Foreigners granted remote access to Estonia’s digital infrastructure through its e-residency programme are being linked to crypto-currency frauds abroad, threatening efforts to repair the Baltic nation’s image after one of Europe’s largest money laundering scandals.
Companies registered overseas and headed by Estonian e-residents have been involved in "a few large-scale exit scams,” the police’s Financial Intelligence Unit said last week in a report, referring to a form of deception where clients are unable to withdraw their assets.
Estonian firms and e-residents have also been linked to organising "suspicious initial coin offerings and the misappropriation of large sums within them,” it said, citing cooperation with counterparts abroad.
The report casts a shadow over the digital aspirations of Estonia, a nation of 1.3 million people that helped to create Skype and pioneered Internet voting. About 70,000 digital IDs have been issued to e-residents from 174 countries since the government-sponsored programme began in 2014. It’s most popular among citizens from Finland, Russia and Ukraine.
Dirty-money scandals that have dented Estonia’s reputation in recent years have also weighed on the programme, with issuance down from its 2018 peak as banks closed e-resident accounts or refused to open them because business links to Estonia were lacking.
The e-residency team is working "hand in hand” with the police and the FIU, according to its head, Ott Vatter. "The survey doesn’t show that all fraudsters have been e-residents, but that there have also been e-residents among fraudsters,” he said.
Officials in Estonia warned earlier that the e-residency programme, which allows non-residents to run businesses from abroad, needs changes to improve its security and avoid criminal abuse. Meanwhile, police moved to clamp down on the companies that exchange and help clients hold virtual currencies like Bitcoin – an industry Estonia was among the first in the European Union to license in late 2017.
The police said a "considerable connection” with e-residents is raising the risk of reputational damage in the Estonian crypto sector. About a third of companies providing crypto-currency services have at least one e-resident as a related party, with a total of 554 former or current e-residents associated with virtual currency service providers. As of August, there were 353 companies with a crypto-currency license, compared with 1,234 at the end of last year. – Bloomberg
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