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The Estonian crypto regulation faces a lethal challenge!

The Estonian crypto regulation faces a lethal challenge. If immediate action is not taken by the legislator, then the licenses issued under the current legislation will become (or more precisely will remain) essentially a novelty – only relevant in fringe cases.

As of 10.03.2020 the new crypto regulations came into force in Estonia – we have covered the main changes already before. However, there is one glaring issue that no one seems to be talking about.

Not so fun fact for exchanges. As of 10.03.2020 if your client is outside the EEA, an e-resident (even an EU citizen) or their transaction volume exceeds 15 000 (natural person) euro or 25 000 euro (legal person) per calendar month then you have only two options to onboard them (see § 31 (1), (2), (3) and (6) here https://www.riigiteataja.ee/en/eli/509012020001/consolide):

  1. Face-to-face document check; or
  2. Use an ID card issued by Germany, Italy, Croatia, Estonia, Spain, Luxembourg, Czech Republic, Netherlands, Slovak Republik, Latvia, Belgium or Portugal (see full list here: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2019.425.01.0006.01.ENG&toc=OJ:C:2019:425:TOC).

There is no other way to KYC non-EEA clients or clients who go over the 15k/25k threshold. None whatsoever. Sum&Substance is not enough. Veriff is not enough. You have to use those ID cards and cannot use anything else.

For instance, if you are dealing with a French citizen who wants to trade over 15k, they need to get an e-residency card or an ID card from one of the aforementioned jurisdictions. If you want to trade with any person outside the EEA in any amount – they need to get an e-residency card or an ID card from one of the aforementioned jurisdictions. Obviously they will not and cannot do that (other than perhaps an e-residency card).

Clearly this is not the market practice at the time and if exchanges were to follow the abovementioned requirements (which we suggest they do but we know they do not) then business under the Estonian licenses will stop. Most clients who have any business value to exchanges will trade over 15k and will not have easy access to the required ID cards. And obviously they will not be met face-to-face.

Luckily there is an amendment to the new regulation already in the works. The Estonian Parliament is changing § 32 of the relevant AML law to include more flexible options for digital identification (see amendment act here: https://www.riigikogu.ee/tegevus/eelnoud/eelnou/69421167-7e69-4383-b2f8-b9f2912a13e6/Rahapesu%20ja%20terrorismi%20rahastamise%20t%C3%B5kestamise%20seaduse%20ja%20teiste%20seaduste%20muutmise%20seadus).

At the time we do not know if the amendment will pass. We do not know when it will pass and we do not know what will be the alternative digital identification means (the amendment act does not specify them as of yet).

We understand the Ministry of Finance is very much open to suggestions from market participants as to what should such digital identification means be. Therefore, this is a call to arms. Speak up. Write to the ministry regarding your views on what would be reasonable.

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LEXTAL has acted as a local advisor in Estonia in the issuance of senior bonds by IuteCredit Finance SA for a total amount of EUR 40 million

LEXTAL has acted as a local advisor in Estonia in the issuance of senior bonds by IuteCredit Finance SA, the wholly owned subsidiary of IuteCredit Europe established and operating in Luxembourg, for a total amount of EUR 40 million, due 2023. The bonds are secured by claims arising from the Group’s loan portfolios and by guarantees of subsidiaries or equivalent securities. The bonds (ISIN: XS2033386603) are listed on the Open Market of Frankfurt Stock Exchange.

The task of LEXTAL was to assist in the preparation of Estonian legal documents (collateral agreements, legal opinions, etc) necessary for the bond issuance. As the previous local bond program was terminated in connection with the abovementioned bond issue, LEXTAL also advised the client on legal questions related to the bond program termination. AS IuteCredit Europe was advised by partner Ants Karu, partner Kristi Sild and attorney Henri Ratnik.

IuteCredit Europe is an international consumer credit company established in 2008. IuteCredit Europe is headquartered in Estonia and operates through subsidiaries in Moldova, Albania, Northern Macedonia, Kosovo and Bosnia and Herzegovina.

 

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LEXTAL advised Skandinaviska Enskilda Banken AB in EUR 500,000,000 syndicated finance transaction

LEXTAL advised Skandinaviska Enskilda Banken AB (publ), other banks and number of institutional investors in a EUR 500,000,000 financing to Adven (syndicated loan facility and notes’ issue).

