According to a 2002 Financial Supervision Authority (FSA) assessment, which is based on the Financial Action Task Force's (FATF) old (2002) methodology, Estonia is obliged to implement the FATF's 40 recommendations on money laundering, as a new member of the European Union. Estonia has been active in revising its regulatory framework and establishing agencies in order to strengthen its anti-money laundering (AML) regime, as stated in the 2005 U.S. Department of State (DoS) International Narcotics Control Strategy report. Nonetheless, there is insufficient information publicly available that explicitly addresses Estonia's compliance with the new (2004) FATF methodology on AML/CFT requirements. According to the 2005 U.S. DoS report, the FSA approved a new guideline "On Additional Measures to Prevent Money Laundering in the Credit and Financial Institutions" in June 2002. In the same report, however, the U.S. DoS notes that there are still important gaps in the criminalization of terrorist financing. In this regard, the 1999 Money Laundering and Terrorism Financing Prevention Act was amended in 2004 to extend the authority of the Financial Intelligence Unit (FIU). Another major event was the adoption of the third European Parliament and Council directive for the prevention of money laundering in 2005, as noted in the 2006 FSA Annual Report. As of January 1, 2002, the FSA became the financial supervisory body, replacing the three previous supervisory authorities, namely the Bank of Estonia, the Securities Inspectorate, and the Insurance Supervisory Agency. In 2004, the FIU ceased to be administered by the Police Board in Estonia and become an independent unit within the Economic Crime Department of the Central Criminal Police. The FIU is a member of the Egmont Group. Its authority includes investigating money laundering cases and supervising reporting entities that are not covered by the FSA.

General Overview

According to a 2002 Financial Supervision Authority (FSA) assessment, which is based on the Financial Action Task Force's (FATF) old (2002) methodology, Estonia is under obligation to implement the FATF's 40 recommendations on money laundering, as a new member of the European Union (EU). Estonia has been active in revising its regulatory framework and establishing agencies in order to strengthen its anti-money laundering (AML) regime, as stated in the 2005 U.S. Department of State (DoS) International Narcotics Control Strategy report. Nonetheless, there is insufficient information publicly available explicitly addressing Estonia's compliance with the new (2004) FATF methodology on AML/CFT requirements. According to the 2005 U.S. DoS report, the FSA approved a new guideline "On Additional Measures to Prevent Money Laundering in the Credit and Financial Institutions" in June 2002. In the same report, however, the U.S. DoS notes that there are still important gaps in the criminalization of terrorist financing. In this regard, the 1999 Money Laundering and Terrorism Financing Prevention Act was amended in 2004 to extend the authority of the Financial Intelligence Unit (FIU). Another major event was the adoption of the third European Parliament and Council directive for the prevention of money laundering in 2005, as noted in the 2006 FSA Annual Report.

Since January 1, 2002, as stated in the 2005 U.S. DoS report, the financial supervisory body changed to the FSA, replacing the three previous supervisory authorities, namely the Bank of Estonia (BoE), the Securities Inspectorate, and the Insurance Supervisory Agency (ISA). The FSA is an independent agency which is responsible for monitoring and directing credit and financial institutions. In 2004, the FIU ceased to be administered by the Police Board in Estonia to become an independent unit within the Economic Crime Department of the Central Criminal Police. The FIU is a member of the Egmont Group, with authority to investigate money laundering cases and supervise reporting entities that are not covered by the FSA. Regarding international cooperation, the 2006 FSA Annual report notes that Estonia is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL), which evaluates the implementation of AML procedures using the FATF methodology. The country also took part in the European Commission's (EC) Anti-Money Laundering Project for Economic Reconstruction Assistance (PHARE Project) in order to increase its capacity to fight money laundering on a national and international level. Furthermore, it participates in the EU's financial intelligence units' net (FIU.NET), and cooperates with Europol. A Mutual Legal Assistance Treaty is in place between the United States and Estonia, as well as a "Twinning Project" aimed at supporting Estonian and Dutch AML institutions, according to the 2006 FSA Annual Report.

Despite Estonia's proximity to the Russian border, no large-scale money laundering operations have been reported so far, as noted in the 2005 U.S. DoS publication. Per a 2004 European Committee on Crime Problems, Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (CDPC) Evaluation Report, the financial sector in Estonia is developing quickly, and considerable progress has been achieved in the regulation, supervision, and enforcement of money laundering issues. Although money laundering is considered to be largely an external, rather than domestic threat, the banking system continues to be regarded as highly vulnerable to AML activities.

