Estonia is withdrawing licenses in the ‘first step’ of a massive crackdown on cryptocurrency firms. The government’s latest move has put the European nation in the spotlight again following Europe’s biggest-ever dirty-money scandal.
Estonia, a European Union and eurozone member, has been leading the way in the digital crypto revolution. However, the country made a sharp U-turn, and cracked down on digital assets, after allegations that billions of dollars of illicit cash flowed through the local unit of Denmark’s largest lender Danske Bank.
Its latest regulatory efforts target companies that exchange and help clients hold cryptocurrencies — an industry that Estonia was among the first in the EU to license in late 2017. Regulators are concerned with firms using their local credentials to help commit fraud elsewhere.
Under the crackdown on crypto, the government has already stripped more than 500 of these firms — a third of total — of their permits this year, according to Madis Reimand (pictured), who heads the Baltic country’s Financial Intelligence Unit (FIU).
The crackdown on crypto so far has largely concerned companies that failed to start operations in Estonia within six months of getting a permit.
“This is a first step in tidying up the market, allowing us to take care of the most urgent issues by permitting operations only for companies that can be subjected to Estonian supervision and coercive measures,” Reimand said in a phone interview with Bloomberg.
While he didn’t provide specific examples of wrongdoing, Estonia’s crackdown on crypto targets sectoral risks that increased last year amid “extremely fast” growth among service providers, according to the FIU’s annual report, released last Thursday.
Of 56 supervisory inspections in 2019, 34 concerned virtual-currency companies, with Reimand’s unit citing “several cases” of suspected embezzlement of clients or provision of financial services abroad without proper authorization.
Stricter licensing rules have also been enacted by parliament after warnings from supervisors about surging issuance since 2018.
More than half of the remaining 900 crypto companies face losing their licenses as they have no operations in Estonia and their managers are outside the country, according to Reimand.