Crypto licenses of some 500 crypto firms regulated by the Estonian FIU are in serious trouble as of today after a serious money laundering case of $220B involving several crypto exchanges that are licensed in the EU crypto-friendly nation emerged. The regulator is now revoking license applicants who have not ‘gone live’ and plans to also revoke licenses of several operating companies post review.
As reported by Bloomberg, the number of crypto licenses granted in Estonia has been on the rise aggressively since licensing opened in 2017, with a total of 1.4K crypto-asset licenses issued by the Estonian FIU by end of 2019. As reported over 500 of these licenses will be revoked whilst the other 900 will be scrutinized if operations are found to be outside of Estonia.
It is worth noting that most blockchain companies are setup remotely without a physical presence within the country itself, as this was never a pre articulated requirement by the regulator beforehand.
Europe’s Largest Money Laundering Scandal
The $500Bn is now recorded as the largest money-laundering scandal in Europe. It was reported that during 2017-2018 funds to the value of $220 Billion were being funneled through the Estonian unit of Dankse Bank from Russia into the West. As a result, the reputation of the Estonian Financial Authority is heavily damaged.
Estonian Crypto licenses
Estonia is known as one of EU’s most popular crypto-friendly countries and up til this week also bragged of its 1000+ crypto licenses and associated companies registered in its jurisdiction.
Known for its highly digitalized processes for e-residency and its company registration (1-2 working days) along with its quick and easy 60-working day grant or refusal for crypto licensing, Estonia is perceived as highly lucrative jurisdiction for a startup in the blockchain and fintech space since the cost of their license is known for being relatively cheap.
Alternative Crypto licenses in the EU
Malta, formally known as ‘Blockchain Island’ was criticized earlier this year for its inability to issue its crypto licenses to crypto exchanges and follow through with its promises of being the leading jurisdiction for crypto-assets and DLT within the EU. As reported by all leading media earlier this year reports emerged that 70% of companies who had intended to become licensed in Malta had retracted their application.
It is undeniable that Malta certainly took their time setting up processes but longer processes tend to mean more diligence. Malta puts responsibility and accountability upon VFA agents who all had to obtain licenses just to be able to present prospective licensees to the responsible regulator. Find a list of VFA agents in Malta here.
On learning of the money-laundering scandal and the involvement of Estonian licensed players, Jonathan Galea MD of Blockchain Advisory a licensed VFA Agent and leading blockchain advisory firm in Malta turned to Facebook to say:
”Had to wait a couple of years, but here’s finally the incontrovertible answer to the question I’ve been asked a million times: why apply for a crypto license in Malta and wait 6 months, when I can go to Estonia and get it in 2 weeks?”
Unlike Estonia, Apart from vigorous startup requirements for VFA agents, Malta has a viciously detailed application process for the licensing of entities that deal with cryptocurrencies along with a number of safeguarding procedures strict monitoring requirements. Malta has yet to regulated any crypto exchange businesses but several companies are in the process of obtaining a license.
Crypto licenses and Reputation
Reputable regulators and any kind of licenses always come at a price. It is the regulator’s job to safeguard citizens who interact with the company but to also drive forth the reputation of all companies regulated under its authority. For the regulator, this means that the regulator should not only be diligent during the application process but also continuously monitor these companies. Failure to monitor and situations result in scandals that look extremely bad for the regulator, jurisdiction, and any legitimate company with a license within this space.
Read about other International Crypto Regulation Landscape here