The Russian €5 billion issue! Estonian Garantex Europe lost crypto license!

German prosecutors charge P2P with money laundering
Spread financial intelligence

That’s a bummer! Garantex Europe OÜ used to be a licensed Estonian crypto payment processor processing more than €5 billion per year. It had close ties to Russia, a regulatory investigation found. We believe it was a Russian venture! The Estonian Financial Intelligence Unit (FIU) identified serious and systematic deficiencies in the company’s KYC/AML procedures, which would have led to the revocation of the crypto license. Consequently, Garantex Europe OÜ surrendered its license.

Standing out with billions and Russian offices

Garantex Europe OÜ (https://garantex.io) was authorized to provide virtual currency services between 27 November 2020 and 24 February 2022. On its website, it presented Russian phone numbers for contact purposes.

The Estonian FIA started on-site inspection at Garantex Europe in December 2021. “In June 2021, when I became the Director of the Financial Intelligence Unit, I decided that the first task will be to quickly identify virtual currency service providers that are at higher risk, to start on-site inspections of them based on the risk. Garantex Europe OÜ clearly stood out from others because its annual transactions amounted to more than 5 billion euros, and a large part of the business and customers were related to Russia and other high-risk countries,” said Matis Mäeker, Director of the Financial Intelligence Unit.

Not properly verified clients

The FIU said that more than 90% of the company’s clients have not properly verified their identity. Some of the customers presented to the Financial Intelligence Unit as natural persons were legal persons providing services to other customers. Several of them had a turnover ranging from about twenty million to a hundred million euros.

Money-laundering issues

The FIU investigations revealed weaknesses on the part of Garantex Europe in several critical aspects of preventing money laundering and terrorist financing. Risk management measures were inadequate in terms of staff shortage and internal control, and both the risk appetite document and internal rules of procedure were insufficient.

A significant deficiency was that Garantex Europe failed to systemically and systematically notify the FIU of suspicious transactions concerning money laundering or terrorist financing. The FIU also found that fund processed via Garantex Europe was related to crime or wallets used by criminal offenders for illegal purposes.

Garantex Europe OÜ applied for authorization in Estonia but did not take steps to be familiar with the rules of the game here or to comply with them in substance. Service providers like this do not have a place in Estonia. Furthermore, there is no place in Estonia for service providers using the jurisdiction here for illegal purposes,” Mäeker added.

As of 31 December 2021, a total of 381 valid authorizations for economic activity have been issued in Estonia for the provision of virtual currency services, which is the largest number of such authorizations per country in the world. On 23 February 2022, the parliament Riigikogu adopted a draft Act tightening the requirements for market entry and provision of virtual currency services.

Bravo FIU!

Leave a Reply

Your email address will not be published. Required fields are marked *