According to the International Monetary Fund (IMF), Estonia is among the countries with a developed economy and strong financial environment. The Estonian government is continuously developing measures against fraud, especially money laundering. Estonia sees AML laws and regulations’ importance to maintain its developed economy's stability and prevent threats from outside. According to the Basel AML Index Data announced in 2019, Estonia had the lowest risk of money laundering out of 125 countries, which garnered praise around the globe.
Overview of AML
Since Estonia gained its independence in 1991, specific AML laws and regulations have taken many years to be implemented. With Estonia’s admittance into the European Union (EU) in 2004, the Estonian government worked diligently to ensure that international collaboration works effectively. In 2007, plans were made to integrate the First EU Money Laundering Directive (1AMLD) into the Estonian legislation. Several amendments were put in place to solidify Estonia’s AML framework is up-to-date with the EU legislation and the Financial Action Task Force (FATF) recommendations.
With the enactment of the Money Laundering and Terrorist Financing Prevention Act in 2008, Estonia ensured a solid framework for AML compliance. Banks, financial services, gambling organizers, and real estate agents were put under the obligation of this law. Nearly a decade later, Estonia amended this law twice to better align with the ongoing international collaboration in the AML framework. The Fourth and Fifth EU Money Laundering Directives were successfully implemented with these amendments. Estonia continued this collaboration further with the implementation of the Sixth EU Money Laundering Directive (6AMLD).
Despite these efforts, several threats were still active to tarnish Estonia’s successful AML compliance. The Estonian branch of Danske Bank, Denmark’s largest financial institution, was involved in a money laundering scandal around 2017-2018. Since then, Estonia has strengthened its efforts to prevent any fraud in the country.
With the furthering of these efforts, Estonia was found compliant for 7 and largely compliant for 18 of the FATF 40 Recommendations during its latest Mutual Evaluation taken by the FATF in 2022.
The Regulatory Authorities
The Estonian Ministry of Finance is responsible for general policies and activities to prevent money laundering in Estonia. The Estonian Financial Intelligence Unit (FIU) is responsible for analyzing and verifying transactions suspected of money laundering and terrorist financing in Estonia. Organizations with AML obligations have to report suspicious transactions to the FIU.
While the FIU is responsible for reporting the crimes it has detected to the legal units, Finantsinspektsioon (Estonian Financial Supervision and Resolution Authority) is responsible for overseeing obligated organizations in Estonia.
Estonia also established a government committee to combat money laundering and terrorist financing. Members of the Committee are from the Ministry of Finance, the Tax and Customs Board, the FIU, and the Central Bank of Estonia. The Committee informs the government within the scope of combating financial crimes.
AML Compliance Obligations
Organizations under the anti-money laundering obligations in Estonia have certain responsibilities to uphold. Organizations must have an AML compliance officer within their organization. AML compliance officers are inclined to create the organization's AML program. Moreover, organizations must determine customer risk levels by applying Customer Due Diligence (CDD) to their customers. In addition, Enhanced Due Diligence (EDD) must be applied to high-risk customers.
The organizations also have to use politically exposed persons (PEP) lists to control their customers. Organizations must keep customer information for at least five years. Also, if the organization detects a suspicious situation during AML checks, the AML compliance officer should prepare a Suspicious Activity Report (SAR) and report it to the authorized notifications. Various penalties are imposed on organizations that do not meet AML requirements.
Penalties for Noncompliance
The criminal offenses of money laundering and terrorist financing are punishable through imprisonment or fines in Estonia. It has been reported that the Estonian penalties against money laundering vary according to the amount and prevalence of the criminal act. For example, the conclusion of an agreement for the purpose of money laundering is punishable by imprisonment up to one year or fines between €4,000 and €40,000.
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