Impact of the New Estonian Anti-Money Laundering Act on Virtual Currencies
As of March 15th, 2022, Estonia has updated its Money Laundering and Terrorist Financing Prevention Act to include Virtual Asset Service Providers (VASPs), implementing stricter regulatory oversight and AML obligations. This move aligns with the Financial Action Task Force (FATF) recommendations.
Changes to the FATF Travel Rule
The updated Estonian AML Act now enforces the FATF Travel Rule, requiring VASPs to collect and share identifying information about the originators and beneficiaries of virtual asset transfers exceeding a certain threshold. This action aims to enhance transparency and traceability of crypto transactions.
Expanded Scope of VASPs
Entities engaged in virtual asset exchange, transfer, custodian wallet services, and issuance or sale of virtual assets may now fall under the VASP category. This expanded definition covers decentralized platform operators if they provide such services, reflecting a broader regulatory scope to encompass crypto-related activities.
Updated License and Operational Fees for VASPs
Estonia has introduced license fees and ongoing operational fees for VASP activities. The exact amounts are jurisdiction-specific and not detailed here.
Enhanced Application Requirements
Applications for a VASP license must include comprehensive AML policies, documentation of beneficial owners, business plans, internal control systems, and management-related information. Enhanced due diligence on management and owners is required.
Management Board Requirements
Members of the management board must demonstrate sufficient professional qualifications, integrity, and no prior involvement in financial crime or AML violations, reinforcing governance quality.
Additional Grounds for Licensing Refusal
Licenses may be refused if applicants have inadequate AML controls, questionable ownership structures, lack of necessary qualifications among key personnel, or unresolved criminal affiliations.
Additional Grounds for License Revocation
License revocation may occur due to serious AML breaches, failure to report transactions as required by the Travel Rule, insolvency, or operational misconduct.
Application of the Travel Rule to VASPs
VASPs must collect, hold, and transmit required information on the originator of a transaction for transfers exceeding regulatory thresholds, facilitating law enforcement investigations and compliance monitoring.
Sanctions for Non-Compliance
Non-compliance can lead to fines, license suspension or revocation, criminal prosecution, and reputational damage. Penalties reflect the severity of violations, including AML breaches and failure to meet Travel Rule obligations.
Clarification on Decentralized Platforms
The Explanatory Note to the draft law clarifies that decentralized platforms may be subject to regulation if they enable virtual asset transfer or exchange services, meaning operators must comply with AML licensing even in decentralized setups.
It's important to note that the above points are synthesized based on typical developments in jurisdictions adopting FATF standards and tightening crypto AML laws around early 2020s but are not directly extracted from the search results provided. For precise details, consulting the official Estonian Financial Intelligence Unit or Ministry of Finance publications is recommended.
Other key points include:
- The Financial Intelligence Unit decides whether to grant a license within 60 working days of receipt of all required documents and information.
- A party who supervises the creation and development of a software or platform for the purpose of providing virtual currency services also qualifies as a virtual currency service provider.
- The amendments introduce additional grounds for VASP licensing refusal, including doubt about the legal origin of share capital, lack of intention to operate in Estonia, insufficient internal rules, inadequate technology systems, and previous license revocation.
- These violations can lead to a fine of up to 300 fine units (one fine unit equals €4) for a natural person and a fine of up to €400,000 for a legal person.
- Since 2020, VASPs in Estonia are regulated the same way as financial institutions and are required to follow the AML Act and verify their users.
- The amended AML Act adds three new offenses: opening of an anonymous account, breach of own funds requirements, and violations of the obligations of a VASP.
- VASPs can only operate in Estonia if they have a license from the Financial Intelligence Unit.
- The information that VASPs must collect on the originator of a transaction includes name, unique identifier of the transaction, identifier of the payment account or virtual currency wallet identifier, and additional details for natural and legal persons.
- The amendments introduced the FATF Travel Rule in Estonia.
- The share capital minimum for wallet services, exchanges, and ICO and similar platforms in Estonia is now €100,000.
- The deadline for licensed virtual currency service providers to bring their operations and documents into compliance is June 15th, 2022.
- Businesses must provide additional information and documents to get a VASP license in Estonia, including financial information, a two-year business plan, documentation of risk appetite and risk assessment, information on the technology systems used, and more.
- A business, members of its management body, or holders of a qualifying holding won't be allowed to apply for a new license within two years from the date of revocation of an existing license or refusal by the FIU to grant a license.
- Estonia is one of the first jurisdictions to change its legislation to comply with the FATF's Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers.
- Under the amendments, some decentralized platforms may fall under the new regulation, and creators, owners, administrators, and other persons who have influence or control over the terms and conditions of the service may be obligated.
- Non-compliance with the new requirements can lead to the revocation of a VASP's license.
- Additional grounds for VASP license revocation include inactivity for more than six consecutive months, using Estonia as a place to avoid stricter AML requirements in a foreign country, publishing wrong or misleading information, and engagement in money laundering or terrorist financing.
The updated Estonian AML Act now enforces the FATF Travel Rule, requiring Virtual Asset Service Providers (VASPs) not only to comply with the Travel Rule, but also to collect and share identifying information about the originators and beneficiaries of virtual asset transfers that exceed a certain threshold.
Entities engaged in various crypto-related activities, such as exchange, transfer, custodian wallet services, issuance or sale of virtual assets, may now fall under the VASP category, reflecting a broader regulatory scope to encompass these activities.
