Estonia is a globally recognized center for technology and innovation. However, recently, in order to prevent money laundering, the country has taken steps to address the issue of cryptocurrency. While Estonia has been at the forefront of the cryptocurrency industry, the urgency to establish regulations has increased due to the potential risk of money laundering. In March 2023, Estonia updated its anti-money laundering (AML) laws, leading to almost 200 local crypto service providers voluntarily closing their operations.
Estonia Taking Action
The FIU of Estonia has been involved in refreshing licenses for crypto businesses and has encountered some unforeseen situations that have left the supervisors amazed. It was found that various companies had duplicated identical business models from one another, with no logical explanation or connection to Estonia. As a result, stringent actions were taken, resulting in a reduction in the count of active crypto enterprises registered in Estonia, with just 100 remaining as of May 1, 2023.
Estonia’s efforts to curb cryptocurrency use has resulted in the country passing a crucial money-laundering assessment and earning accolades from European anti-money laundering investigators. Although there were concerns that Estonia’s entry into the cryptocurrency market could have hindered the ongoing two-year investigation, the country has succeeded in its endeavors.
Estonia’s Journey Against Money Laundering
The year 2018 saw the European Union (EU) implement the Fifth Anti-Money Laundering Directive (AMLD5), which mandated cryptocurrency exchanges and wallet providers to comply with AML and know-your-client (KYC) regulations. Estonia, in light of the Danske Bank scandal and to showcase its commitment to financial transparency, launched a regulatory clampdown on money laundering and cryptocurrency.
In March 2020, the Money Laundering and Terrorist Financing Prevention Act in Estonia was modified to expand the jurisdiction of the FIU to include crypto-related activities. This change means that the FIU is now responsible for enforcing compliance with anti-money laundering, due diligence, and know-your-customer regulations for crypto entities registered in Estonia. Furthermore, these entities are required to have a minimum share capital of 12,000 euros and their management boards must be located within Estonia.
It was found by regulatory bodies that a considerable number of cryptocurrency companies that had registered in Estonia were not active and that the country was mainly being used as an offshore location. The country was mainly used as an offshore destination. To ensure compliance with the latest regulations, the Financial Intelligence Unit began revoking the licenses of cryptocurrency service providers. By the end of 2020, over 1,000 cryptocurrency firms had their licenses withdrawn.
