EU draft law adds security checks to all crypto transactions

EU draft law adds security checks to all crypto transactions

The European Parliament has taken the first steps for new legislation against money-laundering that covers cryptocurrency transactions, which are an important part of illicit activities today.

Members of the European Parliament from the Committee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties (LIBE) have agreed on adopting (with 93 votes in favor, 14 against, and 14 abstentions) draft legislation for more transparent crypto asset transactions.

“Under the new requirements agreed by MEPs, all transfers of crypto-assets will have to include information on the source of the asset and its beneficiary, information that is to be made available to the competent authorities,” reads the Parliament’s announcement.

The new rules will cover transactions from private-held cryptocurrency wallets without considering transaction thresholds, which erases any limits for anonymous transactions - previous proposal allowed up to €1000 to be transferred without giving any details about the sender and the recipient.

The reasoning behind this is that transaction thresholds make no sense for regulating cryptocurrency assets because they can be easily circumvented due to their virtual nature. Simply put, it would be practically viable for money launderers to perform numerous transactions under the set threshold.

“Illicit flows in crypto-assets move largely undetected across Europe and the world, which makes them an ideal instrument for ensuring anonymity,” commented Ernest Urtasun of the Greens Party.

“As illustrated by all the recent money-laundering scandals, from the Panama Papers to the Pandora Papers, criminals thrive where rules allowing for confidentiality allow for secrecy and anonymity. With this proposal for a regulation, the EU will close this loophole.”

Forming a public “risk register”

Entities considered to be of high risk for money laundering, terrorist financing, or simply non-compliant with EU’s regulations will be placed in a new special register.

All cryptocurrency transactions will have to be verified against this register to ensure that it’s not subject to associated restrictions before the assets are made available to the beneficiaries/recipients.

This practically means that unregulated exchanges will no longer be valid in Europe and won’t be able to provide their services to investors in the continent.

The burden of reporting the customer transactions to the authorities will be placed on the exchanges, which already had objections even when the €1000 limit appeared to be applicable.

5/ Moreover, any time you receive 1,000 euros or more in crypto from a self-hosted wallet, Coinbase will be required to report you to the authorities. This applies even if there is no indication of suspicious activity.
— Brian Armstrong - barmstrong.eth (@brian_armstrong) March 30, 2022

Criticism over the proposal

The cryptocurrency industry sees this draft law negatively because it lifts the veil of privacy for investors and makes using digital assets worse than fiat money from that perspective.

The whole purpose of pursuing a decentralized financial transaction system is to create a reliable, verifiable, and anonymous alternative to the traditional banking system, but sweeping laws like the current proposal are undercutting this premise.

The indiscriminate scrutiny of all transactions without any basis or consideration for illegality is perceived by crypto proponents as a straight-out attack against blockchain-based technologies.

EPP economic spokesperson Markus Ferber told CoinDesk: “Such proposals are neither warranted nor proportionate. With this approach of regulating new technologies, the European Union will fall further behind other, more open-minded jurisdictions.”

Pirate Party MEP Patrick Breyer shared the following statement with Bleeping Computer:

Banning anonymous cryptocurrency payments altogether would not significantly affect crime but would deprive law-abiding citizens of their financial freedom. With the creeping abolition of real and virtual cash, there is the threat of negative interest rates and the shutting off of the money supply at any time. We should have a right to be able to pay and donate online without our financial transactions being recorded in a personalized way.

The next phase in the anti-terrorist and anti-money laundering proposal passing into EU law is for the MEPs to negotiate its final form. If at least 71 MEPs oppose the report, amendments will be implemented.

If that number isn't reached, the proposal will go straight to negotiations with the Council and Commission. The proposal will then be voted by the national ministers, who will meet about this matter at the EU Council in May or June.

You may keep an eye on this web page for more details on the Anti-money-laundering package as it evolves in the following weeks.

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EU draft law adds security checks to all crypto transactions