Con artists taking advantage of Estonia’s e-reputation

The prosecution received a report of a possible crime targeting people from wealthy European countries like Norway and Switzerland recently. A total of around 80 people had lost money after trusting it to foreign exchange broker Kaya-FX.

The firm is tied to Estonian company Gammatech Services OÜ, founded last summer, that claims to offer foreign exchange services but doesn’t have the necessary license.

That is the only link to Estonia. The company is owned by a Pole, its website is not hosted by an Estonian server, while its bank account is in Spain. Because the crime was not committed in Estonia and the victims did not include Estonian residents, the prosecution has nothing based on which to launch proceedings.

The prosecution said that the only thing tying the enterprise to Estonia was the fact it was registered here. It operated abroad.

Head of the market supervision and duress department of the Estonian Financial Supervision Authority Kristjan-Eerik Suurväli, who reported the offense, said that while the watchdog can contact their colleagues in other countries, penal law remains rigid. “The European Union has a common market but 28 sets of penal law,” he said.

Because such companies have sent their tentacles – either intentionally or not – all over the world, it is virtually impossible to hold them accountable. That fact is recognized by both the authority and the prosecution. “In the end, it might come back to bite Estonia’s e-image,” Suurväli said.

Common fraud

Law enforcement organs encounter such borderless crimes increasingly often. “A good example is when a crime committed over the internet has been taken into pieces and scattered all over the world. This makes it difficult to find the perpetrators,” said Public Prosecutor Marek Vahing.

Financial regulators all over Europe publish dozens of warnings about foreign exchange brokers that operate without a license every month. Many of them engage in fraud pure and simple.

Things couldn’t seem simpler for the ordinary person: they are offered the chance to make serious money doing virtually nothing. All one needs to do is register an online account, transfer some money, and the broker will take care of the rest. Trades currencies, shares, and bonds.

Unfortunately, as it usually happens with things that seem too good to be true, the person discovers they have lost their money after a while.

According to Suurväli, this type of fraud is very common. More so, as creating a website for your company is not exactly difficult – colorful live exchange rates, an image of a stack of bills and fancy office buildings, and perhaps even contact information. “These online contacts are usually made-up people,” Suurväli said.

There are different schemes. There are those who create firms and indeed offer some services, while there are also those who do not do anything. While accounts might reflect transactions and income, it is not really the case.

Estonian shadow addresses

It is noteworthy that many such shady businesses advertise themselves with Estonian addresses. Even if the company is really registered in the Marshall Islands or Panama.

Suurväli says that the reason is simple: if they show themselves as EU companies that offer investment services in the union, it adds credibility to an otherwise unknown enterprise.

The Estonian press has written about one such firm in the past – Trade12, promoted for a time by boxing legend Mike Tyson. The website of the company that has taken people for a ride all over the world still listed Tornimäe 5, Tallinn as its address as recently as early April.

Trade12 is owned by British company Global Fin Services Ltd. that in turn belongs to Exo Capital Markets Ltd. The latter is registered in the Marshall Islands. Several EU financial watchdogs have warned against the unlicensed broker.

Websites of several other similar ventures list the Tornimäe office building as their address. Examples include forex broker Millennium-FX or Trade5000 and S2trade that have blocked their sites in Estonia. A quick online search reveals there is reason to suspect foul play in both cases.

As concerns the building itself, its popularity among foreign clients is hardly peculiar. A Google search in English for business premises comes back Tornimäe.

The only thing that points to the currency exchange business when one walks into the building is a Eurex currency exchange station. No international offices where dozens of brokers in suits can be seen managing their VIP clients’ investments through glass doors.

Millennium-FX, Trade12 and many others use fake addresses. If Trade12 has no connection to Estonia whatsoever, Millennium-FX does have a legal connection to the country. Estonian company Mlnmtech OÜ, founded last year, allegedly offers Millennium-FX payments services.

The financial supervision authority issued a warning concerning the firm earlier this year as Mlnmtech OÜ does not have a license for offering payments services to the Marshall Islands’ company. The person responsible for Mlnmtech OÜ is an Israeli citizen.

Even though there is no clear overview of how many fraudulent companies boast Estonian addresses, the watchdog says the trend is worrying as Estonia’s image of a successful e-services country is being taken advantage of.

Estonians hit

“The problem is made worse by how easy it is to create a company in Estonia,” Suurväli said.

Estonia has two major players when it comes to selling Estonian companies to foreigners. Mlnmtech OÜ and Gammatech Services OÜ are but two examples of firms founded with the help of Estonian enterprises.

For example, KRM Advisor OÜ promises on their English website that it will take three weeks from first contact to registration. Their main competitor is E-Advisors OÜ.

Fake forex brokers have also contacted people in Estonia. A few people have turned to the consumer protection agency; however, because the companies that offered suspicious services were registered in the UK, they will not get help in Estonia and were referred to the British watchdog.

Had the money been lost in Estonia or the company’s registered managers Estonians, it would be possible to retrieve the money here. “The problem is that once a person has transferred their money out of Estonia, or, even worse, the European Union, it is devilishly difficult to retrieve,” Suurväli said.