According to the head of the Estonian Financial Intelligence Unit (FIU), Matis Mäeker, the main issues concerned background checks conducted when granting e-resident status. and risk mitigation relating to companies established in Estonia but operating in other countries

Mäker said: "We have received complaints over permission given to individuals who perhaps should not have been granted e-residency."

For instance, two North Korean residents who reside in the EU passed the checks system and became e-residents. North Korea has in place severe restrictions of its own, aimed at preventing money laundering and the financing of terrorist groups, ERR reports.

Mäeker said Estonia had been charged with not inadequate checks, particularly when requests came from countries with which Estonia has reciprocal cooperation at judicial level.

The largest complaint was that e-residents can obtain much easier access to the Estonian business environment and the creation of companies, Mäeker went on.

"If an e-resident now sets up a company [in Estonia] then travels to another country to launder money via that company, while this is no longer an Estonian problem as such, it does become a problem for those other countries where the private company is in use," he went on.

"At the FIU, we have also stated on several occasions that the e-residency program brings with it money laundering and terror financing risks. The first step would be to better understand these risks; what they constitute, in essence, and then manage these risks accordingly, and develop corresponding procedures," Mäeker continued.

Olavi Lepp, head of the largest private lender in Estonia, Swedbank, also noted the e-residency program issues highlighted in the Moneyval report.

Appearing on ETV politics show "Esimene stuudio" Wednesday, he said: "This constitutes a report of over 300 pages, and our e-residency program is mentioned more than a hundred times, but not in a positive way."

 "Things have improved, but there are problems remaining. If I tap my conscience, while we always like to talk about opportunities, the risks must also be assessed, on various things we carry out, as a state," he went on.

E-residency: Checks have improved

The legal and risk manager at the e-residency program, Oscar Õun, told ERR that only around half of overseas entrepreneurs operating in Estonia are e-residents.

Õun said:  "The risk-based application system, comprehensive control and digital footprint ensure that e-residents are under significantly greater supervision than other [non-e-resident] foreign citizens, when doing business in Estonia."

"The Police and Border Guard Board (PPA)rules on issuing an e-resident's digital ID," he added, in response to the two North Korean citizens who have reportedly obtained e-residency.

"So far as we are aware, no North Korean citizen currently has a valid e-resident digi-id," he added.

Õun said that for some time now, applicants from countries which Estonia has cooperative relations with at judicial, security and law enforcement levels have been given preference as e-residency recipients. "In addition, a legal amendment is being developed in cooperation with the Ministry of the Interior, which would limit access to e-residency in some countries - above all, those where the risks of money laundering and terrorist financing are becoming more and more relevant."

Last summer, the PPA adopted an automated follow-up IT solution, which enables regular mass queries to be sent to national and international databases, in order to verify for example, whether an e-resident has been convicted of a criminal act in any country's jurisdiction since obtaining e-residency, or if there are any another important circumstances which might require the invalidation of that e-resident's digital ID.

"In order to make sense of the data made available from pre- and post-checks on e-residents, and to implement them more effectively, an additional post of analyst was created at the PPA in 20202, in addition to the existing working group dealing with e-residents, on a daily basis," Õun went on.

From January 2021, Estonian digital ID applicants will be using a new e-resident digital ID application environment, which will allow the collection of more detailed information on a foreign citizen's background and intentions, than had previously been the case

Õun said that a rise in e-residency application refusals and of annulments of existing digital IDs was evidence of this tightened-up screening process.

Whereas in 2018, 2 percent of e-residency applications were rejected, that figure had risen to 8 percent as of last year.

As of January 23 this year, there were 63,074 valid Estonian e-resident cards in circulation.

Since the program was rolled out in 2014, 99,205 people have received e-resident status, it is reported.

Moneyval, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, is a Council of Europe, not an EU, body.

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