Ready made company with a crypto license in Estonia - bad idea

Short version — super shady and bad for long-term business. More detailed version — spend 6 minutes of your time and learn about it.

In the last months we (Gate to Baltics) have been approached by people who are: a)interested to buy a ready-made company in Estonia with crypto exchange / e-wallet license; b) who have actually bought such company and now are seeking for a professional advice on how to continue; c) they own licensed crypto exchange in Estonia and would like to sell it.

I have written about upcoming changes in Estonian AML law on our website here. Since June, 2019 there have been added 2 more things — share capital have to be at least EUR 12.000 and bank account must be opened with financial service provider registered in EEA. Changes will (most probably) become effective on 10.03.2020. and there will be a transition period for companies holding the licenses to adapt until 01.07.2020. Today (06.12.2019) the FIU has issued 1068 virtual currency e-wallet licenses and 1137 crypto exchange licenses (source: Operating licenses in Estonia). This is a mind-blowing amount of licenses. The FIU is issuing on average around 100 licenses per month. It is only obvious that some changes had to happen, because in many situations these licenses are used as a “shield” for providing some sort of legitimacy for shady ICO's and non-existent scam exchanges. I am mentioning it here because, in my opinion, upcoming changes in AML law is one of the main reasons why there is a demand and offer of ready-made crypto exchange / e-wallet companies in Estonia.

There are times when ready-made company is a good idea. However, when it comes to Estonia, it almost never is a good idea. And when it comes to licensed legal entity, then for sure it is not a good idea. Company incorporation in Estonia is so easy that it even holds World Record in the fastest company incorporation done in 18 minutes (source: Awards and Honours). This means that ready made company in Estonia in general doesn't make sense, because the process of incorporation is THAT fast. However, there is an offer on the market of these services and obviously there is a demand as well. Such companies are usually bought by people who are in a hurry to have their Estonian company and are waiting for their e-Residency cards. Up until the moment when ultimate beneficial owner is able to make the share transfer, there is a nominee shareholder and director who issues Power of Attorney to true UBO in order to control the company. Usually share transfer happens on basis of apostilled power of attorney where true UBO authorises someone from “consulting company” to go to the notary office and make required changes. Please note that share transfer in Estonia must be a notarial transaction and you won't be able to transfer shares to yourself online through Company Registration Portal. Together with document legalisation and delivery the share transfer to the UBO usually takes around 1 month. There could be situations when someone is in a such hurry to do it this way, however, from my 10+ year experience in the field of international corporate law, I can say that “consulting companies” are using this as a marketing tool in order to get a fast cash.

Nominee directors / shareholders. In Estonia information about owner and director of the company is a public record. This is one of the main reasons why people choose to use nominee directors / shareholders. I must inform you right away that from perspective of the Financial Intelligence Unit of Estonia, nominee directorship in Estonia is illegal, as it contradicts with provisions set out in the Commercial Code of Estonia, section 180. This is obviously ignored by many service providers out there and people are still buying companies and using nominees.

There are service providers who are offering ready-made companies with crypto licenses who have nominee director / shareholder. In my opinion, you should NEVER buy such a company. This is fast cash easy money to service providers and hassle for company or person who has actually bought such a company. Here's why:

1. The Financial Intelligence Unit of Estonia. As I state above, their opinion about nominee directorship is that it is illegal per se. Which means that at the moment when they will detect that company is using nominee director, they shall revoke all operating licenses.
2. All changes in company's structure must be notified with the FIU. This means that when company gets a new UBO / director, it must notify the FIU and provide required documents. So, even if you have bought the company which has the license, you will still have to go through due diligence process and provide all required documents. Such as apostilled certificate of criminal records. If the FIU doesn't approve new owner / director of the company, it revokes existing licenses.
3. Reputation risk. In Estonia all this information is a public record and if you are serious of running business with licensed EU company, then you have to ask yourself do you want that the first director / shareholder of your company has been in the same position in 100+ other companies?
4. Complicates your life. There are many situations where you will require signature from legal director of the company. The easiest example is with the bank account opening. So you will have to contact your service provider and ask their assistance (read pay) for signing bank account opening application.
5. Makes it harder to open the bank account. This point is actually used by many service providers as an advantage for account opening. Pardon my French, but this is complete nonsense. Every financial institution requires to name the account user and UBO. If you decide to ignore this and list there name of the nominee, then there is no point of reading further. However, if you are reading just out of curiosity, then not only you are breaking several laws and financial institution policies, but you are risking that nominee will decide to go to the financial institution, change all user access and take full control of the account. And you are doing this by “owning” licensed institution which has to follow AML rules and regulations. Crazy.
6. Risk of losing control over your business. If you decide to ignore all 5 previous points and start to use ready-made company with nominee director / shareholder, then there is a risk of losing control over your company. Just think about it — you won't be the legal owner of the company. Obviously, you will have a Power of Attorney and even some (shady) contracts proving true ownership, however, the legal owner and director of the company will be a nominee director.

Conclusion:

It is illegal, dangerous, complicated and bad for reputation to buy a ready-made licensed crypto exchange / e-wallet company in Estonia with nominee director / shareholder. Don't do it.

So far Estonian licensed crypto companies have been used for many goals which are non-related with the license of their operating activity. This is going to change with amendments of the AML law. We will write about the new amendments later on December, however, one is clear — with new requirements in place, licensed cryptocurrency service providers in Estonia will be closer to a licensed financial institutions and only companies with serious business intentions will be able to obtain and keep the license.