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Estonia’s anti-money laundering laws clamp down on Bitcoin traders

TALLINN - If you’ve been reading the mainstream news about Estonia, you may have come across praise about the way the country is said to be technologically-advanced. Regular reference is made to the preponderance of free WiFi hotspots across the nation, along with e-services that allow administration to be done swiftly and easily. Given the advances Estonia has made using modern technology, you might think this kind of openness to new ideas extended to all avenues. There is, though, an exception that perhaps does not get the publicity it ought.

Last year, The Baltic Times spoke to Otto de Voogd, a Dutchman who was living in Tallinn. De Voogd worked for a Finnish IT company in the city, and was also, in what he described as a hobby, a trader of the Bitcoin cryptocurrency. Bitcoin is an electronic currency, or cryptocurrency, which is traded between individuals, with the market deciding the value, and no central bank. The open-source, peer-to-peer network is not the only cryptocurrency in circulation - there are others, such as Dogecoin, but it has become the most popular to use cryptography to control its creation and transfer, since its inception in 2009.

De Voogd, sensing an opportunity, was an early-adopter, purchasing bitcoins at their earlier, lower, price, and seeing their value rise over time. He found people in Estonia who wished to trade through his website btc.ee, which aimed to connect traders with buyers.

At the time, de Voogd had insisted that there was nothing on his website that would allow for a direct trade of bitcoins. Rather, it was a page that facilitated contact, but more work had to be done by buyers and sellers to make a trade happen. “I am just an individual willing to do limited Bitcoin trades, up to €500 euros,” he had insisted. “There is a whole network of such traders in the world. Traders post their prices on their sites and if you are interested you can contact a trader to arrange a trade. It’s the same with me, except that I had my own site. You could not actually trade via the site. The only thing the site did was to show the prices at which I was willing to trade and it provided an e-mail to contact me.”

However, in February 2014, de Voogd was asked by the Estonian police to provide details of all his clients from the website, including Estonian ID card numbers. If he did not co-operate, he was threatened with punishments up to a €32,000 euro fine, and/or three years in prison. This, according to the Estonian police spokesman at the time, was because under the Money Laundering Act, a person conducting transactions with Bitcoin, including as a broker, is an alternative payment service provider.

Bitcoin and services revolving around alternative means of payment were not prohibited in Estonia, and still are not. However, de Voogd took the authorities in Estonia to court in order to clarify the law around the trading of Bitcoin. In spite of a spirited challenge to the police view, de Voogd and his lawyer Priit Latt were unable to force the government to clarify in law the rights and responsibilities for Bitcoin traders in Estonia, and so, after a bruising few months, de Voogd moved to the Netherlands with his family, setting up a new website, coinera.eu, and crowdfunding an appeal against the court verdict.

The story has also gained momentum recently, with Tjerk Feitsma, CEO of the Terra Futura Foundation, a Dutch-based company, writing an open letter using the hashtag #FreeOtto, in which he talks of having wanted to do business in Estonia, but having been put off doing so by de Voogd’s court case. De Voogd himself has pointed out, on the Estonian website Nihilist.fm, that he appears to have been the only Bitcoin trader, out of many performing similar work in Estonia, who had been pursued by the police.

On btc.ee, de Voogd explains why he has chosen to leave Estonia following the court verdict in favour of the police. “I cannot guess how the state is going to reinterpret the law in the future to things I do now, it’s a gift I will simply never have. I’d rather move to a country where the state openly publishes its interpretation for all to know, instead of waiting for someone to fall in their trap.” There appears to some to be a suspicion towards Bitcoin in Estonia, where currently only a handful of retail outlets accept the virtual currency, including Tallinn restaurant Sushi Cat.

De Voogd was asked what changes he felt Estonia should make in order to be more friendly to innovation. “Right now, I care more about what happens in the Netherlands. Since this is where my future and that of my family now lies. The Dutch state has been mostly neutral and not tried to hamper Bitcoin. I’d be happy to see it  take an openly positive attitude and encourage banks to support Bitcoin startups for instance.”

“As for the Estonian government, I’d advise them to repeal the laws their bureaucrats and courts are using to hamper Bitcoin. Those laws were never intended for that, they serve no purpose but to hold Estonia back and chase businesses and people out of the country.”

