Financial Crime World

Estonia’s Anti-Money Laundering Regulations: Strengthening Trust and Transparency in the Financial System

In Estonia, the Money Laundering and Terrorist Financing Prevention Act, enacted on October 26, 2017, aims to enhance trust and transparency within the economic space of the country by preventing money laundering and terrorist financing activities.

Purpose and Scope (Section 1)

The Act prescribes its purpose as increasing the trustworthiness and transparency of business dealings within Estonia’s financial system. This law covers various aspects, including:

  • Principles for assessing and managing financial risks
  • Establishing the groundwork for the Financial Intelligence Unit
  • Supervision of obliged entities
  • Obligations of legal entities regarding their beneficial owners and liability account holders

Definitions (Section 3)

To implement these regulations, several definitions are established. Notable definitions include:

  • Obliged entity: An entity that is obliged to comply with the provisions of the Act.
  • Business relationship: A relationship between a client and an obliged entity based on which the obliged entity derives income and which involves recurring transactions.
  • Customer: A natural or legal person with whom the obliged entity conducts a business relationship.
  • Virtual currency: A digital representation of value that can be digitally transferred, stored, or traded to be used for payment or investment purposes.

Money Laundering (Section 4)

Money laundering is defined broadly in the Act as:

  1. Converting proceeds of criminal activity into funds that appear lawful.
  2. Transferring or disguising proceeds of criminal activity as proceeds derived from a lawful source.

The Act also recognizes the role of accessories, aiding or abetting, and participation as forms of money laundering.

Terrorist Financing (Section 5)

Terrorist financing is defined as:

  1. The financing, or provision or collection of funds, directly or indirectly, for a terrorist act or for the preparation or planning of a terrorist act.
  2. The financing, or provision or collection of funds, directly or indirectly, for an organization or person who commits or participates in terrorist act.

Responsibilities of Credit Institutions and Financial Institutions (Section 6)

The Act outlines the responsibilities of credit institutions and financial institutions, including:

  • The provision of long-term banking services between financial institutions, known as correspondent relationships.
  • The introduction of the term ‘provider of trust and company services.’

Risk Assessments (Section 11)

To ensure effective implementation of these regulations, annual national risk assessments are conducted:

  1. Provide guidance for drafting and amending anti-money laundering legislation.
  2. Set priorities for combating money laundering and terrorist financing.
  3. Designate responsibilities for various government authorities.

Estonian Ministry of Finance oversees these procedures, with the AML/CFT Committee driving:

  1. Development of national risk assessments.
  2. Action plans.
  3. Policies.

Obliged Entities’ Responsibilities (Section 13)

Obliged entities are expected to conduct their own risk assessments:

  1. Establish risk appetite.
  2. Implement risk management models to mitigate identified risks.

The Act outlines the rules of procedure and internal control rules for obliged entities, including:

  • Due diligence measures.
  • Employee screening procedures.