The Impact of Estonia's New Anti-Money Laundering Law on Virtual Currencies
In a significant move to combat money laundering and terrorist financing, Estonia has updated its Money Laundering and Terrorist Financing Prevention Act to impose stricter Anti-Money Laundering (AML) and licensing requirements on Virtual Asset Service Providers (VASPs). These updates, effective from March 15th, 2022, bring Estonia in line with EU and Financial Action Task Force (FATF) standards.
Mandatory Licensing and Enhanced AML Measures
All entities providing virtual asset services, such as exchanges, wallet providers, and virtual currency issuers, are now required to obtain a license. Operating without a license is prohibited, and license applications must demonstrate robust AML/CFT (Counter Financing of Terrorism) compliance frameworks.
Enhanced Customer Due Diligence (CDD)
VASPs must adhere to full Know Your Customer (KYC) protocols, verifying the identity of customers and beneficial owners. They are also mandated to maintain records and monitor transactions for suspicious patterns.
Application of the FATF Travel Rule
VASPs are required to follow the FATF Travel Rule, sharing originator and beneficiary information when transferring virtual assets. This measure aims to prevent illicit fund flows.
Reporting Obligations
VASPs must report suspicious transactions to Estonian authorities and undergo ongoing supervision and audits to ensure compliance.
Scope of Regulation
These licensing and AML rules apply not only to crypto exchanges and custodial wallets but also extend to providers facilitating virtual currency transfers and issuance services. This comprehensive regulatory framework covers all core VASP activities.
Regulatory Gray Area
Non-custodial wallets and Decentralized Finance (DeFi) platforms currently exist in a regulatory gray area but may face future regulation as Estonia aligns further with EU-wide frameworks such as MiCA.
These measures aim to strengthen transparency, reduce risks related to money laundering and terrorist financing, and align Estonia’s crypto regulatory environment with international standards. VASPs will also be required to retain documents that they gathered in compliance with the Travel Rule.
[1] For more information on the specifics of the amendments, please refer to the amended AML Act and the relevant guidelines provided by the Estonian Financial Intelligence Unit (FIU).
[5] Estonia is one of the first jurisdictions to change its legislation to comply with the FATF's Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers.
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