Crypto bears the brunt of Estonia’s war on dirty money – POLITICO
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In a country with a heavy legacy of dirty money scandals, Estonia is determined to stop crypto from giving illicit financiers a new laundromat.
Estonia’s latest effort to root out white-collar criminals is expected on Tuesday, when Tallinn’s amendments to its Prevention of Money Laundering and Terrorist Financing Act come into effect – under close community watch. international. And other initiatives are in preparation.
The Estonian banking sector has already humiliated the government on several occasions by channeling billions in suspicious funds for Russian-based clients. There is no way this will happen again via crypto, as far as the country’s treasury and financial intelligence unit is concerned.
“We welcome innovation, but for us it is very clear that we will not and cannot tolerate any financial crime, and the prevention of money laundering is certainly a political priority,” the Estonian Minister of Finance told POLITICO. Finance, Keit Pentus-Rosimannus.
The new rules reinforce a licensing process that most players in the Estonian crypto market felt was far too loose. The first licensing regime that appeared in 2017 made it easy for hundreds of companies to obtain an Estonian license and operate from anywhere in the world. Some companies have even done business by selling shell companies.
“Supervision was simply not possible,” the minister said. “But the risk was ours because they were operating with an Estonian license. This is something that has changed with the law.
Tallinn’s decision to tighten its surveillance leash no longer comes as a surprise to the industry, which is making broader efforts to arrest bad actors and trying to allay concerns that Russia and Belarus are using crypto to dodge Western sanctions for reasons.
The government is under pressure as the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) is halfway through an audit of two years on the country’s dirty money safeguards. The routine audit, which ends in December, also examines how digital assets are regulated. A group of listeners arrives in Tallinn on April 25 for a two-week visit.
Estonia could face serious consequences if it fails to meet MONEYVAL’s expectations. Offending countries may ultimately end up on the world’s dirty money gray list, which includes Malta. The resulting stigma has a reputation for scaring foreign investors away from an offending country.
So Tallinn is not joking. The new rules are designed to make the Estonian market as uncomfortable as possible for illicit financiers to work or abuse.
One technique is to make market entry expensive. Companies providing digital wallets and online exchanges will soon have to shell out at least €100,000 in capital to hold an Estonian license. Businesses that hold and move cryptocurrencies for individuals will need to deposit a minimum of €250,000.
The changes also come with hefty listing fees, strict due diligence, and tougher regulatory scrutiny. Part of the companies’ commercial infrastructure will also have to be located in the Baltic country.
MONEYVAL’s audit and Estonia’s checkered past play a role in government repression, admit Pentus-Rosimannus and Treasury aides. But more generally, the measures are aimed at enhancing the transparency of the crypto market and protecting honest players, according to the minister.
Just a flesh wound
However, according to Estonian cryptos, Tallinn is using a butcher’s knife to heal a flesh wound, undermining the country’s reputation as a fintech-friendly business environment.
The heavy-handed approach is also raising eyebrows because EU lawmakers are halfway through drafting a bill, dubbed MiCA, which contains less stringent standards – and Estonia will eventually have to pass them. in all cases. The European Commission had proposed that MiCA’s capital requirements, for example, range from €50,000 to €150,000, depending on the services of a crypto company (larger operators would have to shell out more).
The nature of the crackdown in Estonia clearly reflects the strain of ongoing international scrutiny and the dirty money scandals it has had to endure, industry officials say.
The law “was only made in a panic, which comes from MONEYVAL’s assessment of Estonia as they seek to blame other than the banks,” said Raido Saar, chairman of the board. of the Estonian Cryptocurrency Association.
“In the last two years, our legal environment has been changed twice, and there is already a third [underway] to the government, revoking all those licenses,” he lamented, referring to a separate bill expected at a later date. “We need to restart our licenses for financial inspection.
The Treasury, for its part, says nothing has been decided on this particular bill. Known as the Crowdfunding, Other Investment Instruments and Virtual Currencies Act, it is still in an early drafting stage.
The idea of a future complete overhaul, however, has favor with Matis Mäeker, the head of the Estonian FIU – a regulator of financial conduct that all EU countries must have.
In Mäeker’s eyes, if Estonia does not act, it will likely trigger another Danske Bank scandal, in which 6,000 “non-resident” customers channeled some 200 billion euros through the Estonian branch of the Danish lender. between 2007 and 2015, most of which were deemed suspicious.
It’s this kind of rhetoric that has companies worried about what else might happen down the legislative road. Lawyers for Sorainen, which offers specialist fintech legal advice, also wonder whether Estonian authorities will use new discretionary powers to revoke licenses with little justification.
No time to waste
For his part, Pentus-Rosimannus refuses to sit idle until MiCA arrives.
“We have risks now, and it was clear that we need to address them now. We just can’t wait,” she said. “It was not an option for us to wait for all these discussions [in Brussels] come to an end. We had to react immediately. »
The industry believes the new rules will go a long way in eliminating money launderers from the nation’s crypto market. It would have been only a matter of time before authorities discovered a front company halfway around the world providing suspicious activity with an Estonian license, he said.
That said, the government could have managed its communications strategy better, according to Sten Tamkivi, an Estonian entrepreneur and technology investor, who worked as an executive at Skype for more than eight years. He hopes the government’s good intentions won’t hurt the country’s reputation as a haven for startups.
“There has been a lot of noise around Christmas and New Years, internationally, with completely exaggerated false claims that Estonia bans Bitcoin or does not allow self-custody,” a- he declared. “I just hope the short term and the messy middle doesn’t distract us too much.”
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