here’s why money launderers are disappointed with e-⁠Residency

Viljar Lubi • Feb 01, 2019 • 5 min read

Security and transparency protects Estonia’s business environment for legitimate entrepreneurs around the world.

An article published today by Reuters examines the risk of money laundering within the context of Estonia’s e-⁠Residency programme.

Although the article is fairly balanced, it does not adequately explain the nature of e-⁠Residency and therefore creates the false impression that it could be beneficial for those who want to launder money.

I would like to clarify some of the points in the article — and also disappoint anyone who may have that intention.

The risk of money laundering is a huge challenge globally, as highlighted by the case that is mentioned. This is a complex case that predates the launch of the e-⁠Residency programme and is subject to ongoing investigation, but there should be no doubt that Estonian authorities consider the prevention of money laundering to be a top priority in order to preserve the trust of its business environment.

Estonia is ranked as the 2nd lowest place in the world after Finland for risk of money laundering, according to the latest Basel AML Index:

Estonia money laundering risk second lowest in world

In addition, the development of Estonia’s digital society is actually improving the state’s ability to combat risks within its business environment — whether related to citizens, residents or non-residents — due to the greater oversight and transparency that digitisation provides.

Estonia already has one of the world’s most most transparent business environments because data about companies, such as their ownership and key financial information, is publicly available.

E-⁠Residency enables Estonia to provide more convenient access to that transparent business environment to non-residents, which is an attractive offer to legitimate entrepreneurs because it enables them to establish and manage a company entirely online with less costs and hassle than may be available to them elsewhere. E-⁠Residency is succeeding because it is a national initiative between Estonian public institutions and the private sector in which everyone is committed to improving the convenience and security of running a company remotely for both the user and the state. It does not provide any shortcuts to criminality.

Here’s why:

Applicants for e-⁠Residency first have to undergo police background checks before their digital ID card can be granted. To receive it, they must show up in person to prove their identity and provide bio-metric data at a designated pick-up location, such as Police and Border Guard station in Estonia or an Estonian Embassy abroad.
If an e-⁠resident then wants to use their digital ID card to open an Estonian company then they will be subject to the same high level of transparency as all citizens and residents operating companies in Estonia, which includes key data about their activities, such as ownership and financial information, being publicly available. They will also need to appoint an official contact person in Estonia for their company who must have obtained a license to provide business services by demonstrating their own ability to recognise and report risks, including money laundering, by the companies they represent.
If the e-⁠resident wants to open an Estonian bank account then they will be vetted by those institutions who will decide whether to take them on as customers, as is normal for banks everywhere. E-⁠Residency does not provide any shortcut to opening either a personal or business bank account as it is the banks themselves who choose their customers in line with their own rules, as well as EU and international regulations.
Finally, e-residents are then continuously supervised through ongoing checks between state institutions and those who fail to comply with Estonia’s business rules will have their digital ID certificates revoked.

Understandably, people with bad intentions — such as those who wish to launder money — do not like any of the above and should not even bother wasting their time by trying to apply for e-Residency. This message is repeatedly made clear to applicants and was explained in more detail by Dmitri Jegorov, Undersecretary for Tax and Customs Policy at the Estonian Ministry of Finance, while responding to a similar question related to tax evasion. You can read his response here:

Here’s why tax evaders are disappointed in Estonian e-⁠Residency

Due to the nature of the e-⁠Residency programme, as a trusted and transparent way to run a company entirely online, it is particularly popular with people known as ‘digital nomads’. These are freelancers and solo entrepreneurs who may travelling, planning to move countries in the near future, or simply enjoy the flexibility of not having a fixed location for their business.

These people tend to be single shareholder companies with easily trackable income and are very visible online. This actually makes it easier for banks, such as LHV that is mentioned in the article, to conduct their due diligence and maintain their oversight.

Estonia is also currently in the process of improving both the convenience and security of e-⁠Residency even further through an initiative called e-⁠Residency 2.0, which involves a wide selection of stakeholders from both the public and private sector. You can read more about it here:

Estonian President Kersti Kaljulaid reveals the future direction of e-⁠Residency

The reality is that all countries have relationships with non-residents, including those that manage companies in their jurisdiction from abroad, although Estonia is the first country to officially recognise this relationship through e-⁠Residency. Non-residents who manage companies from abroad will never be risk-free of course, but the right way to manage these risks is not for countries to close themselves off either.

Estonia believes that transparency within our jurisdiction and openness to the world beyond it are both essential for building a better future. However, security and trust must always be paramount in order to make that work.

Through e-⁠Residency, our state is continuously developing a solution that is more convenient and secure for everyone.