Bad actors exploited Estonia’s once liberal licensing regime for crypto companies to defraud investors and commit other crimes, an investigative report claims. The authors say they discovered dozens of such cases, including scams and schemes for sanctions evasion and money laundering. Since Tallinn tightened its rules, many of these entities have left Estonia, whose banking sector was accused of similar sins in recent years, and on a larger scale.

Crypto Platforms Registered in Estonia Facilitated Fraud, Russian Payments, Report Alleges

Estonia’s previously lax requirements for crypto businesses seeking to provide EU-licensed services, turned the small Baltic nation into a “hub of financial crime,” according to research conducted by Vsquare, a network of media outlets focused on cross-border investigations in Central Europe.

The journalists said this week they had analyzed nearly 300 of these companies and found dozens of cases of fraud, money laundering, and sanctions evasion as well as illicit financing of criminal and paramilitary organizations such as those participating in the bitter conflict in Ukraine.

Authorities in Tallinn introduced a crypto-friendly licensing system in 2017 to attract businesses dealing with digital assets and over the past several years the number of licensed entities in the sector exceeded 1,600. But over a third of them used the services of just three company formation agencies.

These agencies offered local specialists for the roles of anti-money laundering (AML) officers and executives. Among them, a taxi driver in debt, a welder banned from welding, a jobless plumber, and a person living in a state-funded home who were collectively responsible for more than 60 crypto firms.

According to the report, such “Estonian” companies, which hired actors and created fake profiles, had links to Russia’s intelligence services and its sanctioned banks, and were behind dozens of cases of international fraud causing estimated damages of over €1 billion (approx. $1.06 billion).

The examples provided in the article include that of Cyfroncapital OÜ, a firm owned by Kirill Doronin, the mastermind of the large Russian crypto pyramid Finiko, which had a valid Estonian crypto license for almost three years, until July 2022. Cyfron developed the mobile app of the Ponzi scheme.

According to blockchain forensics company Chainalysis, funds collected by Finiko were laundered through Garantex, a cryptocurrency exchange with offices in Moscow which was operated by the Estonia-registered entity Garantex Europe OÜ.

Sanctioned by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) in April 2022, Garantex was also used to raise funds for Rusich, a paramilitary unit fighting in Ukraine under the command of the Russian mercenary group Wagner, according to crypto analytics firm Elliptic.

“Donating money to this kind of organization via the traditional banking system would be very difficult, because of the tight money laundering regulations and SWIFT sanctions against Russia,” say the authors of the study conducted by Vsquare and its partners in several EU member states.

However, only a few years ago Estonia’s banking sector was at the heart of a massive money laundering scandal with authorities in Europe and the U.S. investigating the transfer of $150 billion from Russia and other former Soviet states through accounts at Danske Bank’s Estonian branch. Besides Denmark’s largest bank, banking giants Citigroup and Deutsche Bank were also reportedly implicated.

Since Estonia tightened its rules for the industry with amendments to its Money Laundering and Terrorist Financing Prevention Act which came into force in March 2022, many crypto companies have lost their licenses and moved to other European jurisdictions like neighboring Lithuania — this Baltic nation is now home to over 800 firms working with digital assets.

Source : Bitcoin.com News / October 10, 2023