Estonia Falls Short on Continuous Regular Supervision, Calls for Improvement
Risk Assessment in Non-Profit Organization (NPO) Sector
The Estonian authorities have been commended for their efforts to assess risk in the NPO sector. However, a recent study by the Estonian Financial Intelligence Unit (EFIU) highlighted the need for better understanding of risks and identification of specific subsets of NPOs. The report called for expansion of data analysis and scope of considerations to improve risk-based preventative measures.
Banking Sector Progress
In contrast, the banking sector has made significant progress in understanding its money laundering (ML) and terrorist financing (TF) risks. Preventive measures have improved since 2020, with most reports coming from this sector. However, a concentration of risks was noted among a small number of banks with higher risk appetites, particularly in correspondent relationships with foreign high-risk businesses.
Virtual Asset Service Providers (VASPs)
Virtual Asset Service Providers demonstrated a superficial understanding of risks and general mitigating measures applied. Control systems were found to be insufficient, and the quality and compliance of the sector received reinforced supervisory attention.
Corporate Service Providers (CSPs) and Licensing Process
Other sectors, such as Corporate Service Providers, showed insufficient risk understanding and less effective preventative measures, with alarmingly low reporting levels. The licensing process for financial institutions by the Estonian Financial Supervision Authority (EFSA) was found to be comprehensive, but the EFIU’s procedures were less effective in the VASP sector.
Shortcomings
The SRBs assessment processes were also criticized for being limited and lacking thoroughness. The EFSA has comprehensive risk analysis tools, but the country lacks systematic and consolidated analyses of important determinants and factors of risk. Measures to prevent misuse of legal persons at the level of companies and competent authorities are inadequate, leading to poor quality BO information.
International Cooperation
International cooperation was found to be constructive, with Estonia providing MLA and extradition to EU and non-EU Member States. However, major improvements are needed when seeking assistance to seize and confiscate assets moved abroad.
Priority Actions
To address the concerns, the following priority actions have been called upon:
- 1. Enhance ML/TF Risk Assessments: Estonia should take measures to significantly enhance the understanding of ML/TF risk faced by the country through improvement of nation-wide ML/TF risk assessments so as to provide for uninterrupted coverage of considered periods, timely endorsement and dissemination of relevant outcomes.
- 2. Improve Data Analysis in NPO Sector: Improve data analysis and scope of considerations to improve risk-based preventative measures in the NPO sector.
- 3. Enhance International Cooperation: Enhance cooperation with foreign counterparts to ensure effectiveness of international cooperation.
Conclusion
The Estonian authorities have been urged to take immediate action to address these concerns and strengthen their fight against money laundering and terrorist financing.