In March 2023, Estonia implemented stringent regulations to prevent terrorism financing and money laundering. Since then, the country has seen close to 400 virtual asset service providers (VASPs) voluntarily shut down their operations or have had their licenses revoked by the regulator.
Crackdown On Crypto Firms
The updated regulations broadened the range of activities under the category of VASPs. More importantly, it mandated companies to establish authentic connections with Estonia, introduced a hike in licensing charges, and raised the bar for capital and information disclosure.
The Financial Action Task Force Travel Rule was also implemented as a part of these changes. Per the recent declaration by the Estonian Financial Intelligence Unit (FIU), the AML laws’ revision on March 15 has resulted in the voluntary closure of nearly 200 local crypto service providers.
Furthermore, another 189 also revoked their authorizations due to “non-compliance with the requirements.” The Director of the Financial Intelligence Unit (FIU), Matis Mäeker, remarked that the actions taken by the authorities and the amendments to the Act were appropriate.
He added that revoking their license was the right call considering the risks involved, operational methods, and submitted documents by these service providers. The Estonian FIU reported that after the extensive crackdown, only 100 crypto firms remained registered in Estonia as of May 1.
Additionally, the FIU emphasized several general problems concerning deceptive company data in the firms it shut down. The FIU uncovered various instances of fraudulent activity during its investigation.
Such instances include businesses having board members and company contacts registered without their knowledge and some individuals falsely claiming professional qualifications on their resumes. Interestingly, the investigation also revealed that several companies had submitted identical business plans without coherence or relevance to Estonian laws, indicating a lack of effort and professionalism.
Estonia’s Anti-Money Laundering Approach
Estonia has taken extensive measures to establish robust anti-money laundering (AML) regulations in the last few years. The move became necessary following a revelation in 2018 that Danske Bank’s Estonian unit had laundered approximately $235 billion worth of criminal proceeds.
However, Estonia’s partnership with the US aims to create strong AML regulations to protect the international financial system and cut revenue streams that fund Russia’s military activities in Ukraine. Due to its membership in the European Union, Estonia’s impending obligation to implement the Markets in Crypto Assets (MiCA) regulations may have also played a role in the country’s recent efforts to strengthen its AML laws.
The MiCA framework will mandate that cryptocurrency companies adhere to rigorous anti-money laundering and counter-terrorism financing measures across the European Union (EU) bloc. Once implemented, the regulation will establish a framework for issuing and trading digital assets, including stablecoins.
Also, it will make it necessary for firms to seek approval from regulatory authorities for certain crypto-related activities. The primary objective of the MiCA regulation is to enhance investor protection, maintain financial stability, and ensure market integrity in the dynamic and fast-growing crypto sector.
However, experts noted that EU member states could have other financial guidelines that suit their economies.