Adven is the leading provider of energy and water services across the Nordic and Baltic countries. LEXTAL worked in cooperation with Allen & Overy (lead counsel) and Castren & Snellman (Finnish counsel).

LEXTAL team was led by partner Ants Karu.

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LEXTAL advised Santander Bank Polska in EUR 120,000,000 syndicated loan facility

LEXTAL advised Santander Bank Polska and other banks in connection with a EUR 120,000,000 syndicated loan facility to plywood manufacturing group Paged.

Advice was provided in cooperation with the lead counsel White & Case. LEXTAL team was led by partner Ants Karu.

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Is Estonia a crypto heaven? LEXTAL’s video blog

There’s been a great surge of international interest in establishing a cryptocurrency-based business here in Estonia from foreign investors. Investors are active both in the wallet/exchange side of crypto as well as the ICO side. So we figured we will give a short introduction into both of these here.

First – In Estonia there are two types of permits for operation in the field of cryptocurrencies:

  1. a permit for providers of a service of exchanging a virtual currency against a fiat currency and vice-versa (the so-called exchange permit); and
  2. a permit for providers of a virtual currency wallet service (the so-called wallet permit).

The scope of both of these permits is quite self-explanatory – one allows you to exchange crypto to fiat and vice versa and the other allows you to provide a wallet service to customers.

Acquisition of these permits will usually take around a month or two, though we have gotten a wallet permit registered recently in only two days as of issuing the application, so exceptions may occur (in both ways).

Second – It is possible to conduct an ICO in Estonia. For instance LEXTAL was closely involved with the Agrello project which raised nearly 31 million dollars in 2017 for a blockchain based smart contract project.

However, it is not possible to say in this short video what license (if any) you will need to conduct an ICO in Estonia. The variables are to great. It is possible that the token will be qualified as a security, a share of an investment fund, a donation or a number of other instruments. It may well be a combination of several different instruments.

In any case, the first step will be to analyse your token. What rights will it give to the token holders and how will it be used. Once the token structure is in place any lawyer worth their salt will be able to tell you what licenses you will need and what steps you must take.

Attorney Rauno Kinkar

rauno.kinkar@lextal.ee.

 

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The International Conference „Current Challenges of Estonian and European Insurance Law” sponsored by LEXTAL

Join the International Conference „Current Challenges of Estonian and European Insurance Law” held in Tartu (21 – 22 March 2019)!

It is the first international conference focused only in insurance law that is organised in Estonia. Acknowledged European experts of the insurance law, Estonian legal researchers and insurance practitioners (including Olavi-Jüri Luik from LEXTAL) will give speeches at the conference.

The working language will be English and Estonian. The first day speeches will be in English. The second day speeches will mainly be in Estonian with the simultaneous interpretation into English.

To register for this conference, please fill out the form (https://lnkd.in/dVJaDkb) by 28th of February.

There is a fee of € 50. The invoice will be sent to you after registration.

Program: https://lnkd.in/dYsuaga

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LEXTAL elected one of the most attractive employers for law students in Estonia

LEXTAL was elected as one of the most attractive employers in Estonia among legal students. LEXTAL ranked third!

The employer’s branding agency Instar conducted a study of job prospects and the brands of employers among undergraduates across Estonia. Over 5400 respondents participated in the study this year.

“This is a great honor for us. We are very proud for that achievement. We believe that the key to our success was our internship program. Our goal is to provide every year internships that focus on inspiring young colleagues. We have given students the promise that if they do their internship in LEXTAL, they can deal with substantive legal matters and try out the practical aspects legal work. Figuratively speaking, we do not send our young colleagues to just arrange the archives or to deal merely with technical work. What we have learned is that our young colleagues want personal approach and mentoring. An internship program cannot be merely a machine for the firm aimed at finding potential employees – we have rather focused on inspiring and mentoring our interns as young colleagues. This focus made our internship program very popular among Estonian law students,” explained Marge Männiko, the Managing Partner at LEXTAL.

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LEXTAL ranks high in Legal 500 EMEA

We are proud to announce that LEXTAL has been ranked by Legal 500 among other best Dispute Resolution, Tax, Commercial, Corporate, M&A and IP, IT and Telecoms teams in Estonia!

Legal 500 highlighted the following:

LEXTALs ‘efficient’ team is ‘proactive and takes the time to get to know its clients’. Ants Karu provides ‘very detailed advice tailored to each client’s individual circumstances’ and Margus Reiland ‘thinks outside the box’.

