The last couple of years have been a mixed bag for the Estonian public image. The e-Residency program has been a huge success, and we’ve earned a nickname “Digital Nation”. Visiting different technology conferences around the globe, the fact that I am from Estonia has started many conversations on how advanced everything is in Estonia — tech-wise. We’ve got clients visiting Estonia hoping to see flying cars, which usually ends up in a disappointment. On the other hand, we’ve got the money laundry cases like the Danske scandal, and it doesn’t seem to be the only big Scandinavian bank doing shady stuff in its Baltic branches. As a result, the Estonian public image has been heavily affected. In some Scandinavian countries ( funnily enough), it can be difficult for Estonian businessmen to find clients or to do business due to the fear of being involved in some suspicious schema. At least that’s what I’ve heard talking to some Estonian businesses. However, having discussions personally with entrepreneurs from different countries daily, I’ve never noticed such attitude or negative thoughts about Estonia, whether the person is from Germany, China or India.
The supervisory authorities are usually also blamed for not noticing such things, as they should’ve seen or known that millions of shady money is running through the bank. In the case of Danske, the supervisory duty was with the Danish financial authority as Danske is a Danish bank. The Estonian FSA did notify the Danish colleagues about suspicious activity in its Estonian branch multiple times for several years. I am not making any excuses for the Estonian FSA, as there’s plenty of room for improvement (although there was a report lately which stated that Estonia has the lowest money laundry risk of all countries https://news.err.ee/973267/report-estonia-ranked-country-with-lowest-money-laundering-risk). But here’s why it’s important — the attitude and actions of these institutions are shaped by such scandals. For example, it’s quite understandable that the Estonian FSA wants to avoid any risk of that kind of PR disaster happening ever again — at all cost, at least during the term of the current management. As a result, it’s fair to say that the Estonian FSA has taken a very conservative approach towards financial innovation to minimise the risks.
If you’re considered to be a Digital Nation, a name earned through the years of hard work, and as a country you’ve been at the forefront of the innovation for a few decades, there’s a certain contradiction in this conservative approach towards innovation. Whether it is financial innovation or any other regulated sector, doesn’t matter, it can suffocate and ruin the business environment. Being conservative can go over the top. I am not advocating for an environment where laws and rules are loosely followed, but simply pointing out that too conservative approach may harm the Estonian image as a great business hub for startups. For a country that small, the only thing we have is being an attractive place to do business. Estonia has a great taxation system, the most startups per capita, the most unicorns (companies valued at more than $1b ) per capita, and a success story of a country to be proud of. Yet, it seems some countries like Malta and Lithuania are doing way more than Estonia to attract innovative FinTech companies. When it comes to actual business environment and bureaucracy, Estonia is way ahead with its e-Residency and country-as-a-platform approach, but that doesn’t mean the train can’t run off the tracks.
Conservatives don’t change the world. They make sure bets with as little risk as possible. Creatives and innovators change the world. It’s risky and it can be foolish to be creative, as creating something new (or in this case, enabling) is a high-risk proposition — but it’s the only way to have spectacular success stories. E-residency as a concept was also a high-risk proposition, but it has done more good to Estonia than most Estonians understand. The financial sector and supervisory authorities have to be conservative, but not without a proper vision for the country, and not act in a way which cripples the financial innovation. The calls to make it more difficult for companies to obtain and maintain the crypto licenses may be justified, but it’s very important to do it the right way and to not use the hammer method. The right way is to align with the concept and vision of Estonia as a startup and tech hub. By taking calculated risks and being open to the new ideas. By adapting the methods of supervision in order to be able to monitor the market properly, but not by banning or refusing FinTech companies wanting to apply for the licenses in Estonia.
It’s a race between countries and one that you can’t win without taking some risks. Money laundering is and will be a risk for Estonia (as well as to all other countries). It’s a geographical issue for us. In my opinion, there’s only one way Estonia can succeed and prevail long-term, and this success is built on technology and innovation. Technology is the driving force for change, and we do not need more proof as a country than looking into a mirror.
Comistar provides business, legal and tax support for e-residency companies. Our core focus is on Fintech licensing, e-commerce companies, blockchain industry and affiliate marketers. We’ve been operating for over 5 years and have helped more than 300 companies to get started in Estonia.