Crypto Firms Flock to Estonia: Is the Country’s E-Residency Program a Giant Loophole for Money-Laundering?
Originally published on: CCN
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February 01, 2019
Estonia’s e-Residency program allows location-independent non-citizens and firms to access services such as banking digitally. Cryptocurrency firms have particularly embraced the program warmly with around 600 of them estimated to be registered there currently.
Consequently, the Estonian central bank deputy governor, Madis Muller, says the program poses a money-laundering risk
In quotes reported by Reuters, the central bank chief stated:
There is a money laundering risk with cryptocurrency operators. We have made it too easy for these crypto operators now. They get a reputational benefit from their link to Estonia. We get the reputational risk.
Empowering Estonian Police to Investigate and Withdraw Crypto Licenses
As a solution, Estonian legislators are considering empowering the police to investigate and withdraw licenses from crypto firms if necessary. Additionally, Estonian legislators want crypto firms required to establish a business presence in the country before joining the e-residency program.
According to Muller, most crypto firms would be unable to meet these stringent requirements:
I understand that most would not be able to comply – and would not qualify to keep their license.
Besides Estonia’s central bank, the country’s financial watchdog, the Financial Supervision and Resolution Authority of Estonia (Finantsinspektsioon), has also raised concerns that the e-Residency the program has made the country susceptible to being overrun by dirty money. Finantsinspektsioon’s head, Kilvar Kessler, cited the case of the Danish bank Danske as evidence of the risks the program carries.
Danske’s Estonian Branch in $230 Billion Money Laundering Scandal
As previously reported by CCN, the Estonian branch of Danske became embroiled in a monstrous money-laundering scandal in 2018. This was after revelations that a large portion of $230 billion that went through Danske’s Estonian branch was tainted. Even Germany’s largest lender Deutsche Bank has been drawn into the scandal and is now being investigated by the U.S. Federal Reserve.
U.S. Fed Ramps Up Scrutiny of Deutsche Bank Over $230 Billion Danske Bank Money Laundering Scandal https://t.co/u1lqewZsbA
— CCN.com (@CryptoCoinsNews) January 23, 2019
In light of the Danske scandal, Kessler now wonders whether the e-residency program will result in similar cases:
The lesson of Danske is, I hope, enough for us. You onboarded customers which were offshore companies … Now e-residents.
Even Iranians and North Koreans Welcome as e-residents
Part of the vulnerability comes from the fact that the e-Residency program is open to anyone. This includes individuals from U.S.-sanctioned countries such as North Korea and Iran.
While the financial institutions vet their customers on the e-residency program, the initial background check is conducted by the Estonian Police & Border Guard Board. The process takes between six to eight weeks. But in the wake of the Danske money-laundering scandal, Kessler has called for enhanced vetting process by the banks. The number of e-residents with bank accounts in Estonia is currently unknown.