, exchanges, new cryptocurrencies and ICOs, but they simply must be led and established under safe and sustainable conditions.