Tallinn is All In

A review of Estonia’s amended AML law which will heavily affect new and existing cryptocurrency exchanges

Estonia is an interesing country in terms of money laundering. Due to its proximity to Russia, it has always been in risk to be one of the first EU entry points for dirty Russian money. However, and in spite of the Danske Bank $200 bln scandal in 2018 Estonia has managed to remain fairly clean due to local banks conservatism.

I have been applying for licenses in Estonia since 2015. Before virtual currency licenses even existed, there was the Financial Institution a.k.a Currency Exchange license which was popular with all kinds of financial service providers. Then, the virtual currency exchange license was born and became extremely popular. Up until now, it’s been a walk in the park. All you needed was a passport, a clean criminal record and a good CV. In lawyer slang, this was a law with no teeth.

Now, the baby has grown and it’s growing some teeth. Estonia’s amended AML law is coming into force on March 1st which means that new license applicants applying from March onwards will need to comply with the new requirements, whereas existing license holders will have a transition period until July 1st.

There are many question marks still as for the practical implications of some of the requirements. I suppose many of them will be clarified by the regulator down the road when companies start implementing the changes and the regulator is exposed to the variations in these implementations.

These are the most significant changes:

1. Increase of the state fee for new license applications from EUR 345 to EUR 3,300.
2. Increase of the company’s share capital from EUR 2,500 (which never needed to be actually paid-up) to EUR 12,000 (which now needs to be paid-up in full). The process here is as follows: we draft the shareholders’ resolutions and amendment to the articles of association of the company; For the deposit of the EUR 12,000 the company has to have a payment account with a payment institution in the EU/EEA, so if the compant doesn’t have such an account yet, we open it; Then, the bank/payment institution has to give a (certified) confirmation of the EUR 12,000 payment which was made. The deposit has to be made in full, but does not need to be kept on the account. Then, we carry out the application to the Estonian Business Register. In case the management board member is an e-resident, it can be submitted electronically and if not, we submit it physically with a notarized POA.
3. All license holders are required to have a physical office with an employee in Estonia. Luckily, rent prices in Tallinn are very reasonable. It’s currently unclear whether this employee will need to be a full time employee or how many hours they will need to spend at the office in order for the office to be considered of enough substance. We are applying the most reasonable legal interpretation now to try and satisfy the regulator and make things as easy for the company as possible at the same time.
4. An AML officer must be appointed, possessing relevant background and knowledge of the Estonian law requirements. Here, we usually provide an Estonian AMLO due to the required interview with the regulator prior to approving the license application and sometimes even during the lifetime of the company.
5. It’s mandatory to appoint an Estonian board member to the board of the company. In principle, this person can be the same person present at the office and if they are suitable, act as the compliance officer. Again, in order to soften the transitioning into the new requirements, we are adopting a creative approach to make sure license holders can comply in the most efficient way.

If you’d like to work together on any or all of the above, feel free to contact me on Linkedin or by e-mail.