LEXTAL’s ‘fast and professional’ team is known for its experience in self-driving vehicles and cybercrime. Associate Rauno Kinkar is ‘very experienced and knowledgeable’.

The ‘diligent and responsive’ Ants Karu at LEXTAL ‘combines a good knowledge of tax and corporate law while keeping a clear focus on what is important and what is not’. Recent work highlights include advising Sevenoil and three other sellers on the sale of seven gas stations.

LEXTAL’s ‘excellent and quick team’ is experienced in both litigation and arbitration. The ‘thorough’ Olavi-Jüri Luik has ‘deep knowledge of contentious insurance contract matters’ and Urmas Ustav heads the team.

You can find further information on the Legal 500 website.

 

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Chambers and Partners ranked Oliver Nääs among the best Dispute Resolution attorneys in Estonia

International legal dictionary Chambers Europe 2018 ranked Oliver Nääs from LEXTAL among the best Dispute Resolution attorneys in Estonia.

According to Chambers LEXTAL has a well-regarded team known for acting on a spectrum of civil and administrative proceedings and white-collar crime cases. Experienced in restructuring and insolvency and insurance-related disputes, as well as commercial issues. Oliver Nääs enters the rankings in recognition of his strong market presence. Commentators recognise him as “one of the most renowned” criminal disputes lawyers, who is active in “high-profile white-collar crime” mandates.

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New regulation on registration of true beneficial owners in Latvia

On 9 November 2017, amendments to the “Law on the Prevention of Money Laundering and Terrorism Financing” have entered into force. The main purpose of amendments is to prevent money laundering and terrorism financing and provide a free access to a correct, actual information on the true beneficial owners of legal entities. Consequently, the amendments provide an obligation for all legal entities, registered in the Register of Enterprises, to provide the information on their beneficial owners.

New regulation on registration of true beneficial owners

The amendments provide that the true beneficial owner of the legal entity is a natural person:

  • who owns, or who directly or indirectly controls at least 25 per cent of the legal entity capital shares or stocks with voting rights, or;
  • who directly or indirectly controls the legal entity in any other way.

We would like to draw your attention to the fact that each situation is individual and provided border of the 25 per cent is the minimal border, which requires the identification of the true beneficial owner. Whereas the total amount of participation is less than 25 per cent, it has to be evaluated whether there is another way to identify natural persons who actually control the legal entity according to the real situation (for example, concluded contracts, other mechanism of control).

New disclosure obligations

New disclosure obligations applies to legal entities, registered in the Register of Enterprises, including, but not limited to, general partnerships, foundations, co-operative societies, limited partnerships, trade unions, limited liability companies, association of trade unions, joint stock companies, permanent trade unions, associations of political parties, European companies.

Amendments provide only two exclusions from the obligation to provide information on the beneficial owner:

  • if information about the true beneficial owner has already been submitted to the Register of Enterprises according to other laws and the way how the control is performed rises from the status of the shareholder, owner, founder or member of the management board;
  • if the beneficial owner is a stockholder in a joint-stock company, stocks of which have been introduced to regulated market and the way how the control is performed rises from the status of stockholder.

We would like to note that there is an obligation to submit information on true beneficial owners to the Register of Enterprises before 1 March 2018. However, in any case, if legal entity submits an application to the Register of Enterprises before 01.03.2018, for registration (foundation) of a legal entity, or changes in composition of shareholders or management board, it shall be provided the information on the beneficial owners.

It is very important to remember that currently both administrative and criminal liability is applicable for such violations. In accordance with Section 1663 of the Latvian Administrative Violations Code, failure to submit the information or documents specified by regulatory enactments on time to the Register of Enterprises, will result in a warning or a fine for an amount from EUR 70 up to EUR 430. If the same violations occur within a year after the imposition of an administrative punishment a new fine shall be imposed for an amount from EUR 210 up to EUR 700.

According to Section 272 of the Criminal law, for failure to submit information stipulated by the law or for submission of knowingly false information, sanction goes from a fine to short-term detention, or community works.

Furthermore, regarding commercial legal entities, the management board may be held liable for failure to provide the information about the true beneficial owners, if the company will suffer damages as a result of the violation, and if the management board could not be able to prove that it acted as a good and proper owner

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