Anti-money laundering chief: Cryptocurrency licenses should be revoked

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Matis Mäeker, FIU chief.
Matis Mäeker, FIU chief. Source: Finantsinspektsioon

Cryptocurrency operating licenses in Estonia should be revoked, and the system rebuilt from scratch, chief of the money laundering bureau (RAB) Matis Mäeker told investigative weekly Eesti Ekspress. Failure to do so may result in another Danske-style financial scandal. The news comes amid revelations that despite a cull of license-holders in 2020, over 400 cryptocurreny operators are still active in Estonia.

Mäeker, who was appointed to the role in May this year, said the Estonian business of cryptocurrency operators of all hues amounted to tens of billions of euros per year, money which generally did not see its way back into Estonia's economy, infrastructure or society, while the risks associated with the sector were "very, very high", he told Eesti Ekspress in an interview which appeared on its website (link in Estonian).

Under Mäeker's proposals, the share capital of firms engaged in cryptocurrency activities would be raised to €350,000, and the operator should have this money in hand as cash or as low-risk, quick-selling securities, Eesti Ekspress reported. The current equity requirement for start-ups in the sector is €12,000, the paper said.

Cryptocurrency risk could be equated to the issues which ultimately led to the closure of the Tallinn branch of Danske Bank, Mäeker said, adding that if the state does not impose controls on these risks very quickly, consequences could follow which would be undesirable for the Estonian state.

Mäeker also expressed scepticism about the benefits for Estonia of the presence of many cryptocurrency operators, given their profits – sometimes astronomical sums as in the case of, for instance, cryptocurrency gambling outfits – are rarely ploughed back into Estonian infrastructure or society.

He said: "Their only goal is to get an Estonian license and use it to turn over very large sums, while Estonia gets nothing out of it."

Often, as in the case of gambling firms, jobs are not created primarily for Estonian citizens, nor are the services provided aimed at Estonian customers, nor is anything significant paid into the country's tax coffers.

In June, shortly after taking up the role, Mäeker, had said that cryptocurrency authorizations would be the subject of future scrutiny, while a legislative bill tightening up demands made on them would likely be drafted.

Mäeker added the efforts were not a blanket attempt at persecution of those working in the cryptocurrency sector, many of whom, he said, put their heart and soul into their work, but rather that the RAB was responding to a visible surge in virtual currency licenses which were often white-labeled in by third party companies or legal services providers and involving investors with no connection with or interest in the country.

Outright criminal activity was also a concern, Eesti Ekspress reported, as was the potential financing of terrorist activity or relating to totalitarian regimes worldwide.

Cybercrime, too, was a major vulnerability and large sums have reportedly been misappropriated from crypto wallets in this way.

Mäeker put the turnover of cryptocurrency operators at over €20 billion-per-year in cross-border payments within the banking sector, in other words conversion into euros.

While a register of actual beneficiaries of crypto activity was introduced some years ago, it has been toothless so far, Mäeker added.

Other recommendations the RAB has made include requiring companies operating in the sector have more secure IT systems and that hard cash be used in investment rather than re-financing property, for instance, which, Eesti Ekspress reported, has led to instances where people have lost their properties.

The original Eesti Ekspress article (in Estonian) is here.

Over 1,000 cryptocurrency licenses already revoked

At present, the RAB estimates there are around 400 companies in Estonia, population 1.3 million, who hold a cryptocurrency provider's license, a figure higher than the rest of the EU combined.

Singapore, with a population over four times that of Estonia and one of the world's key financial centers, has issued only one such license to date, while the U.K., population nearly 68 million and also a key financial center via London, has issued 12 and Malta, well-known as a center for online gambling, both physically on-site and in the issuing of licenses to companies based elsewhere, has issued less than 20, BNS reports.

These figures reveal the severity of the situation and the level of national control, or rather lack thereof, the RAB says.

The FIU in fact had already revoked 1,808 cryptocurrency licenses last year, but in September of 2020, the agency's risk assessment found that the changes made up to that point were not sufficient to mitigate the rapidly growing risks.

Õnne Mets, Head of Communications at the FIU, told BNS that the agency had already identified cryptocurrency risk in its 2018 yearbook, finding that urgent changes need to be made in regulating the field, which in turn led to the legislation changes which passed at the Riigikogu in December 2019.

Mets said that follow-up analysis found risk to have increased in 2021, however, and not only in theory but also in practice in, for instance, cyber attacks and the loss of cryptocurrency.

The RAB has sent a favorable assessment of the draft law prepared by the Ministry of Finance to regulate the field and supports its rapid adoption, Mets added.

The draft, which needs to pass a Riigikogu vote before it enters into the statute books, is aimed at strengthening the FIU's powers in the authorization procedure and in the supervision of cryptocurrency services, and to set requirements for service providers in accordance with the international standard and actual risk.

The RAB falls under the remit of the Financial Intelligence Unit (FIU).

Mäeker was instrumental in his earlier roles with the FIU in bringing attention to money laundering activities at Danske's Tallinn branch - where an estimated €230 billion in potentially illicit funds passed through the bank's portals 2007-2015 - and at the now-defunct Versobank, liquidated in 2018.

Legislation planning to further tighten the licensing of cryptocurrencies such as Bitcoin was already on the table at the finance ministry prior to the current Reform/Center coalition entering office.

One online gambling firm active in Estonia and which accepts cryptocurrency, the Coingaming Group, recently renamed the Yolo Group, presumably in an effort to put a distance between the group name and cryptocurrency gambling, is in fact active in promoting, building and supporting Estonian cricket via its brand. The same brand is or has appeared as shirt sponsor of three English Premier League football teams, Arsenal, Southampton and Watford.

Calls for banning gambling firms' sponsorship of professional football teams in the U.K. have been ongoing for some years.

This article was updated to include figures on the number of cryptocurrency license-holders in Estonia, and comment from Õnne Mets.


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Editor: Andrew Whyte

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