In a recent development, Estonia’s money laundering regulator has identified several issues within local cryptocurrency firms, including questionable executives and illogical business plans. In addition, due to the government’s newly reinforced Terrorist Financing Prevention and Anti-Money Laundering (AML) laws that took effect in March, approximately 400 virtual asset service providers (VASPs) have either voluntarily closed or had their authorizations revoked.

New Regulations Drive Change in Estonian Crypto Landscape

The updated AML laws have broadened the definition of VASPs, mandated legitimate connections to Estonia, raised licensing fees, and imposed stricter capital and information reporting requirements. Additionally, the Financial Action Task Force Travel Rule has been implemented.

The Estonian Financial Intelligence Unit (FIU) stated in a May 8 announcement that nearly 200 local crypto service providers have voluntarily ceased operations since the AML law amendments on March 15.

Furthermore, 189 firms had their authorizations revoked due to non-compliance with the requirements. Matis Mäeker, the director of the Financial Intelligence Unit, remarked that the legislative response and supervisory activities surrounding the amendments have been fitting.

General Issues Identified Among Shut Down Crypto Firms

The FIU has noted several common problems among the companies that were forced to shut down, primarily concerning misleading company information. For example, some firms had registered board members and company contacts without the knowledge or consent of the individuals involved. Others had multiple employees with fabricated professional backgrounds listed on their resumes.

Many companies appeared to have plagiarized business plans from one another, which were also found to lack logic or connection to Estonia. As of May 1, 100 active crypto firms were registered in the country, according to the FIU.

Estonia has been making a concerted effort to implement robust AML laws in recent years. That is primarily due to the revelation in 2018 that approximately $235 billion worth of illicit capital had been laundered through the Estonian branch of Denmark’s Danske Bank. 

In addition, the ongoing conflict between Russia and Ukraine has also influenced Estonia’s efforts to strengthen AML regulations, as the country aims to cut off revenues supporting Russia’s war efforts and safeguard international financial systems in partnership with the United States.

European Union Membership and Upcoming MiCA Regulations

Estonia’s membership in the European Union has likely contributed to enhancing its AML laws, as the country will soon need to comply with the upcoming Markets in Crypto-Assets (MiCA) regulations set to take effect in early 2025. 

Under the MiCA framework, cryptocurrency firms will be subject to strict AML and terrorism prevention requirements, further emphasizing the need for a proactive approach to combating money laundering within the industry.

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