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Draft Law Establishes Stricter Sanctions In Financial Sector and New Measures to Fight Money Laundering

29. November 2018 - 13:53

Today, the Estonian Government approved a draft law which establishes significantly higher fines in the financial sector, introduces reverse burden of proof on suspicious assets, and makes regulations concerning providers of virtual currency stricter.

According to Minister of Finance Toomas Tõniste, the changes will go a long way towards further strengthening the state’s possibilities to sanction misbehaviour in financial sector and fight money laundering with a focus on prevention.

“Financial violations are often international by nature, which is why it is important that the fines and principles of imposing them are uniform throughout the European Union. It will aid in preventing such violations that have a harmful effect on the whole society,” Tõniste said.

The draft law transposes into Estonian law administrative penalties concerning the financial sector proceeding from EU law. The new fines are significantly higher than the ones possible to impose in the current misdemeanour procedure.

According to the draft law it is possible to impose a fine in the amount of 5 million euros to the bank in case the bank fails to notify the Financial Supervisory Authority or presents it with false or deficient information. Alternatively, it would be possible to take the bank’s turnover or profits earned or damage caused as the basis for determining the fine. Today, the maximum fine is 32,000 euros.

The draft law also introduces an institute of reverse burden of proof in administrative procedure. “According to the draft, the Financial Intelligence Unit would set a restriction on the disposal of the money in case of a suspicious transaction, and would demand proof from the person behind transaction that the money has been obtained legally. If the person is not able to prove the legal origin of the money, they will lose it. Today, the FIU must first prove that the money is of criminal origin,” Minister Tõniste explained.

Reverse burden of proof is not a penal instrument but an administrative measure. Setting restrictions on the assets and the transfer of assets to the state will take place under the control of the Administrative Court and only at the Court’s permission.

The Minister of Finance added that this is a significant change for Estonian law that should also be thoroughly discussed in the Parliament. “It is one of the main proposals of the Government AML Commission. It would give a very strong signal that there is no point in attempting to launder money through Estonia, as the danger of losing that money is high,” Minister Tõniste said.

As the new international money laundering risks also concern virtual currencies, the draft law makes the conditions of obtaining a license for virtual currency service providers stricter.

In the future, the Financial Intelligence Unit issuing respective licenses will check the suitability and reputation of the governing body of the enterprise, instead of that of the compliance officers. This is a common requirement in the financial sector, the objective of which is to prevent the sector from being used for criminal purposes.

The draft law also stipulates that the officially registered location and head office of the provider of the said service must be located in Estonia. In case of an entrepreneur being registered in a foreign country, a branch must be established here. Service providers who already have the license have six month to submit additional information to the Financial Intelligence Unit, otherwise their licenses will be revoked.

The draft law is planned to enter into force during the first half of 2019 at the precondition that the amendments of the Penal Code necessary for application of the fines have entered into force, or will enter into force at the same time as the amendments to the Penal Code.