Finance ministry and LHV differ on e-residency money laundering risk

View of the (relatively) new ministerial building in Tallinn, where among other authorities the Ministry of Finance is based.
View of the (relatively) new ministerial building in Tallinn, where among other authorities the Ministry of Finance is based. Source: Siim Lõvi /ERR

Measures aimed at combating money laundering in Estonia in the wake of the Danske and Swedbank cases will not impinge on the e-residency program, and vice versa, according to the Ministry of Finance. However, a spokesperson from high street bank LHV did point to such a tension.

"The aim of the e-residency program is to bring new e-residents to Estonia who consume Estonia's e-services and, among other things, also conduct their legal business. The purpose of the anti-money laundering rules is to prevent the exploitation of the Estonian economic space for illegal activities, including money laundering," Toomas Vapper, head of the finance ministry's entrepreneurship and accounting policy department, told BNS on Wednesday.

"These are subjective assessments in the area of contact between attracting legal business and fending off illegal business, where there may arise certain difficulties with the veering of decisions to one side or the other. However, these two things cannot immediately be considered contradictory," Vapper said, noting that they are two sides of the same coin, where reasonableness and purposefulness were required in equal measure.

According to Vapper, citizens arriving in Estonia to conduct legal business via e-residency are very welcome, but if suspicions regarding the legality of their business cannot be overturned, then that will not be the case.

"This means that, on the one hand, banks have to properly understand the different types of international business, including technology companies and startups, and on the other hand, the leaders of e-residency and technology companies have to take into account the tightening rules for fighting international money laundering in their activity," Vapper continued.

LHV Pank concerns

However, in its present form, the e-residency program does conflict with some anti-money laundering regulations, according to Tiit Hallas, head of cyber security at LHV Pank.

"For banks, the e-citizens program and related expectations in their present form are clearly in contradiction with the rules of combating money laundering," said Hallas, at a roundtable on cyber security hosted by the Estonian Banking Association.

"The fight against money laundering would require the banks here to rather accept fewer foreign nationals, and in ideal cases, preferably those who can demonstrate a clear connection with Estonia," Hallas continued.

Over €200 billion in potentially illicit funds are thought to have passed through the portals of Danske Estonia, which is being closed down this year, over the period 2007-2015. Much of the suspicion fell on non-resident account holders, which the bank stopped accepting some years ago. The full extent of the potential amounts laundered became clear through the course of 2018, and another high street bank, Swedbank, also saw potentially illicit amounts in the billions pass through its doors, sometimes linked with accounts at Danske, at around the same time, it is thought.

LHV is a wholly-Estonian bank, which is set to acquire much of Danske's private client loan debt this year.

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Editor: Andrew Whyte

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