Estonia’s money laundering regulator highlighted a number of issues it found within local crypto firms, such as dodgy execs and nonsensical business plans.
Almost 400 virtual asset service providers (VASPS) have voluntarily shut down or had their authorizations revoked in Estonia following the government’s recently enhanced Terrorist Financing Prevention and Anti-Money Laundering laws (AML) that came into effect in March.
The amended laws expanded the defined scope of VASPs, required firms to have legitimate links to Estonia, increased licensing fees, and capital and information reporting requirements, along with introducing the Financial Action Task Force Travel Rule.
According to a May 8 statement from the Estonian Financial Intelligence Unit (FIU), the amendment to the AML laws on March 15 has since seen almost 200 domestic crypto service providers voluntarily shut down.
Another 189 also had their authorizations revoked due to “non-compliance with the requirements.”
“Given the documents submitted by the service providers that have lost their authorizations, and their methods of operation and the risks involved, it can be argued that the legislator’s response with regard to the amendments to the Act, and the supervision activities both before and after the amendments, have been relevant,” noted Matis Mäeker, the director of the Financial Intelligence Unit, adding:
“In renewing authorisations, we saw situations that would surprise every supervisor.”
Following the hefty clear-out, there were 100 active crypto firms registered in Estonia as of May 1, according to the FIU.
The FIU highlighted a number of general issues it found within the companies it forcibly shut down, particularly relating to misleading company information.
To name a few examples, some companies had registered board members and company contacts unbeknownst to the actual individuals themselves. Other companies had a number of people on the books who had falsified professional backgrounds on their resumes.
It also appears that many companies had copy and pasted identical business plans from each other, which were also found to be lacking “any logic or connection with Estonia.”
Estonia has made a considered effort to enact strong AML laws across the board over the past few years. This is primarily due to the discovery in 2018 that around $235 billion worth of illicit capital had been laundered through the Estonian branch of Denmark megabank Danske Bank.
The ongoing war between Russia and Ukraine has also had an impact, as Estonia has pushed to “cut off revenues supporting Russia’s war machine and protect international financial systems,” via strong AML regulation as part of its partnership with the U.S.
Another factor that likely has contributed to the recently enhanced AML laws is its membership in the European Union, therefore meaning it will soon have to implement the upcoming Markets in Crypto-Assets (MiCA) laws that are slated to come into effect in early 2025.
Under MiCA, crypto firms will be subject to stringent AML and terrorism prevention requirements.