Estonia and AML

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.

What are these new Estonian AML laws and how can I comply?

Some of the most important AML regulations regarding Estonian companies that wish to apply for and retain their crypto trading (FVR) or crypto wallet (FRK) licenses include:

• The minimum share capital for a crypto company in Estonia is 12,000 euros

• The payment of at least 12,000€ must be made and registered before any license application

• The company requires a real and constant presence in Estonia (office, employees, etc.)

• The company must have a bank account in the European Economic Area (EEA)

• The company must have updated AML and KYC internal procedures to comply with requirements

• The company must undertake stricter controls when it comes to screening clients (family, friends)

• The control and management of the company’s AML activities must be carried out from Estonia

• The company must have a director and an AML officer present in Estonia

• The company directors/lawyers/beneficial owners must present full documentation and records

• The directors/lawyers/beneficial owners must present documentation for all citizenships

• The company directors/lawyers may be required to present educational certificates if required

NB! All crypto companies looking to keep their crypto licenses had to comply by July 2020. When inspecting these new AML rules, it is clear that authorities simply seek to prevent antimoney laundering in Estonia, and wish to have complete transparency over the members of each crypto company, where to find them, and to make sure they understand their responsibilities to prevent money laundering activities.

If your company is looking to retain or apply for a crypto license in Estonia, remember two things

  1. Local management: you will need an AML officer residing in Estonia
  2. Local presence: you need an office in Estonia, where the company’s AML activity takes place Furthermore, you will also need at least one director who resides in Estonia. The AML officer plays a crucial role in all present and future crypto companies. An AML officer is in charge of preventing illegal activities. Hence, this person is responsible for due diligence; reviewing the activity of clients, establishing protocols to detect irregularities, and preparing regular reports for the board of directors to check how the protocols and measures are being complied with. AML officers carry a lot of responsibility when it comes to ensuring the compliance of crypto companies in Estonia, with the average base salary for a compliance officer in Estonia exceeding 37,000€ per year. Furthermore, the AML officer of a crypto company is in charge of detecting suspicious activity and notifying the authorities, such as the Estonian Tax and Customs Board, known locally as MTA, or the Financial Intelligence Unit (FIU). It is very clear that as a result of these new AML measures, many crypto companies registered in Estonia have recently lost their licenses. This has no doubt infuriated many e-Residents and foreign entrepreneurs, but the fact remains, that with these new AML regulations, both companies and clients alike can expect a safer and more serious spectrum when it comes to crypto.

Click here to read the latest Money Laundering and Terrorist Financing Prevention Act

About Cryptografic

Cryptografic is a payment solutions provider based in Estonia for international e-commerce
companies. We provide wallet and cryptocurrency exchange services to implement on our clients’
websites as payment solutions. Our company serves as a gateway between card providers and
merchants, since our entire approach is based on online sales and we only work with electronic
payments. We also provide consulting services for companies in the e-commerce sector on
compliance with AML, IT requirements, as well as national and international regulations.

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