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Estonia’s financial institutions are developed and ensure transparency as its laws are well-defined. However, money launderers and organized crime gangs are still attracted to the country due to its location. Under the obligation of suspicious transaction reports, the money laundering activities show the flow of illegal money into Estonia. Online gambling and gaming services are legalized in the Estonian Gambling Act. In addition to this, the global movement of regulating cryptocurrency has also reached Estonia, whereas the country is among the first to regulate virtual assets in the European Member states.
However, last year, on September 21, the Estonian Finance Ministry legislated a draft to update the Money Laundering and Terrorist Prevention (AML/TP) Act. The amendment aims to make the country safe from any kind of criminal activities. Thus, the law is still in the consultation phase but decided to take control on February 1, 2022.
Insights into Estonia’s AML Framework
The finance ministry of Estonia is accountable for regulating financial institutions and making policies to curb the monetary crimes in the country. The Financial Intelligence Unit (FIU) is liable for verifying and analyzing the suspicious transactional activities leading to terrorist financing and money laundering. Financial firms as well as virtual asset service providers are obliged to make risk assessments and suspicious transaction reports to FIU. Therefore, all the regulatory obligations are overseen by Finantsinspektsioon, which is the country’s Financial supervision and resolution authority
Additionally, there is a designated government committee that is established just only to deal with money laundering and terrorist financing activities. Members of this committee include the tax officer, finance minister, customs representatives, the Central Bank of Estonia, and the Supervision Authority.
To identify and deter financial crimes, the Country has the “Anti-Money Laundering and Terrorist Financing Prevention Act” which was legislated in 2008 as an anti-crime prevention standard. Estonian AML/CTF regulations are according to Financial Action Task Force (FATF) and European Union standards. This implies on all the financial as well as non-financial businesses.
Suggested Read: 40 recommendations of FATF – Shaping the future of your business
Updated AML Regulatory Requirements for Estonia
The update in the anti-money laundering framework applies to all financial service providers, but it’s majorly targeted cryptocurrency and digital currency providers that are working in Estonia. Under the newly amended bill all the decentralized platforms, NFTs, ICOs, and numerous other services fall under this category. Since 2020, cryptocurrency is regulated as does the FI.
FATF Risk-Based Approach for VASP
Before this amendment, the AML law was only implied on the crypto exchanges and digital wallet services. However, after the draft was published, the scope extended, which now includes cryptocurrency transfer services, operations associated with the issuance of digital assets i.e trading platforms. In accordance with FATF Recommendation 15 (Risk-based Approach), all the digital asset service providers are regulated for AML and CFT purposes. Due to this, they can get registered or licensed and must implement robust suspicious transaction monitoring systems. These all efforts amid to prevent money laundering and terrorist financing.
Following are the businesses that are obliged to comply with AML compliance under the amendment:
- Brokers, trading service providers, or any intermediaries service provider dealing with virtual assets
- All decentralized platforms. In the case where the website belongs to an individual, not to any legal entity, it will be considered as a VASP
- Business facilitating the third-parties transaction
FATF Travel Rule for VASP
The Financial Action Task Force‘s Travel Rule is also named Recommendation 16. It also aimed to halt money laundering activities taking place in Estonia. Under this law, all financial institutions, as well as cryptocurrency businesses, are obliged to gather the personally identifiable information of customers whether receiver or sender exceeding 1,000 USD/EUR. However, there are some particular standards for the information gathering for senders. This includes collecting additional data such as an address, government-issued ID card number, and date of birth. According to the amendments, the travel rule obligates the financial institution to share customer information with the international regulatory bodies regarding the transactions.
Effective ways for Financial Institution to Comply with AML Compliance
Hire AML Officer
All the financial firms and crypto service providers need to hire an anti-money laundering compliance officer as it holds particular knowledge regarding AML obligations and the consequences of not being AML-compliant. This is because the AML regime is becoming stricter and complex, due to which quick changes are needed. Thus, it’s crucial for businesses to hire AMLO that will surely help out to prevent money laundering and sanctions.
Robust Identity Verification Systems
Identity verification systems are becoming the new norm as they can assist financial businesses to identify and verify the customers before getting them on board. This is the only way through which businesses can distinguish between the legit client and money launderers.
Anti-Money Laundering Screening
AML screening solution is an ideal option for businesses as it holds the power of screening the customers and categorizing them accounting for the potential risk clients possess. Background screening checks thoroughly verify customers against the PEPs, financial crime databases, and global watchlists. Additionally, this also allows businesses to fulfill enhanced due diligence obligations.
Suspicious Transaction Reporting
As financial firms and crypto exchanges are becoming primary targets of money laundering and terrorist financing, the need to report suspicious activities to regulatory bodies is getting more crucial even than before. To curb criminal activities AML compliance is developed. To fulfill regulatory obligation business needs to incorporate suspicious transaction monitoring and reporting systems that can back them to determine the transactional patterns and make a risk assessment. Additionally, such systems can keep the records in a well-managed way so that reports can be shared with financial watchdogs instantly.
What Shufti Pro Offers
Shufti Pro provides an anti-money laundering screening solution that is embedded with all the features that can assist businesses to stay put with the AML compliance obligation. Businesses opting for AI-backed AML screening services can easily distinguish between the legit customer and the fraudster. Following are the key benefits of Shufti Pro’s AML screening;
- Determines the real identity of the customers in less than a second
- Generate results with 98.76% accuracy
- Screenings the customers against 1700+ global watch lists
- Fulfills the EDD obligation to make risk assessments
- Helps to stay put with the global changing AML regime and secures businesses from regulatory sanction
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