Report: Estonia must step up law enforcement anti-money laundering efforts

Euro bills.
Euro bills. Source: Markus Spiske/Unsplash

Estonia should continue strengthening private sector capacities and improve its law enforcement efforts in combating money laundering and terrorism financing, Council of Europe anti-money laundering body MONEYVAL said in a report published Wednesday.

In its latest report, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) encourages Estonia to further strengthen measures to combat money laundering and the financing of terrorism, among others by reinforcing the private sector's capacities and performance as well as improving its law enforcement efforts in this field, according to a press release.

The report provides a comprehensive assessment of Estonia's level of compliance with the recommendations of the global money laundering and terrorist financing watchdog Financial Action Task Force (FATF) as of the time of the committee's onsite visit ⁠— which took place from April 25-May 6 last year.

MONEYVAL acknowledges that Estonia has demonstrated a substantial level of effectiveness in international cooperation, the use of financial intelligence and implementation of targeted UN financial sanctions on proliferation financing.

The report also finds, however, that further improvements are needed in enhancing the understanding of money laundering and terrorism financing risks, the effectiveness of money laundering and terrorism financing investigations and prosecutions, the confiscation of criminal proceeds, the implementation of targeted financial sanctions on terrorism financing the application of anti-money laundering/countering the financing of terrorism (AML/CFT) preventive measures by the private sector, as well as the supervision and transparency of beneficial ownership of legal persons and legal arrangements.

The committee acknowledges that Estonia has an appropriate mechanism for the identification, assessment and, subsequently, understanding of money laundering and terrorism financing risks. While the achieved results provide useful hints on sectors with higher risk exposure, they nonetheless do not give a fully sufficient view of the risk environment.

Estonia is commended for its coordination and cooperation between the Estonian Financial Intelligence Unit (FIU) and law enforcement authorities. At the same time, the report finds that the FIU should reinforce proactive detection of money laundering and terrorism financing targets.

More efforts are required in improving interpretation of money laundering offenses and investigating and prosecuting money laundering in line with the risk in Estonia. Law enforcement authorities and prosecutors in Estonia are expected to enhance their efforts in dealing with complex types of money laundering, including those where legal persons and company service providers (CSPs) are involved and misused.

In line with its money laundering and terrorism financing risks, Estonia also needs to significantly enhance its efforts to seize, confiscate and recover the proceeds of money laundering and predicate offenses, especially those moved abroad.

MONEYVAL noted that Estonian authorities have undertaken investigations into terrorism financing and achieved convictions, demonstrating their skills and ability to handle such offenses. Nevertheless, these efforts need to be further enhanced in line with improved understanding of national terrorism financing risks; the effectiveness of criminal sanctions needs to be improved as well.

Private sector preventive measure implementation still needs work

According to the monitoring body, significant improvement was achieved in the implementation of preventive measures over the assessment period as a result of focused supervisory actions.

The report concludes that there is currently a good understanding of money laundering and terrorism financing risks in the banking sector. Virtual assets service providers (VASPs) and CSPs, meanwhile, demonstrated a superficial understanding of the money laundering risks to which their individual businesses are exposed. Understanding of terrorism financing risk is generally lower across all sectors. Banks and VASPs have a generally good understanding of their AML/CFT obligations ⁠— CSPs, meanwhile, to a lesser degree.

Hence, the committee still expects further continued efforts by supervisory authorities in strengthening the implementation of preventive measures by Estonia's private sector.

In Estonia, beneficial ownership information on legal persons is available to competent authorities, however the measures in place do not fully enable the availability of adequate, accurate and current beneficial ownership information.

The large share of Estonian companies with e-Residents as their basic or beneficial owners and significant involvement of licensed and non-licensed CSPs in the company registration process coupled with poorly designed and vaguely understood customer due diligence (CDD) measures implemented by them are factors with an adverse impact on the quality of beneficial ownership information, the committee notes in its report. Applicable sanctions are not effective.

Finally, the report concludes that although there are some technical and procedural constraints, Estonia provides generally timely and constructive assistance across a range of requests for international cooperation, including mutual legal assistance.

As a result of the report, Estonia is subject to MONEYVAL's enhanced followup reporting process.

The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) is a permanent monitoring body of the Council of Europe tasked with assessing compliance with principal international standards for countering money laundering and the financing of terrorism as well as the effectiveness of their implementation.

The committee is likewise tasked with issuing recommendations to national authorities regarding necessary improvements to their systems.

Click here for more information about MONEYVAL's Estonian evaluation reports, including to read either the latest full, 327-page report or the executive summary thereof.


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Editor: Aili Vahtla

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