Are digital citizens becoming a legal safe haven? Half of Estonia's cryptocurrency companies may face license revocation

In the small Eastern European country of Estonia, with a population of only 1.3 million, it has drawn attention for its high level of digitalization. People around the world can become "e-residents" through the e-resident system. Becoming an e-resident of Estonia is particularly beneficial for overseas corporate entities, as they can legally establish a company within the European Union and enjoy preferential tax treatment with this digital citizenship. Since 2017, Estonia has been issuing licenses for cryptocurrency-related companies, and by 2019, Estonia had issued 1,300 cryptocurrency asset licenses.

Not a Place for Identity Laundering

However, the country's financial regulatory authorities have also started to worry that such companies may engage in fraud in other regions through their EU company identities. As a result, they expressed in this week's meeting that they hope to clean up the market and allow only companies that are regulated by and compliant with Estonian measures to operate.

According to the unit's statistics, out of 56 inspections in 2019, 34 cryptocurrency-related companies were suspected of misappropriating customer assets or providing financial services overseas without authorization.

Estonia will conduct audits on companies that have not started operations in the country within six months of obtaining a license. Madis Reimand, head of the financial regulatory authority, stated that there may be over 450 cryptocurrency-related companies whose licenses are revoked because they have no operations in the country or their managers are overseas.

Notorious Money Laundering Record

In fact, Estonia's tainted record may have influenced their regulation of the cryptocurrency industry.

From 2007 to 2015, the Estonian branch of Denmark's largest bank, Danske Bank, processed a total of $220 billion in suspicious transactions. The branch transferred assets through offshore accounts and facilitated the concealment of assets for Russia in gold bars and coins.

Since then, the country's financial regulatory authorities have been vigilant about financial crimes. The transferability and anonymity of cryptocurrencies have also raised concerns.