BTC.ee
Ancient source of Bitcoins in Tallinn, Estonia.
The legal battle against the Estonian state has cost me around 9000 Euros in legal fees in the lower, appeal, and supreme courts, not to mention the countless hours and stress.
Now that I lost in the Supreme Court, this awful interpretation of the law stands, an interpretation that makes any dealings in Bitcoins, other cryptocurrencies, blockchain tokens or assets, practically impossible in Estonia.
The Estonian police threatened me with a 32,000 Euro fine and/or 3 year prison sentence, merely for having had an unadvertised webpage that calculated my personal Bitcoin buying and selling rates. Additionally the Estonian police and courts tried to coerce me into cooperating with an investigation against myself.
Estonia in Violation of EU LawThe "Alternative Means of Payment" law that the Estonian police is applying to Bitcoins, is in violation of EU law according to my lawyer. Since it's an extension of the EU's AML law and any extension of this particular EU law needs to be motivated by showing there is a serious problem as well as be registered with the EU. Estonia failed to do both these things. Therefore the Estonian law is in violation of EU law.
The police never supplied a counterargument, and in the lower court's ruling on November 18th, 2014, the judge simply ignored our point without stating why this argument is not valid. The appeals court, while admitting that Estonia failed to motivate and register this law with the EU as required by EU law, denies this makes the Estonian extension invalid. In other words Estonia can violate EU law without consequence according to them.
The Estonian Supreme Court however appeared to take its work a bit more seriously, but turned out to be huge disappointment too. It not only failed to strike down the Estonian extension for violating EU law without much motivation, it also failed to refer the question to the European Court of Justice. We will now have to file a complaint against Estonia with the European Commission for violating EU law.
Retroactive Application of Unknown Interpretation of a LawThe interpretation of the law by the police was kept secret until after they threatened me and is thus being applied retroactively. No-one in Estonia knew how Bitcoins were going to be classified by the state. But somehow we are supposed to magically be able to guess how the state is going to interpret the law in the future! This creates a legal uncertainty that is in my view simply unbecoming of country that wants to be a modern democratic state.
By email I questioned the police about keeping their interpretation secret, and this is what they answered:
Police: “We will public [sic] our opinion regarding the matter of bitcoins on our website soon.”
Police: “[...] and for your information we have not kept our opinion in [sic] secret – we just did not saw [sic] the need for composing something like that earlier.”
I guess the police has a different definition of what "keeping it secret" means. There was no way for the public to know the police's interpretation since they didn't publish it. Hence it was kept secret from the public. Whether that was on purpose or by incompetence is of course another question.
There was also an article in Postimees where Kuno Rääk, CEO of Tavid - Estonia's biggest currency exchange operator, asks the state to provide clarity: "Enne on väga keeruline hakata sellega tegelema, kui pole selgust majas,» selgitas Rääk." The article was published on January 23rd 2014, a mere 3 weeks before the Estonian police initiated hostilities against me.
The article is good evidence that no-one knew what Bitcoins were legally classified as in the former Soviet republic.
No Estonian court sees any problem with this, they all pretend that this particular interpretation, that in reality no-one knew, is perfectly clear.
This is the primary reason why I have decided to leave Estonia. I cannot guess how the state is going to reinterpret the law in the future to things I do now, it's a gift I will simply never have. I'd rather move to a country where the state openly publishes its interpretation for all to know, instead of waiting for someone to fall in their trap.
No Permissionless Innovation in EstoniaThe above is even more of problem for a country that wants to be leading in technological change. Reinterpreting old laws in such a way as to retroactively apply them to new technologies simply means that there is no permissionless innovation in Estonia.
If you want to innovate in a new technology you must first ask explicit permission from the state and be sure they will not reinterpret an old law, that was never intended for it, to this new technology. It can easily take years for the state to decide on such things, and by the time they do, competitors in other countries who did not need to get permission will already have cornered the market. This is exactly what is already happening in the cryptocurrency world, Estonia is losing out to other countries (as it should and deserves).
Of course by now, I no longer believe the Estonian hype. The examples of tech innovation given are mostly the state's own innovation, and usually overhyped. Of course the state permits its own innovation, what's lacking in Estonia, is a laissez faire attitude towards disruptive innovation by the private sector.
Can be Applied to AnythingThe Estonian police motivates its action by the fact that Bitcoins can be exchanged for money. But almost anything can be exchanged for money, thus the police could apply this law to whatever they want whenever they want it, without prior publication of this fact.
Prohibition for Private People to Publicly trade BitcoinsAccording to the police making public the fact that you are willing to trade Bitcoins means that you offer a "service" and thus requires a license. Effectively this means that any exchange by a private "unlicensed" person who publishes this anywhere on the web, even on an unadvertised personal site that few people know (as mine was), is a prohibited activity in Estonia.
There is also no limit below which trading between private individuals is allowed.
Arbitrary Application of the LawBesides me, only one other person in Estonia was targeted by the police. This person was actually charged with money laundering and trading without a license, for having performed two trades totaling less than 2000 Euros in value.
No-one else has been targeted yet. In part this may be because we were the only two people they could easily identify. Although I had no trouble identifying other people trading Bitcoins in Estonia. Yet the police has not contacted any other Bitcoin traders except for the two of us, a fact that they confirmed during our lower court hearing.
To me it is pretty clear that the law is being applied arbitrarily. This enhances my feeling of injustice, and has only strengthened my desire to get out of Estonia and never return.
Cooperating With Your Own ProsecutionThe first thing the police did after finding my webpage (presumably by doing a Google search) was to threaten me with a 32,000 Euro fine and 3 years in prison. Then they demanded that I give them information they could use against me. Surely everyone can understand that I am not inclined to want to cooperate with my own prosecution.
It feels as a violation of my basic human rights, but the Soviet Estonian appeals court penned a pathetically contorted legal argument to deny me this basic right. For more on that read the Self-Incrimination page.
ReferencesE-mail conversation with Urmas Pai (Estonian Police)
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BTC.ee was created as a hobby project by Otto de Voogd, and is now operated from the Netherlands.
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