How The New Estonian AML Act Affects Virtual Currencies

New definitions, license fees, and demands
Estonia

On the 10th of March 2020, Estonia has issued an update to their Money Laundering and Terrorist Financing Prevention Act (AML Act). The amendments directly affect virtual currency service providers in the country.

The 1st of July 2020 is the deadline for the licensed businesses to bring their operations and documents into compliance. So if you have a crypto license in Estonia, we encourage you to read our guide and take action.

What changed for crypto

The term of virtual currency service itself is expanded to “those services that facilitate the exchange of virtual currency against a fiat currency, the exchange of fiat currency against virtual currency as well as the exchange of virtual currency against another virtual currency” (AML Act, §3).

Along with the new definition, the Estonian AML Act gives crypto higher license fees, tougher AML demands and verification procedures. Here, you can see the overview of the main changes.

  • Virtual currency service providers are now regulated equally to financial institutions;
  • Two previous crypto licenses merge into one;
  • The state fee for a new license application is increased from €345 to €3300;
  • The act imposes obligations concerning internal AML procedures and verification demands;
  • Share capital minimum is being increased from €2500 to €12000;
  • Registered office, actual business, and management needs to be located in Estonia.

Sanctions: For those who will choose to overlook the new requirements, non-compliance with the AML Act can lead to fines up to €400 000 and their license revoked.

Now, let’s dive into details of the main requirements crucial to the Estonian-based businesses.

Increased licensing fees

The fee for a crypto license has increased from €345 to €3300. On top of that, the previous two licenses “providers of a service of exchanging a virtual currency against a fiat currency” and “providers of a virtual currency wallet service” have merged into one—“providers of a virtual currency wallet service”.

KYC/AML client processing standards

For certain clients verification of data with the help of video identification feature and eIDAS-compliant tools becomes compulsory.

1. Non-Estonian residents of the European Economic Area (EEA)/EU countries

Transactions: beneath the thresholds.

Identity verification: any risk-based approach that was used previously (doesn’t require technology).

Accepted documents:

  • a driving license that meets the Identity Documents Act criteria;
  • a travel document issued by the customer’s country of residence or citizenship;
  • any document listed in the Identity Documents Act issued by Estonian authorities (a digital identity card, a residence permit card, an Estonian citizen’s passport, a diplomatic passport, a seafarer’s discharge book, an alien’s passport, etc.).

2. Estonian citizens

Transactions: beneath the thresholds.

Identity verification: any risk-based approach that was used previously (doesn’t require technology).

Accepted documents:

  • any document listed in the Identity Documents Act issued by Estonian authorities;
  • a driving license that meets the Identity Documents Act criteria;
  • a valid travel document issued in a foreign country, or a birth certificate specified in the Vital Statistics Registration Act (if a person is below the age of seven).

3. E-residents or residents of countries outside the EEA, or
Residents of countries of the EEA

Transactions:

  • for E-residents and residents of outside the EEA — any;
  • for EEA residents — the total volume of above €15,000 per month or of above €25,000 per month for legal entities.

Identity verification: via technology that must include video identification.

Accepted documents for non-Estonian citizens:

  • any local identity document verified via an EIDAS-certified tool;
  • an Estonian-issued digital identity card (if the person has it), and a travel document.

Accepted documents for Estonian citizens:

  • an Estonian-issued digital identity card;
  • any other Estonian identity document specified in the second paragraph of this list + an EIDAS-certified tool.

Apart from directly affecting the process of the KYC/AML, there are some additional requirements crypto businesses should be aware of.

What else is there to look out for

The AML Act introduces new demands to the internal structure, share capital size, location of the payment account and the HQ.

  • The size of share capital

Share capital minimum is being increased to €12 000 instead of the previous standard of €2500 for an LLC.

  • Demands to the compliance officer

Appointment of a qualified and experienced compliance officer, who has the competence, means, and access to relevant information across all the structural units of the business.

  • Initial management assessment

From now on, The Financial Intelligence Unit (FIU) will demand proof of the board of directors’ level of education, work experience, nature and duties of earlier posts, training, etc.

  • Estonia as a primary business location

Merely having the headquarters of the company in the registry without its physical presence in Estonia won’t work anymore as the authorities will be verifying it by visiting the location. The essential management and the company’s compliance officer must also be placed in Estonia.

  • Payment account in Estonia

Businesses will need to have a payment account with a credit institution, an electronic money institution or a payment institution established in Estonia or EEA with cross-border services or a branch in Estonia.

The updated Estonian AML Act is an untrodden path to all crypto businesses that will have to adjust to compliance by the approaching deadline in July.