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Financial Intelligence Unit Reports Incomplete Account of Suspicious Transactions
The Financial Intelligence Unit (FIU) has reported an incomplete account of suspicious transactions by a virtual asset service provider. According to the report, the provider failed to analyze the origin of assets, lacked a full understanding of the client’s activities on their platform, and did not mark the report as urgent despite involving the blocking of a large amount of virtual assets.
Investigation Findings
The FIU received the report following an investigation into the service provider’s compliance with anti-money laundering (AML) regulations. The investigation found that:
- The provider was unable to track the client’s transactions
- They were unable to identify the source or origin of assets used in the transactions
- They did not comply with due diligence requirements
As a result, the FIU imposed preliminary disposal restrictions on the restricted assets, which were later confirmed by the administrative court. The restricted assets belong to victims of investment fraud.
Submission of Information
The FIU submitted the gathered information to the financial intelligence unit of the company’s country of registration, which is an Estonian virtual asset service provider that was used to conduct fraud.
Estonia Faces Increased Risk of Money Laundering and Sanctions Evasion
In light of the ongoing war in Ukraine, Estonia faces increased risks of money laundering and sanctions evasion. The European Union (EU) has established extensive financial and economic sanctions to weaken the Russian economy, deprive it of vital technologies and markets, and limit its ability to wage war.
Economic Challenges
Estonian companies are also facing significant changes in import and export markets due to:
- Rising energy prices
- Increased inflation rates
- Forced reorientation of external trade relations and rethink energy usage
Russian Oligarchs Exploit Estonian Financial System
The war in Ukraine has prompted Russian oligarchs to attempt to exploit the Estonian financial system and companies to evade sanctions using traditional money laundering techniques, including:
- Hiding assets in complex corporate structures
- Converting them to cash or high-value goods
Estonian companies are being used to order goods from other European countries to be exported to Russia via Central Asian countries, while attempts are also being made to transport stolen Ukrainian assets to Estonia or through Estonia.
COVID-19 Pandemic Contributes to Money Laundering Risks
The EU-wide risk assessment published in October 2022 lists the after-effects of the COVID-19 pandemic as the largest contributor to the risk environment. The pandemic has triggered:
- Shifts in criminal behavior
- Increased risk of money laundering
- Opportunities for criminal groups to obtain revenues from selling unauthorized medical devices and illicit pharmaceuticals
Financial Intelligence Unit Receives Thousands of Reports
The Financial Intelligence Unit received almost 15,000 reports in total, including nearly 12,000 reports based on suspicion concerning fraud. The reporting activity among virtual asset service providers increased, but only:
- 32% of authorized entities submitted more than 10 reports
- Legal service providers, including company service providers and real estate agents, failed to identify suspicious or unusual circumstances or knowingly refrain from reporting