Recently, there were discussions regarding Estonia’s new law on cryptocurrency, the revocation of 500 crypto licenses in Estonia, and companies are exiting from Estonian regulatory jurisdiction.
This month will be dedicated to the topic of how not to lose the cryptocurrency license in Estonia. It will consist of 4 articles. The purpose of these articles is to give recommendations for those who are considering incorporating a crypto business in Estonia and for those who are currently operating in Estonia which could help with not losing their licensing.
There will be several articles on this topic. Let’s start with first one.
Part 1. Recommendation 1.
Do your research before engaging with a legal partner in Estonia
Yes, it might sound odd, but I think one of the reasons why companies are losing their crypto licenses are some consulting companies. I won’t mention specific firms, but I am aware that some consulting companies are conducting very aggressive marketing, and are spamming their adverts for a single reason — to sell a “ready company” with licenses and, in some cases, with a bank account.
Why are they to blame? First, they spam and try to sell their services to everyone who is working in the cryptocurrency business, which I feel isn’t appropriate. Estonian licenses are for very specific services and may not be applicable to everyone who is working in the crypto industry. I have personally met people who bought a “ready company” from one of those consulting companies. When figuring out their business model, I came to the conclusion that they did not really need them.
Second, a bank account, which was opened for a company before the sale, will most likely be suspended or blocked from operating normally when a buyer will start changing the shareholders and directors. In Estonia, banks are very conservative and usually they do not work with crypto business and non-Estonian residents, especially when the company cannot prove the direct connection to Estonian jurisdiction. Having an Estonian company is not enough.
My advice is to “do your own research” when selecting your legal partner in Estonia. Try to avoid consulting companies which are spamming you or employ aggressive marketing. Usually, they do not have time to really dive into your business model to understand what you really need. Their aim is solely to sell you the licenses and other services.
There are also some consulting companies operating or located outside of Estonia, e.g. in Russia, Israel etc. Such companies cannot know the local practice very well. Engaging with them, you risk to receive not accurate information. Moreover, in cases, they will engage an Estonian law firm to help, your fees will be much higher, since the consulting companies will add extra on top of the fees from an Estonian law firm.
Author: Nikolay Demchuk, a fintech lawyer in Estonia
Nikolay is a fintech lawyer based in Estonia who has been working with blockchain clients since 2016. He assisted companies to apply for cryptocurrency licenses and comply with the law.