European Union member Estonia is now cracking down on cryptocurrency firms to attack money laundering in the country.
Estonia has been in the spotlight for Europe’s biggest money-laundering scandal, about €200 billion were laundered from Denmark’s biggest financial institution Danske Bank’s Estonian branch from 2007-2015. To put it in perspective, in 2017 Estonia’s GDP was €29 billion.
The scandal raises serious questions over the capacity of not only banks but also the government in combating money laundering. Now, the country has set its eyes on crypto businesses that exchange and help hold virtual currencies like bitcoin, reported Bloomberg.
Interestingly, Estonia was among the first in the EU to license these firms in late 2017.
But now, the regulators have stripped more than 500, a third of the total permits this year. According to Madis Reimand, head of the Baltic country’s Financial Intelligence Unit, the decision was made because the regulators are worried these firms are using their local credentials to help commit fraud elsewhere. Reimand told Bloomberg,
“This is a first step in tidying up the market, allowing us to take care of the most urgent issues by permitting operations only for companies that can be subjected to Estonian supervision and coercive measures.”
According to FIU’s annual report released on Thursday, there has been an increase in sectoral risks in 2019 amid “extremely fast” growth in service providers.
Out of the 56 supervisory inspections last year, 34 were of the virtual currency companies suspected of embezzlement of clients and providing financial services abroad without proper authorization.
So far, the crackdown has been those companies that failed to start operations in Estonia within six months of receiving the permit.
They were “probably giving out those permits too easily to God knows what companies,” which were then used to “create credibility for some evil schemes,” said Andre Nomm, a member of the Estonian Financial Supervision Authority’s management board last year.
After warnings from supervisors about the increase in issuance since 2018, parliament has also been enacting stricter licensing rules.
Now, more than half of the remaining 900 cryptocurrencies risk losing their licenses if they have no operations in Estonia.