Starter KYC and AML: Compliance Check While Setting Up a Company in Estonia

The idea of an Estonian e-Residency may seem unbelievable at first sight. How could anybody from outside set up a company online without visiting Estonia even one time? The alien gets a Digital ID, and access to government websites and other e-services (optionally). Then they can also apply for a European bank account for the company and so on.

Remote relations are built on compliance checks and monitoring. We normally verify physical and legal persons before we start work with them. By conducting a check, we ensure our customers' digital onboarding and give them a starter credibility in the new environment.

From the incorporation of the company, you gain liability protection. Since the provided information is correct, you don’t risk fees, fines, and other penalties. And the main thing, the new company won't be dissolved by the state.

The legislative framework goes back mostly to AML and KYC procedures. Anti-Money Laundering (AML) procedure protect the country from potential financial cybercrime and helps to combat ID thefts. Passing AML checks, you enter jurisdiction from which you can further reach reliable partners.

Know Your Customer (KYC) is one more procedure that emerged from the practice of financial institutions. KYC is about compliance monitoring and risk management of the customer account - what’s his typical economic behavior, what’s stands out, and for what benefits they get from one or another, etc.

Whether you’re checked by authorities, service providers, or banks, or it’s you checking a potential counterparty, there are common principles of designing a compliance check. It has to be:

• comprehensive, i.e. to cover all the concerned number of people and risks of breaching commitments;
• proportionate to the size, complexity, and nature of the business.

For example, when you need to check a web dev contractor who runs a small or micro business like a solopreneur, it would be probably enough to identify main information about legal entity and a person as a signatory of the contract. Accordingly, the larger and more complex contractors require a bigger effort.

Prior to incorporation of the company, the compliance check applies to a physical person only. A pre-start compliance check is simple and done through our partner — Sum&Substance that is qualified to complete this procedure in a fully secure manner. It’s a matter of specialized and certified service we want to bring to our end customer and also automatization.

Since it’s very early, the check contains two simple points. Both are must by the EU regulations:

Basically, we check the face against the photo in the passport or another ID document.

We verify that the person is not on certain global and EU governmental blacklists. A blacklist is a database, thus this step is realized like search for the name in multiple them to ensure the customer is not among those who finance terrorism, are money launderers, or are under international sanctions or are politically exposed persons (PEPs).

The check is automatized and takes nothing but a couple of minutes. Then you’re given the go-ahead to proceed to e-Business Register.

Quick reminder: company incorporation takes 1 business day for holders of e-Residency Card and in 1-2 weeks through a notary. You can learn how to get an e-Residency in Estonia from this blog post.

Software for compliance verifications are considered to be a better solution in comparison with manual compliance checks. But when you just set up your own company, you are not going to spend money either for a bunch of subscriptions or for compliance officers on staff. You’ll do a compliance check by yourself.

Let’s glean basic compliance check tools from the experience of starting a company with Enty:

• identify a contractor - legal person (e.g. find its name, registration number, and details of business activity in the e-Business Register);
• identify a signatory - a physical person (e.g. search in the blacklists);
• keep track of the relations with a counterparty according to KYC.

On Enty, you can monitor your history with a business partner in the Counterparties section. Companies and personal names are usually added to your invoices, but you also can create a counterparty’s profile right there and see all the transactions in time.