Estonia: Bitcoin Trading Faces Increased Police Scrutiny
OREANDA-NEWS. February 20, 2014. Estonian authorities have taken steps to clamp down on what they view as illegal exchanges set up within the republic to trade in Bitcoin.
The website btc.ee, which organized trades of Bitcoin, currently runs a message advising its users that it has "temporarily stopped trading owing to threats issued by the Estonian police."
Otto de Voogd, the site's operator, told ERR News that he had received e-mails in which the Estonian Financial Intelligence Unit requested, under the Money Laundering and Terrorist Financing Prevention Act, "copies of IDs of clients, internal measures or procedure of due diligence," and evidence btc.ee was registered as a trader of currencies. If these requests were not met, according to the emails, a maximum of a EUR32,000 fine and three years in prison was possible.
Although De Voogd characterized the notification as "threats," police officials emphasized this is not the case. "Naturally the police have not threatened anyone, as Mr. De Voogd claims," Aivar Paul, Estonian Police spokesman, told ERR News.
"We have simply noted in conversation with Mr. de Voogd that without the registration required by the Money Laundering and Terrorism Prevention Act, offering financial service could be grounds for criminal proceedings for illegal economic activity, which is a standard practice for, say, pawnshops. Being an alternative payment broker service provider means an obligation to fulfil requirements of [the above-mentioned Act]," Paul said.
Bitcoin is a peer-to-peer payment system and digital currency introduced as open source software in 2009. It is a cryptocurrency, so-called because it uses cryptography to control the creation and transfer of money.
De Voogd maintains his site was not a place where Bitcoin trades could be done directly.
"I am just an individual willing to do limited Bitcoin trades, up to EUR 500," he said. "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."
De Voogd said it has never been possible to directly trade bitcoins using his site - that it was merely a conduit for peer-to-peer trades happening elsewhere, which, in his view, meant the site was not designed for buying or selling.
"Only after I was contacted and only if I wanted to trade with them did I provide [users] with my banking details," he said. "If I didn't have funds available, any time, or they wanted to trade big amounts, I declined and directed them to a real Bitcoin exchange. Now the Estonian police wants to pretend that this is some full blown exchange where anybody could go to exchange bitcoins, 'via the site', in their words."
De Voogd said there is a lack of a regulatory framework for the use of bitcoins within Estonia.
"No Estonian government agency has publicly issued any guidance on how Bitcoin should be viewed legally," he said. "Is it a currency or an investment or a raw material, or something else?"
The police said that under the Money Laundering Act, a person conducting transactions with Bitcoin, including as a broker, is an alternative payment service provider. Paul told ERR News that Bitcoin and services revolving around alternative means of payment were not prohibited in Estonia.
Bitcoin is one of several cryptocurrencies that are available globally. Because of its peer-to-peer nature, cryptographic features, and not having a "central bank" controlling its operations, it has raised regulatory questions for many countries.
Transferwise, the Estonian-born, London-based peer-to-peer currency exchange company, recently ceased accepting Bitcoin as a currency.
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