The Council of Europe's anti-money laundering committee, Moneyval, has expressed deep concerns over Estonia's e-residency programme, ERR.ee, the website of Estonian national broadcaster ERR, reported on January 27.
According to the head of the Estonian Financial Intelligence Unit (FIU), Matis Maeker, the main issues concerned background checks conducted when granting e-resident status, and risk mitigation relating to companies established in Estonia but operating in other countries.
"We have received complaints over permission given to individuals who perhaps should not have been granted e-residency," Maeker said.
For instance, two North Korean residents who reside in the EU passed the checks system and became e-residents.
Maeker said Estonia had been criticised for inadequate checks, particularly when requests came from countries with which Estonia has reciprocal cooperation at judicial level.
The largest complaint was that e-residents can obtain much easier access to the Estonian business environment and the creation of companies, Maeker went on.
"If an e-resident now sets up a company [in Estonia] then travels to another country to launder money via that company, while this is no longer an Estonian problem as such, it does become a problem for those other countries where the private company is in use," he went on.
"At the FIU, we have also stated on several occasions that the e-residency programme brings with it money laundering and terror financing risks. The first step would be to better understand these risks; what they constitute, in essence, and then manage these risks accordingly, and develop corresponding procedures," Maeker continued.
Olavi Lepp, head of the largest private lender in Estonia, Swedbank, also noted the e-residency programme issues highlighted in the Moneyval report.
Appearing on ETV politics show Esimene stuudio Wednesday, he said: "This constitutes a report of over 300 pages, and our e-residency programme is mentioned more than a hundred times, but not in a positive way."
"Things have improved, but there are problems remaining. If I tap my conscience, while we always like to talk about opportunities, the risks must also be assessed, on various things we carry out, as a state," he went on.
The legal and risk manager at the e-residency programme, Oscar Oun, told ERR that only around half of overseas entrepreneurs operating in Estonia are e-residents.
Oun said: "The risk-based application system, comprehensive control and digital footprint ensure that e-residents are under significantly greater supervision than other [non-e-resident] foreign citizens, when doing business in Estonia."
"The Police and Border Guard Board (PPA) rules on issuing an e-resident's digital ID," he added, in response to the two North Korean citizens who have reportedly obtained e-residency. "So far as we are aware, no North Korean citizen currently has a valid e-resident digi-id," he added.
Oun said that for some time now, applicants from countries which Estonia has cooperative relations with at judicial, security and law enforcement levels have been given preference as e-residency recipients. "In addition, a legal amendment is being developed in cooperation with the Ministry of the Interior, which would limit access to e-residency in some countries – above all, those where the risks of money laundering and terrorist financing are becoming more and more relevant."
Last summer, the PPA adopted an automated follow-up IT solution, which enables regular mass queries to be sent to national and international databases, in order to verify for example, whether an e-resident has been convicted of a criminal act in any country's jurisdiction since obtaining e-residency, or if there are any another important circumstances which might require the invalidation of that e-resident's digital ID.
From January 2023, Estonian digital ID applicants face a new e-resident digital ID application environment, which allows the collection of more detailed information on a foreign citizen's background and intentions.
Oun said that a rise in e-residency application refusals and of annulments of existing digital IDs was evidence of this tightened-up screening process. Whereas in 2018, 2% of e-residency applications were rejected, that figure had risen to 8% as of last year.
As of January 23 this year, there were 63,074 valid Estonian e-resident cards in circulation. Since the programme was rolled out in 2014, 99,205 people have received e-resident status, ERR.ee said.