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High Risk of Illicit Transactions Via Estonia, Reports Crypto Regulator

The risk of illicit transactions passing through cryptocurrency companies based in Estonia is high, according to the country’s crypto regulator.

While crypto companies licensed in Estonia have accrued roughly 4.5 million customers, some €20 billion in transactions have flowed through them between August 2020 and August 2021. However, details surrounding many of these transactions have raised some concerns for the country’s Financial Intelligence Unit (FIU).

While noting a disproportionately high number of transactions with higher-risk countries, FIU also reported receiving requests and queries from authorities abroad, 100 of which are related to serious financial crime, such as scams and money laundering, a 20% increase from the year prior. According to FIU, assets originating in places such as North and South America, Russia, Japan, Switzerland have passed through Estonia on route to other countries such as Luxembourg, Syria, Pakistan, Greece, Montenegro, Serbia and Belize.

Another suspicious detail is that most of these transactions flowed through just 15 of the 381 listed companies that currently have crypto licenses, many of whom lack a real presence in the country. Although Estonia became one of the first countries to offer such licenses in 2017, drawing swaths of crypto companies to the Baltic nation, around 2,000 of those licenses have been revoked since then. FIU also revealed that nearly two-thirds of these companies had initially registered at just four addresses in the county’s capital of Tallinn.

Reconsideration of crypto

Despite the initial draw, several events have caused Estonia to reevaluate its approach to cryptocurrency companies. Following the initial intake of firms, an allegation that billions of dollars of illicit funds had passed through the local unit of ​​Denmark’s largest bank in 2018 soured the mood. 

Late last year, Estonia announced plans to overhaul regulation in the sector in anticipation of the country’s review of its money laundering policies expected this quarter, in line with similar actions by the Council of Europe. Initially, FIU director Matis Maeker had taken a hardline stance, saying that all licenses would be rescinded, which would then require companies to reapply across the board. However, his spokesman later clarified that this was not the official view of the EU and the Estonian government would not be pursuing this course of action.

Instead, the government released a statement earlier this week, in an effort to quell concerns over legislation introduced on December 23 that would “more effectively regulate virtual asset service providers (VASPs) to mitigate the risk of financial crime.” It clarified that the regulation would only apply to VASPs, and would not preclude individuals from owning or trading virtual assets through their own private wallets. 

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