No one wants to discuss efficiency of background check of e-residents

At the end of March, Ärileht published the news that the interest of Russian citizens in Estonian e-residency began to increase with the beginning of the war in Ukraine: while previously about ten percent of applications came from Russia, this figure increased to 25 percent from the end of February by the beginning of March.

However, these applications were rejected because the Interior Ministry announced on March 8 that it would restrict the issuance of e-resident status to both Russian and Belarusian citizens in order to prevent circumvention of sanctions and possible illegal activities. ”Our supervisory authorities are paying heightened attention to the current e-residents of Russia and Belarus. In the coming months, we will pay special attention to them, we will observe their actions more closely and, if necessary, we will also intervene, i.e. we will invalidate their e-residency,” said Minister of the Interior Kristian Jaani (Center).

However, whether this “follow-up checking” works in practice is more than doubtful. Namely, the opportunities of the Police and Border Guard Board (PPA) to gather information on e-residents of these two countries are extremely limited.

PPA assures: we can check the background

Postimees asked Anita Sokolova, the chief expert of the PPA Identity and Status Bureau, how intensively the e-residents of the two countries are currently being checked. According to Sokolova's brief response, “a risk analysis is being carried out”. Although the PPA is currently overwhelmed with work due to war refugees, they do not complain about labor shortages. “The PPA has enough resources for checking. We consider the follow-up checking important and, if necessary, we will also find additional resources,” Sokolova said.

In practice, however, checking the background of e-residents is anything but easy. Sokolova admitted that co-operation with Russian and Belarusian partners has been hampered by the security situation. Simply put, this means that the Russian authorities are not cooperating to verify the background of individuals. “We are checking the data available to us, for example the digital footprint,” Sokolova said.

The PPA is asking for public support. “If someone has information that could lead to the revoking or suspending an e-resident's digital identity, please send this information to the e-mail address eresident@politsei.ee,” Sokolova noted.

An audit of the National Audit Office, published already in July 2020 and resulting in a scandal, described how the background checks based on open source data are carried out. It turned out that neither preliminary nor follow-up checks can ensure that e-residency is granted only to aliens without criminal record. “The Police and Border Guard Board has issued an e-resident digital ID to aliens who have criminal record abroad.

The PPA has also failed to revoke the digital ID of some e-residents who have committed a crime in Estonia during the validity of the document. According to the PPA, one of the reasons is the absence of IT solutions that would allow mass inquiries in the punishment register and the identification of aliens convicted in Estonia. The PPA administrative proceeding has no opportunities for identifying individuals convicted abroad if the information has not been entered in international databases,” the audit read.

According to the audit data, the PPA had also issued digital IDs to foreigners prohibited from doing business. “According to the PPA, it is not possible to make a mass inquiry about Finnish prohibition on business during follow-up checks due to the absence of necessary IT solutions. There is no data exchange with other countries in the field of prohibition on business. According to the explanations of the Tax and Customs Board, they do not have the means and opportunities to assess an individual's tax behavior, including prohibition on doing business ban abroad, which is why they only make inquiries into Estonian databases,” the audit revealed. Eesti Ekspress wrote at that time that the Ministry of the Interior even requested that the National Audit Office declare the audit confidential since it painted such an unflattering picture of the program, but the National Audit Office refused to do so.

Only an insignificant number of e-residents have lost their status

According to statistics, the PPA revoked on March 11 the digital identities of 184 Russian and Belarusian citizens waiting to be issued, and since the outbreak of the war, 255 new applications have been rejected.

By April 14, however, exactly six e-resident digital IDs already issued to Russian citizens were declared invalid in the course of the ongoing risk analysis. At the end of March, there were 4,421 Russian citizens with valid e-residence and 902 Belarusian citizens. The e-residency website shows much higher numbers, 5,860 and 1,138, respectively. Katrin Vaga, PR head of the e-residency team operating at Enterprise Estonia (EAS) explained the difference, saying that their statistics also includes those e-residents whose digital ID is being updated, is not valid or has not yet been issued.

Postimees has received the information that the banks themselves have started to proactively hedge their risks and close the accounts of citizens of these two countries. However, this cannot be confirmed since this is the banks’ commercial secret. For example, LHV Bank did not even agree to name the order of magnitude. “We can say that we assess every non-resident’s connection with Estonia – both at the beginning and during the customer relationship. If the connection with Estonia is not deemed sufficient, the commencement or continuation of the customer relationship is not justified,” was the answer of the bank's communications manager Priit Rum.

The marketing team is not worried about the risks

The team of Enterprise Estonia, which does not have to deal with the follow-up check themselves, stands out with its optimism. Katrin Vaga did not answer the question “How high do you assess the risk that Russian and Belarusian citizens with the existing e-residence may use it to circumvent sanctions?”

However, a press release was issued last Thursday according to which the e-residency program, together with the companies serving e-residents, reimburses Ukrainian citizens for state fees if they apply for e-residency and also establish a private limited company in Estonia this year.

“Due to the war, the Ukrainians are facing an economic crisis. Nearly five million war refugees, including entrepreneurs and freelancers, have fled Ukraine to neighboring countries. As Estonia is the only country in the world that offers non-residents a virtual opportunity to set up and run a business through e-residency, we found it our duty to try to help the Ukrainians,” said Lauri Haav, CEO of e-residency, in the press release.

What the press release did not mention were the potential risks. Obviously we cannot presume that every Ukrainian citizen who obtains e-residency this way has submitted the application for purely positive purposes. The possibility that pro-Russia Ukrainian citizens or those with business ties in Belarus and Russia may also start applying is also acknowledged by the PPA.

“This risk cannot be ruled out. The PPA checks the background of each e-residency applicant and assesses the motives for applying on a case-by-case basis. In case of doubt, the applicant must provide additional documents and/or explanations. Like citizens of other countries, citizens of Ukraine may receive a negative answer in the absence of legal grounds for granting e-residency,” said Sokolova.

The criticism was not taken seriously

Following the publication of the 2020 audit of the National Audit Office, the team of Enterprise Estonia stated that the audit addressed the past and that many problems had already been solved or were being solved, while the risks have been identified and neutralized. Ruth Annus, Head of the Citizenship and Migration Policy Department of the Ministry of the Interior, who was one of the initiators of the program together with Taavi Kotka and Siim Sikkut, considered the existing control mechanism thorough. In her opinion, it would not be possible to reduce the number of malicious individuals to zero without bringing the economy to a standstill. Annus claimed that every e-resident leaves a so-called digital footprint when operating in the Estonian economic space. Only time will tell whether the PPA will be able to track these footprints successfully.