Policy Review Forces Crypto Crackdown in Estonia

After initially embracing cryptocurrencies five years ago, Estonia is now reconsidering its position in light of a policy review.

The Council of Europe is expected to review its anti-money laundering enforcement policies early next year. Consequently, the Baltic nation, which has become a hub of digital asset exchange, is considering enhancing oversight on its cryptocurrency sector.

“We will toughen our supervision, we will toughen our approach which concerns the market entry,” said Matis Maeker, the director of Estonia’s Financial Intelligence Unit (FIU). “We were the first country to regulate them, this was a gateway for them to have a license because no one licensed them.”. An independent body affiliated with the Finance Ministry, FIU can grant and revoke cryptocurrency licenses. 

FIU supervision

In 2018, Danske Bank’s Estonian unit handled €200 billion ($232 billion) of suspicious transactions, causing a money laundering scandal. Since then, financial authorities have withdrawn about 2,000 licenses for crypto exchanges. Now, the government is considering requiring audited annual reports, higher capital levels, as well as due diligence thresholds on transaction volumes. 

FIU has also collected key data about the crypto companies operating in their country. For instance, the top customers of Estonia’s crypto sector are in the US, Venezuela, Russia, Vietnam, Indonesia, Brazil and India. Additionally, these firms have handled over €20 billion, equivalent to more than 40% of the Estonian banking sector’s cross-border payments, Maeker said.

Meanwhile, only 10% of crypto-service providers in Estonia had accounts with local banks, according to a 2020 study. Another 40% banked with Lithuanian institutions while 20% worked with lenders from the UK.

According Maeker, if Estonian officials had been aware of the risks associated with crypto companies in 2017, they likely would not have allowed such unchecked growth. “Definitely the decision would have been different,” he said. “We are learning, but I also want to make the remark, the entire world is learning.”

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