Estonia’s Stringent Approach to KYC, Beneficial Ownership, and AML Regime in the Banking Sector

Identity Verification and KYC in Estonia

• Estonia demands valid identity cards for onboarding domestic and international individuals.
  • Domestic persons use identity cards for identity verification.
  • International applicants must comply with international KYC standards, presenting authentic identity documents like passports or national ID cards.

Corporate Requirements for KYC in Estonia

• Legal entities’ identification and passive legal capacity verification is crucial.
  • Estonian companies require registration certificates.
  • Foreign legal entities need additional documentation, such as extracts from relevant registers or transcripts of registration certificates.

Beneficial Ownership Identification and AML Regime

• Obliged entities must identify beneficial owners of legal entities, trusts, partnerships, and other structures they deal with.
  • Enhanced due diligence measures for high-risk relationships, professional services, non-face-to-face transactions, and suspicious activities.

Estonia’s AML Regulations and Supervisory Framework

• Estonian Financial Intelligence Unit (FIU) and Estonian Financial Supervision Authority (EFS) collaborate to enforce KYC and AML requirements.
• Regulations and laws became effective in 2008.

Customer Due Diligence Measures

• Application of due diligence measures upon business relationship establishment and suspicion of money laundering or terrorist financing.
• Identifying the origin of funds and implementing risk-based internal procedures.

Dealing with Politically Exposed Persons (PEPs)

• Increased due diligence focusing on verifying identities and assessing potential connections.

Correspondent Banking Relationships

• Regular assessment based on public information regarding reputation, trustworthiness, and supervision.
• Prohibited from opening or holding correspondent accounts with non-compliant entities.

Suspicious Transaction Reports (STRs)

• Reports to Estonian FIU and European Union’s Financial Intelligence Unit (EDD) for correspondent banking relationships.

Data Protection and Privacy

• Strong emphasis on data protection, with restrictions on sensitive personal data transfer.

Use of Technology in Suspicious Transaction Monitoring

• No legal requirement to use automated suspicious transaction tools, but encouragement for adoption to improve fraud detection, risk assessment, and regulatory compliance.

Assessing AML Systems and Controls

• Mandatory assessment for entities dealing with Estonian-registered credit institutions.
• External auditors report any material violations to the Estonian Financial Supervision Authority (EFS).