“Secondly I’d advise them to remove the VAT requirement from Bitcoin. I am sure they’ve not levied even 1 cent of VAT on Bitcoin, because no-one is stupid enough to buy Bitcoins with VAT in Estonia when you can buy them in any other EU country without VAT. Just as with the law I mentioned above, this one also serves no purpose and only chases business out of the country.”

“I still hold a little bit of hope that they might come to their senses and change these laws, but as I said, my future no longer depends on the Estonian government being wise or not, and I’d certainly not advise anyone to make plans based on possibly false hope of change in Estonia. If you do want to go to the Baltics, Lithuania would seem a far better choice.”

We asked the Estonian government for a response to de Voogd’s points. Veronika Mets, legal expert of the Entrepreneurship and Accounting Policy Department in the Ministry of Finance, began by saying that Bitcoin trading was legal in Estonia. “It’s not forbidden in Estonia but the requirements according to the Money Laundering and Terrorist Financing Prevention Act must be applied in certain cases. For example, today we can say that the Estonian approach is not unique in respect of requiring a licence when bitcoins are being offered as the main economic activity. A similar requirement exists already in a number of countries, including the United States.”

Mets also confirmed that Estonia has participated in a number of international discussions regarding Bitcoin trading, through bodies like the Financial Action Task Force (FATF), who published guidelines recently on the topic. “The guidance confirms our understanding that cryptocurrencies do pose a risk of money-laundering and terrorism-financing, and countries must regulate [accordingly]. Having no proper measures to combat the relevant threats and risks is definitely not a solution for countries according to the guidance.”

Mets also had comments on de Voogd’s forthright public and court statements. “With respect to Otto de Voogd’s comments we would like to note that all Mr de Voogd’s claims were reviewed by the District Court, who found that they were not grounded.”
“For future steps we can say that the Ministry of Finance of Estonia has made good contact with Estonian Association of Cryptocurrency and is looking forward to co-operating with the Association on possible specifications or amendments to the Money Laundering and Terrorist Financing Prevention Act,” which she said would be done in light of the FATF guidance and also in consultation with the European Commission.

De Voogd is not surprised that the Estonian government has not yet solidified a policy on Bitcoin. Estonia is a country that, among other reasons, became famous due to the creation there of Skype, at the time a disruptive peer-to-peer network. “Either they have not had the time yet, in which case they apparently don’t mind losing all the opportunity they do. This is the time when the future success stories are being created. The more Estonia’s anti-Bitcoin reputation takes hold the harder it will be to turn that around once they do make the change. Or they truly do not want to accommodate this new technology. Maybe out of fear of losing control? Much in the way some countries dislike the Internet because they can’t fully control it.”
“Of course this would be very shortsighted. Disruptive technology is going to succeed regardless of what Estonia does. Estonia after all is not important in the big scheme of things. But Estonia will not succeed without embracing disruptive technology. So they can only hurt their own country.”

De Voogd said in his statement to the court that his children would now grow up Dutch, when he had planned they would grow up Estonian. He bears no malice towards Estonia, a country where he was successful in his career and happy in his life. However, he seems happier trading under the more liberal and clear policies of the Dutch government, and has a sadness about how Estonia has handled his legal case.

“What I feel about Estonia, is mostly disappointment. I used to love the country and did my bit to help it and promote it. After my experience I ceased doing that, instead I now tell people of my negative experiences. It gives people in the West the impression that Estonia is still quite Soviet after all. Little by little that’s also what I am starting to think, underneath all that polish and e-hype there is still a bureaucracy with a Soviet-era mentality that reflexively looks for ways to hamper people and businesses, based on the premise that if something is not explicitly allowed then it must be forbidden.”

“It saddens me that I now have to say things like that about a country I once loved, and probably still love deep down.
I am also saddened that this entire situation, that caused me and my family to leave Estonia, is a fuss over only a few thousand euros worth of Bitcoin, blown out of proportion just to try to make an example of me and scare other people away from Bitcoin.”

The future for Bitcoin in Estonia, after five years of circulation, is still unclear, and regulations have not been finalised. All the time legislation drags on, there is an increased risk of the Baltic nation that used to be best-known for technological innovation could get left behind in an increasingly-important currency.

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