Personal opinion of our fintech lawyer Nikolay Demchuk
It was interesting to read articles on various news websites about 500 Estonian crypto companies losing their licenses in 2020. Why was it interesting? I believe the authors of these news websites are trying to create hype by attributing the loss of licenses to the money laundering scandal in Estonia around 2018. I don’t believe this to be the case.
For example, let’s take the article provided by Cointelegraph. You can read it here. I refer to Cointelegraph because many other news sites refer to this as a primary source. Starting from the headline, you can see that authors are indicating that 500 licenses were revoked because of the money laundering accusations against Danske Bank’s Estonian branch involving 220 billion Euros. The first two paragraphs of the Cointelegraph article also mix the money laundering scandal with the loss of 500 licenses. However, the third paragraph of the article cites Madis Reimand, head of Estonia’s Financial Intelligence Unit that more than 500 companies — about a third of the total — had failed to start operations in Estonia within six months of being licensed, saw their permits withdrawn. The Estonian Money Laundering and Terrorist Financing Prevention Act, which regulates cryptocurrency businesses, specifically states:
§ 75. Revocation of authorisation
In addition to the grounds provided for in subsection 1 of § 37 of the General Part of the Economic Activities Code Act, the Financial Intelligence Unit will revoke authorisation specified in subsection 1 of § 70 of this Act where:
3) the undertaking has not commenced operation in the requested field of activity within six months from the issue of the authorisation.
Therefore, it is my opinion that the true reason for the licenses being revoked is that those 500 crypto companies licensed in Estonia did not comply with the law, rather than the 2019 Danske Bank scandal. There may be different reasons why they did not manage to start its operations within 6 months time, but dura lex, sed lex! Moreover, such a clause was introduced to the Estonian law before the Danske Bank scandal which leads to a question of how exactly the Danske Bank case is related to the loss of cryptocurrency licenses.
However, it should be emphasized that crypto companies are considered to be high-risk businesses for supervisory authorities. This requires more attention in order to properly supervise crypto companies for compliance with the relevant legislation.
Why did I decide to write about this?
The article provided by Cointelegraph might give the impression that Estonia plans to shut down a cryptocurrency business. This impression is wrong. Estonia welcomes any businesses including cryptocurrency business if they are ready to comply with the law and work within the legal framework.
I stand for accurate information provided by big media groups.