Financial Crime World

Estonia’s Money Laundering Detection: A Closer Look Behind the Numbers

A Low Risk Score with a Complex Reality

In 2019, Estonia was hailed as one of the safest countries in the world when it came to money laundering detection, with a risk score of just 2.68 out of 10 according to the Basel AML Index. However, behind this seemingly low risk score lies a more complex reality. The country has been embroiled in several high-profile money laundering scandals in recent years, including the massive Danske Bank scandal which saw over €200 billion worth of suspicious payments channelled through its tiny Estonian branch.

Limitations of the Basel AML Index

According to experts, Estonia’s low risk score is due to the Basel AML Index focusing primarily on detecting and preventing money laundering at a country level, rather than individual institutions or transactions. While this may provide a general indication of a country’s overall risk profile, it doesn’t necessarily mean that every institution or individual within that country is free from money laundering activity.

Red Flags for Money Laundering

Several red flags for money laundering have been identified in recent high-profile cases, including:

  • The use of shell companies in offshore jurisdictions
  • Politically exposed persons
  • Non-resident legal persons

Financial institutions and companies should take these factors into account when assessing country risk, rather than relying solely on a country’s overall risk score.

Geographic Proximity to Russia: A Concern

Estonia’s geographic proximity to Russia is another factor that may not be fully reflected in its risk score. The country has been labelled as one of the first ports of entry for Russian money launderers seeking to gain access to the European financial market.

Despite these concerns, there are also positive trends emerging in Estonia’s efforts to combat money laundering. The country has made significant progress in recent years, including:

  • The creation of a transparent beneficial ownership registry
  • Increased public demand for open information globally

Conclusion

In the long run, it’s likely that more money laundering schemes will be uncovered in countries generally regarded as low risk, including Estonia. However, by responding to these trends and demands by increasing levels of transparency and supervision, governments can demonstrate their commitment to tackling money laundering and keeping dirty money out of their financial systems.