Life after amendments in the AML Act of Estonia (for crypto companies)
Reality of virtual currency service provider license in Estonia
In summer of 2020 a new version of the Money Laundering and Terrorist Financing Prevention Act of Estonia was published. In our previous articles we have analysed the main amendments to the law from the perspective of licensed virtual currency exchange / e-wallet companies. The goal of this article is to illustrate what’s the real situation in Estonia in the field of so called “crypto-companies” and to show how the process of applying for the license looks from the “inside”.
Let’s start with some statistics. Currently there are 135 licenses for virtual currency wallet service provision, 155 licenses for virtual currency exchange service provision and 190 licenses for virtual currency service provision. As we stated before, from July 2020 both licenses (exchange and e-wallet) are combined under one name — virtual currency service provider license. Therefore, the assumption is that 135 e-wallet licenses and 155 exchange licenses are still under the review of the Financial Intelligence Unit of Estonia and the numbers could change in the near future. For the purposes of this article, statistics are important, because at the time when we introduced new changes of the AML Act in our Article on December 12, 2019, there were issued 2245 “crypto licenses” in total. This means that the FIU has revoked more than 1500 licenses in the last 10 months. As mind-blowing as this number is, we also believe that the situation had gotten out of control and “crypto-companies” possessed a significant AML and reputational risk to Estonia and the market had to be cleared from participants that were using “crypto companies” for fraudulent purposes. However, we are sure that not all of the companies that lost licenses were involved in fraudulent activities and licenses were also lost by legitimate companies who were unable to fulfil scrupulous AML law requirements.
Physical presence in Estonia
The most complicated (read expensive) requirement is provision of physical management from Estonia. This means that the company must have a local office in Estonia, a local AML officer and local member of the board who is not only representative (nominee director) but actually manages daily operations of the company. As you might understand, these provisions automatically remove from the market companies that are having remote business and don’t have resources to hire local staff and rent an office in Estonia. It is important to emphasize that member of the board must be responsible for management of the company and must be able to freely explain business operations to the FIU when invited to the interview. The safest way to keep the license would be to move part of the management to Estonia and work from there. However, the logical question is — who wants that, if the whole reason for having Estonian licensed company was the ability to manage it remotely? There are companies who choose to hire a local AML Officer and local manager of the company who then acts as a full-time manager of the company and manages daily business activities.
If you wish to keep the license we don’t recommend searching for a nominee director of the company. About the risks of having a nominee director for your crypto-company we wrote here before. If you don’t want to read it, then briefly — all information about the officials of the company is public in Estonia and as the number of the companies that have the license is not that high, it doesn’t take much effort for the FIU to do basic search and determine that the director of your company is director of other 5 companies and realistically it is not possible to manage 5 crypto companies at the same time. Please note that number 5 is just an example and shouldn’t be used as some sort of threshold for your future ideas.
The reality of virtual currency service companies in Estonia
Things have changed and if you wish to have a license for virtual currency service provision in Estonia you will have to comply with the new requirements and hire local staff, rent an office and / or move part of your operations to Estonia. Average gross salary in Estonia for a full-time employment is EUR 1433.00 and in the field of law / legislation it is EUR 1600.00. This is the number you should keep in mind when you are planning to hire local staff. If the company is still in the early development stage, it is possible to hire part-time employees, however, the most important aspect remains the same — the management of the company must happen from Estonia.
It would be incorrect to state the price for virtual currency service provider license in Estonia, as it consists of several variables — salaries, rent of the office, EEA account expenses, etc. However, some of the costs that are fixed are: state fee for the license (EUR 3300.00); company registration in Estonia (EUR 540.00 with e-Residency or EUR 840.00 via notary office for a private person shareholder). You will also need AML / sanctions list rules of procedure; Risk Assessment; Internal rules of control where the price will depend on whether you already have similar documents or if we would have to draft them from scratch. We recommend contacting us or any other legal advisors from the e-Residency marketplace to receive a detailed quote based on your specific situation.
Conclusion
At the end of the day, we believe that Estonia is still one of the top jurisdictions in the EU where to apply for the virtual currency exchange license. The business environment is good for international business, as most of the legislation is available in English and prices of local employees and real estate is still lower than in other alternative jurisdictions that offer “crypto — licenses”.
As we mentioned above, the changes were necessary (however, we don’t agree with the scrupulous requirements) and along with these changes Estonian licensed virtual currency service providers will gain large credibility credit once they are able to fulfil the regulatory requirements.