The Principles

1. Legal Systems and Related Institutional Measures

II

According to the 2005 U.S. DoS report, Estonia has been active in revising its regulatory framework and establishing agencies in order to strengthen its AML regime. However, there are still gaps in the criminalization of terrorist financing. In this regard, the 1999 Money Laundering and Terrorism Financing Prevention Act was last amended in 2004 in order to extend the authority of the FIU.

Since January 1, 2002, as stated in the 2005 U.S. DoS report, the financial supervisory body changed to the FSA, replacing the three previous supervisory authorities, namely the BoE, the Securities Inspectorate, and the ISA. The FSA is an independent agency which is responsible for monitoring and directing credit and financial institutions. In 2004, the FIU ceased to be administered by the Police Board in Estonia and became an independent unit within the Economic Crime Department of the Central Criminal Police. The FIU's authority includes investigating money laundering cases and supervising reporting entities that are not covered by the FSA. In its 2004 Evaluation Report on Estonia, the CDPC advises the FIU to increase the speed and number of reports sent to law enforcement. In 2001, 42 money laundering cases being passed to law enforcement for further enquiry, but only 2 reached the judicial phase and 10 were still under investigation. Per a 2006 FSA Annual Report, a Money Laundering Information Office in Estonia was appointed by a government resolution in order to enforce international sanctions. According to the IMF 2005 Article IV Consultation report, Estonia's AML legislation has been implemented in accordance with international norms, and is now in line with the latest EU directives in this area. Furthermore, it has fully implemented all U.N. Security Council Resolutions regarding the financing of terrorism. Nevertheless, there is insufficient publicly available information on Estonia's compliance with this principle in accordance with the new (2004) FATF methodology on AML/CFT requirements.

2. Preventive Measures - Financial Institutions

II

As stated in the 2005 U.S. DoS report, legislation in Estonia requires credit or financial institutions to report suspicious or unusual transactions to the FIU. According to the 2005 U.S. DoS report, the FSA approved a new guideline "On Additional Measures to Prevent Money Laundering in the Credit and Financial Institutions" in June 2002. Nevertheless, there is insufficient publicly available information on Estonia's compliance with this principle in accordance with the new (2004) FATF methodology on AML/CFT requirements.

3. Preventive Measures - Designated non-Financial Business and Professions

II

There is insufficient publicly available information on Estonia's compliance with this principle in accordance with the new (2004) FATF methodology on AML/CFT requirements. According to the 2005 U.S. DoS report, amendments to the MLTFPA expand the sectors subject to primary monitoring to include lawyers, accountants, tax advisors, notaries, currency exchange companies, money transmitters, lottery and gambling institutions, real estate firms, as well as dealers in high-value goods and other intermediaries for cash transactions subject to reporting. However, as stated in the 2004 CDPC report, the level of implementation of AML measures is still higher in the banking sector than in the insurance and securities sector. The CDPC recommends intensifying the supervision of casinos and further raising awareness of AML issues in the real estate industry.

4. Legal Person and Arrangements & Non-Profit Organizations

II

During its on-site inspections, the FSA pays particular attention to the processes that determine access to beneficial ownership and control information, as noted in the 2004 CDPC report. Nevertheless, there is insufficient publicly available information on Estonia's compliance with this principle in accordance with the new (2004) FATF methodology on AML/CFT requirements.

5. National and International Co-operation

II

Regarding international cooperation, as noted in the 2006 FSA Annual report, Estonia is a member of MONEYVAL, which evaluates the implementation of AML procedures using the FATF methodology. The country also took part in the EC PHARE Project in order to increase its capacity to fight money laundering on a national and international level. Furthermore, it participates in the EU's FIU.NET, and cooperates with Europol. A Mutual Legal Assistance Treaty is in place between the United States and Estonia, as well as a "Twinning Project" aimed at supporting Estonian and Dutch AML institutions, according to the 2006 FSA Annual Report. Furthermore, per a 2005 U.S. DoS report, the FIU is entitled to exchange information with its counterparts, as long as the information is used for intelligences purposes only. Nevertheless, there is insufficient publicly available information on Estonia's compliance with this principle in accordance with the new (2004) FATF methodology on AML/CFT requirements.