Estonia Shuts Down Crypto Firms

In recent news, Estonia has strengthened its Anti-Money Laundering laws and almost 400 virtual asset service providers (VASPs) have shut down as a result. The amended laws expanded the defined scope of VASPs and increased licensing fees, capital requirements, and information reporting requirements. Additionally, the laws introduced the Financial Action Task Force Travel Rule. The Estonian Financial Intelligence Unit (FIU) announced that almost 200 domestic crypto service providers voluntarily shut down, and another 189 had their authorizations revoked due to non-compliance.

The FIU’s director, Matis Mäeker, noted that the response from the legislator and the supervision activities have been relevant, given the documents submitted by the service providers that lost their authorizations and their methods of operation and risks involved. The FIU also found several general issues within the companies it shut down, including misleading company information. For instance, some companies had registered board members and company contacts without their knowledge, while others had falsified professional backgrounds on their resumes. Additionally, many companies had copy-pasted identical business plans from each other, which were also found to be lacking any logic or connection with Estonia.

Estonia has made significant efforts to implement strong AML laws, 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. Estonia is a member of the European Union and 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.

In conclusion, Estonia has taken significant steps to ensure the implementation of robust AML laws. The recent enhancement of AML laws has resulted in the closure of nearly 400 crypto firms in Estonia. The FIU found several issues with the companies it shut down, including misleading company information. As a member of the European Union, Estonia will soon have to implement MiCA laws, which will require crypto firms to comply with stringent AML and terrorism prevention requirements.


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Estonia Won’t Ban Anonymous Crypto Holding

Key Takeaways

  • Estonia has clarified that recently-drafted regulations will not ban individuals from anonymously holding crypto.
  • Instead, the regulations may prevent companies (virtual asset service providers) from offering anonymous accounts.
  • The regulations also increase capital requirements to prevent companies from being sold to third parties outside Estonia.

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The government of Estonia has clarified that pending regulations will not constitute a full ban on holding cryptocurrency anonymously.

Draft Bill Could Affect Companies

On Dec. 23, Estonia approved draft legislation that would regulate certain activities related to crypto and virtual assets. Notably, it would have imposed a ban on anonymous virtual currency accounts, building on a rule that took effect in summer 2020.

Now, the Estonian government has clarified that this will only apply to companies and will have no effect on individuals who hold cryptocurrency in their personal digital wallets.

“The regulation is not applied to customers, but to [virtual asset service providers] who conduct activities for or on behalf of a natural or legal person as a permanent business,” the government wrote in a news update published on Sunday, Jan. 2.

Rules Aim to Prevent Financial Crime

The Estonian government went on to note that the measures are similar to rules that apply to banks and payment processors, and that those rules are intended to prevent financial crime.

The new regulations will also increase capital requirements to ensure that virtual asset service providers are active companies. This approach is meant to prevent dormant virtual asset service providers from being sold to third parties outside of Estonia.

The bill has not yet been approved and must go through three readings in the Estonian parliament before it becomes law.

Other Countries Are Regulating Cryptocurrency

The news comes shortly after concerns that India would introduce restrictions that would effectively ban cryptocurrency. Recent statements from officials suggest that this is not the case.

Elsewhere, the United States’ Infrastructure Investment and Jobs Act will soon increase the reporting requirements of cryptocurrency exchanges and brokerages that receive more than $10,000 of cryptocurrency.

China, meanwhile, has imposed a very extensive ban that has banned virtually all crypto trading through exchanges.

Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and other cryptocurrencies. 

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Estonia to Strengthen Supervision of Virtual Asset Service Providers

Estonia has recently considered enacting new rules on encryption and proposed draft legislation that will strengthen the supervision of virtual asset service providers, but it has not made the possession of encrypted currency illegal.

The Estonian government today approved the proposed rules of the December 23, 2021, draft. It must now pass the parliament before it can be implemented in the first half of 2022.

The bill aims to regulate encrypted entities or virtual asset service providers (VASP), such as traditional financial institutions and payment platforms, to reduce financial crimes.

According to regulations, virtual asset service providers that facilitate virtual asset transactions must identify their customers and companies that do not have any physical business operations in Estonia are not allowed to obtain a VASP license.

The new regulations enable VASP to meet higher standards of anti-money laundering clauses, which are further increased on the basis of Estonia’s 2020 ban on opening anonymous virtual accounts.

Concern about the prohibition of owning cryptocurrency or non-custodial wallets have been expressed and the Estonian government holds no intention to prohibit the digital assets.

The government document explained that:

“This means that the legislation does not contain any measures prohibiting customers from owning and trading virtual assets, nor does it require customers to share their wallet private keys in any way.” “Individuals are still free to use non-custodial wallets.”

As reported by Blockchain.News on June 15, 2020, Estonia has revoked licenses from 500 crypto companies as part of combating illicit financial transactions after Danske Bank was associated with a $220 billion money-laundering scandal. This is an estimate of 30% of the entire number of approved crypto companies in the country.

This was the biggest black money scandal in European history at the time.

So far, about 400 licensed companies remain.

Image source: Shutterstock


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Estonian regulator wants to revoke all crypto exchange licenses

Financial regulators in the Baltic country of Estonia want to revoke all crypto exchange licenses in an effort to start the entire regulatory regime anew.

Matis Mäeker, head of the Estonian Financial Intelligence Unit (FIU), has urged the state to “turn the regulation to zero and start licensing all over again,” local state-run news agency Eesti Ekspress reported on Wednesday.

Mäeker claimed that the public is unaware of the risks of the cryptocurrency industry. Formerly the head of the Anti-Money Laundering department at the Financial Supervision and Resolution Authority, the official pointed out a number of related concerns, including illegal crypto activity, such as money laundering and terrorism financing, as well as the industry’s vulnerability to hacks, stating:

“These risks are very, very high. We need to react cardinally and very quickly.”

About 400 companies in Estonia now hold a virtual asset service provider (VASP) license, which is more than the total VASP licenses granted in the entire European Union, Mäeker claimed. According to the official, such businesses only use their licenses to “turn over very large sums, while Estonia gets nothing out of it.”

In its current state, the Estonian crypto industry neither creates jobs for citizens nor contributes “anything significant” to the country’s tax authorities, he stated.

Mäeker proposed to introduce stricter capital requirements for the industry, including potentially mandating crypto companies to have at least 350,000 euros ($404,000) either in cash or securities. The existing equity requirement for industry startups reportedly stands at just 12,000 euros ($13,800).

Related: Europe becomes largest crypto economy with over $1T in transactions — Chainalysis

The official also suggested requiring crypto companies to set up more secure IT systems and prohibiting them to accept anything but hard cash for investment instead of options such as refinancing property in order to increase investor protection. 

As previously reported, the Estonian FIU started a major crackdown on crypto companies in June 2020, having revoked the licenses of roughly 70% of all VASPs in the country by December last year. According to Estonian Public Broadcasting, the regulator revoked a total of 1,808 VASP licenses in 2020.