AML Risk Assessment Report Approved by the Money Laundering Prevention Committee

AML

Introduction

The Estonian money laundering and terrorism financing prevention government committee approved at its scheduled meeting, on 28 April, the AML risk assessment (NRA) report. The government committee members also received an operational overview of the activities of the Financial Intelligence Unit, Financial Supervision Authority, Prosecutor’s Office and the Police and Border Guard Board, in the field of preventing money laundering, as well as preparations for the Moneyval evaluation.

The release of the AML risk assessment report is an important step in the fight against money laundering, according to the head of the government committee, Minister of Finance Keit Pentus-Rosimannus. “The cooperation of the public sector with entrepreneurs is important in mitigating the risks, established in the report. Virtual currencies, for example, that have been highlighted as with higher risk, require rapid regulatory changes, to better mitigate the risks. We must at the same time not entirely shut down the innovative sector in Estonia that is throughout the world developing very quickly. It is important to agree upon what kinds of crypto companies we want in Estonia, and which are undesired. The financial system of Estonia must be open to the law-abiding client and closed for violators of the law,” explained Keit Pentus-Rosimannus.

Below, we provide a brief summary made by RCA of the published risk assessment, focusing on the risks, problems, and possible solutions related to the virtual currencies and virtual assets that are mentioned in the report.

Summary of the Published AML Risk Assessment

  1. Under the leadership of the Ministry of Finance, a risk assessment of various sectors was conducted, which is the second time this has been done in Estonia and it covers the years 2017-2019. The risk assessment is a study aimed at highlighting the threats, vulnerabilities and risks related to money laundering, terrorist financing and the financing of the proliferation of weapons of mass destruction in Estonia, as well as the most common ways of money laundering or terrorist financing.
 
  1. The need for a AML risk assessment arose from a number of factors, in particular, due to past money laundering incidents at the Estonian branch of the Danish banking group Danske, but also from other banks. Put together, these cases have been a very serious lesson for Estonia and brought the field of anti-money laundering to the government’s attention.
 
  1. There are areas in Estonia where the risks related to money laundering and terrorist financing are higher than average. According to the AML risk assessment, the biggest threats and vulnerabilities of money laundering and terrorist financing are related to companies in the field of virtual currency with an Estonian activity licence. Up until 2019, the legislation regulating companies in the field of virtual currencies in Estonia was mild, and this facilitated the obtaining of activity licences also for those companies whose connection with Estonia was very small. Legislative changes that came into force in 2020 have helped to reorganize the sector, but urgent further steps are needed by the state to further mitigate the significant money laundering and terrorist financing risks associated with the sector.
 
  1. According to the AML risk assessment, the greatest threats to the Estonian financial sector are related to the movement of funds through Estonian virtual currency service providers and the activities of non-residents or e-Residents companies registered in Estonia that do not take place in Estonia.
 
  1. Among the fields, the providers of virtual currency services with the highest risk are those who have an Estonian activity licence, but whose actual business activities are minimally related to Estonia. They are at high risk for money laundering, terrorist financing and the financing of the proliferation of weapons of mass destruction. The stricter requirements for virtual currency providers that came into force in 2020 have not proved sufficient and there is still a lack of transparencies in the area.
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