The proposal to revoke all cryptocurrency licenses and start from scratch is as absurd as it is shortsighted. It vilifies honest and law-abiding companies, and should new draconian rules force them to close shop, the state should prepare to compensate firms for investments and missed profits, Raido Saar writes.
The Ministry of Finance has launched a PR campaign against cryptocurrency to condition public opinion for a fatal amendment. Both the finance minister and the Money Laundering Data Bureau (RAB) have made statements not befitting a state based on the rule of law.
Representatives of executive power cannot voice opinions not in line with valid legislation. Head of RAB Matis Mäeker's statements would be a good fit for the media of an authoritarian state, not an innovative small country that paints itself as the leader of digital innovation. It is probable the ministry has hired a proficient PR firm that is running a strategic campaign to demonize crytocurrencies to justify the inquisition.
The finance ministry is under pressure from two sides. On the one hand, international organizations' ongoing anti-money laundering measures analyses, following recent money laundering scandals. On the other, virtual currency services providers active in Estonia who have activity licenses issued by RAB and for whom the rules were already tightened once and who have a legitimate expectation for the state to protect their investments.
Almost four years ago, RAB (still part of the Police and Border Guard Board at the time) started issuing cryptocurrency licenses in Estonia. Corresponding regulation was drawn up carelessly and hastily and led to a situation where over 1,500 crypto firms had been registered a few years later. Many were made to be sold as corporate shells, with considerable demand from foreign customers.
It needs to be said in hindsight that while registering cryptocurrency companies was the right call for an innovative e-state, the hack regulation was a mistake. The poisonous fruits of that mistake is what the head of RAB is trying to combat with what little resources he has, and we find that he has been successful.
The position was vacant for a long time before Mäeker decided to go for it – courage we commend! It is far more likely for one to fail than succeed in the office because the banks' scandals might not be over (it is simply not talked about yet) and cryptocurrency companies' alleged millions of customers and billions in turnover spell doom rather than blessing. I believe Mäeker was promised "unlimited" power and a soft landing at the EU AML agency (AMLA) set to start work in two years' time.
A CV that lists under achievements putting Estonian cryptocurrency entrepreneurs out of business is sure to please the agency's hardliners. Mäeker's recent statements seem to confirm the former claim.
I understand that the Estonian Cryptocurrency Association irritated Mäeker by claiming that RAB is not observing good administrative practice. However, the claim is unfortunately true for which we have plenty of evidence. I would avoid this fruitless dispute were I in Mäeker's shoes, not least because we do not have time for mudslinging and need to pursue constructive cooperation we have been consistently offering since 2019.
The problems our country is facing are not hypothetical. Several firms presenting themselves as fully licensed virtual currency services providers from Estonia can be found on the international crypto market. These firms are boasting turnovers in the billions and claim they are the "only" players "legally" catering to high-risk fields of activity and customers.
I came across a few such enterprises at the Money2020 fair in Amsterdam. Quick background checks using public registers revealed that one had lost its license a long time ago. The other, while licensed, sported a turnover of under half a million euros, instead of the 3.7 billion boasted, and was registered to an apartment building in Lasnamäe.
These are vivid examples of companies that are marring Estonia's reputation and pose a serious money laundering and terrorism funding risk. Putting such firms out of business should be RAB's first priority, while it unfortunately lacks the mandate and resources for it.
Making the law stricter still will have no effect on them whatsoever as many already lack licenses, while they can afford to pay for whichever "price advance." We need to find more effective tools, and the cryptocurrency association is willing to work with the ministry and provide expert know-how for smarter regulation of the market.
In closing. The proposal by head of RAB to revoke all cryptocurrency licenses and start from scratch is as absurd as it is shortsighted. It vilifies honest and law-abiding companies, and should new draconian rules force them to close shop, the state should prepare to compensate firms for investments and missed profits. Estimated damages would come to roughly €1 billion. Damage to the reputation of Estonia and especially the e-state from such lawsuits would be fatal.
Who would want to invest in a country that takes its own mistakes out on entrepreneurs? Luckily, we have scheduled a meeting with the finance ministry for next Thursday to try and rephrase the amendment in a way to render it effective against money laundering while allowing law-abiding companies to survive.
Blockchain innovation is only getting started and cryptocurrencies are just one fragment. However, this innovation will not take off if we smother Estonian virtual currency service providers.
Editor: Marcus Turovski