Crypto-License – 7 Mistakes Leading to the Loss of License in Estonia

If you hold a valid crypto-license in Estonia, you are most likely aware of the changes that are happening in Estonia regarding the regulation of crypto-projects and crypto-companies.
It is likely that you already received information earlier on what is needed to be done in order to bring your company in lien with the new legislation.

This article we will not cover these steps, but we will provide examples of mistakes that many crypto-companies make and subsequently lose their licenses.

We will be happy if this information will assist you to save your project and crypto-license.

Mistake 1 – Hiring a mass AML-officer

A part time AML-officer for €500/Month. There are lots of such offers on the market. But why can it be detrimental to your project?

• Based on paragraph 17, AML officer must possess the competence, resources and an access to relevant information in all structural units of the institution. Therefore, by hiring a mass-nominee AML officer, you must give him an access to all your financial flows and accounts. The risk for your business is big enough, isn’t it?
• The same paragraph. AML officer must have the necessary education, professional competence, the necessary capabilities, personal qualities and experience, as well as an impeccable reputation for the duties of an AML officer. Taking this into consideration, if a mass AML officer accidentally tarnishes his reputation in another company, your crypto-license will also suffer.

Furthermore, accordingly to the official comments of the supervisory authority, the AML officer should have enough time and resources to carry out his duties. The mass AML officer does not meet this requirement a priori. After reading paragraphs 17, 19, 20, 21, 22, 23, you will understand that a mass AML officer will not be physically able to fulfill these requirements in more than 1-2 companies.

Mistake 2 – Providing a legal address, mass registration address

Based on the same act – the Money Laundering and Terrorist Financing Prevention Act, as well as on the instructions of the supervisory authority, the company should have a real office. It is must to provide the supervisory authority with the documentary evidence of the right of using the premises in which the service is provided. This document may be a lease or a proof of ownership.

Legal address (mailing address) will not help in this situation. Moreover, all relevant documentation (according to the Law) must be kept in this office. Sharing an office with another couple of cryptocompanies-competitors, storing such an important documentation it is quite risky.

Mistake 3 – Hiring a Mass Member of the Board (Nominee Director)

There is a whole article on the official Estonian portal E-residency devoted to whether the nominee shareholder/director in Estonia is legal, therefore we will not cover this topic.

We will only tell you that by the decision of the shareholders it is really possible to some extent limit the powers of the management board of the company, however, in practice, nominal members of the board do what they desire. For example, a foreign bank or a payment institution very rarely pay attention to this mark and without hesitation provide access or even open an account for your company and you will not even know about this. Learning about this after the fact in court is not very fun.

Mistake 4 – Increase of company’s capital through tangible (non-monetary)/intangible assets

According to paragraph 72, point 6, the capital of the company that holds a crypto-license should be paid exclusively in monetary assets.

Mistake 5 – Lack of operations within Estonia

According to paragraph 72, the location stated in the register of a holder of crypto-license, the management board’s location and the location of business of the license applicant shall be Estonia. This paragraph can be interpreted in different ways, but today we see that those companies that did not indicate that they operate within Estonian market as well have lost their licenses.

Mistake 6 – Hiring an AML officer without the required qualifications

Qualified AML officers, as a rule, are reasonable and educated people who are aware of all the risks. An AML officer who is ready to work in more than 2 companies is a reason to rethink his professional suitability. Performing all tasks and meeting all requirements is a quite laborious and time-consuming work. The AML officer’s work in 2 or more companies with crypto-license is an occasion to think about the quality of accuracy of the performed tasks.

Mistake 7 – Absence of a page on the website in Estonian

According to paragraph 70, the company must provide a link to the project’s website. According to the Language Act, paragraph 16, if the registered in Estonia agency, company, non-commercial association, fund or an individual entrepreneur has a website in a foreign language which is intended for the public, it should contain at least a brief information in Estonian language regarding its operating field or the offered goods or services.

We hope that this material will help you to avoid the mistakes listed above and keep your license. Shall you require assistance in the implementation of those requirements correctly, our specialists will be glad to assist you!