Nearly 400 Virtual Asset Service Providers (VASPS) in Estonia have voluntarily shut down or revoked their authorizations after the government's recently strengthened Terrorist Financing Prevention and Anti-Money Laundering Act (AML) came into force in March.
The revised law broadens the definition of VASP, requires companies to have legal ties to Estonia, increases licensing fees and capital and information reporting requirements, while introducing the Financial Action Task Force travel rule. Nearly 200 domestic crypto service providers have volu ntarily shut down since the March 15 amendment to the Anti-Money Laundering Act, according to a May 8 statement from the Estonian Financial Intelligence Unit (FIU).
A further 189 people also had their authorizations revoked for "failure to meet requirements".
"Given the submissions of service providers who lost their authorization, as well as their methods of operation and the risks involved, it can be said that lawmakers reacted to the amendment of the bill and the supervisory activities before and after," noted Matis Mäeker, Head of Financial Intelligence Unit, adding: "When it comes to renewal mandates, we've seen situations that have taken every executive by surprise." Estonia registered 100 active crypto firms as of May 1 following a massive cleanup, according to the FIU .
The FIU highlighted some of the common problems it found among companies that were forcibly shut down, particularly related to misleading company information. To give a few examples, some companies have registered board members and corporate contacts who are not known to actual individuals. There are a lot of people at other companies who fake professional backgrounds on resumes.
It appears many companies also copied and pasted the same business plans from each other, which were also found to lack "any logic or connection to Estonia". Over the past few years, Estonia has made a deliberate effort to enact strong anti-money laundering laws across the board. This is largely due to the discovery in 2018 that some $235 billion worth of illicit capital had been laundered through the Estonian branch of Danske Bank, a major Danish bank.
The ongoing war between Russia and Ukraine has also had an impact, as Estonia has pushed to "cut off revenues that support the Russian war machine and protect the international financial system" by passing tough anti-money laundering regulations as part of its partnership with the United States. Another factor that may have contributed to the recent tightening of anti-money laundering laws is its membership of the European Union, which therefore means it will soon have to implement the upcoming Market in Cryptoassets (MiCA) law, which is due to come into force in early 2025.
Under MiCA, crypto firms will be subject to strict anti-money laundering and terrorism prevention requirements.
