Anyone using virtual currencies such as Bitcoin, Ethereum or Ripple in the EU should be able to be identified regardless of the equivalent value. The European Parliament’s Economic and Monetary Affairs (ECON) and Civil Liberties, Justice and Home Affairs (LIBE) committees voted by a large majority on Thursday to end anonymous payments and donations with crypto tokens. They want to step up the fight against money laundering and the financing of terrorism.
“Fully Traceable” Cryptocurrency Purchases
The European Commission presented a legislative package this summer. She wants to ban anonymous crypto wallets and expand due diligence requirements such as identification requirements to the entire industry. Transfers of crypto assets must be “fully traceable”. In order to maintain the efficiency of the payment system and limit the underground economy, the Brussels government institution has recommended a minimum limit of 1,000 euros.
The commissions have removed this limit. In doing so, they followed a recommendation from the rapporteurs, Green Ernest Urtasun (ECON) and right-wing conservative Assita Kanko (LIBE). According to the resolution, which the committees passed by 93 votes to 14, with 14 abstentions, all transfers of crypto assets must include information about their source and recipient. These must be made available to the competent authorities.
Specifically, it is a reform of the regulations on the transmission of information for money transfers from 2015. The regulations should also apply to transactions with “non-hosted wallets”, which do not require no intermediaries such as exchanges or cryptocurrency service providers and form the basis of decentralized financial applications. They are stored directly with private users. Here too, technological solutions should ensure that asset transfers can be individually identified and tracked.
With this decision, users of non-hosted crypto wallets must be identified and verified using personal data such as name and address, just like opening a bank account. Exceptions are made for person-to-person transfers made without a supplier. These would apply, for example, to bitcoin trading platforms or transactions between providers who act on their own behalf.
The representatives of the people want to act against the “smurfage”. They write that criminals are able to make illegal transfers and avoid detection “by splitting a large transaction into smaller amounts using multiple seemingly unrelated wallet addresses.” Most crypto assets “are also highly volatile,” which makes it even more difficult to apply a de minimis limit.
The European Banking Authority (EBA) is set to create a public register of companies and services related to crypto-assets that present a high risk of money laundering, terrorist financing and other criminal activities. MEPs want a list of suppliers who do not comply with the regulations to be included.
skepticism in the industry
The change would pose considerable bureaucratic difficulties for the industry, Bitkom had predicted in advance. “We generally welcome projects that build trust in the young crypto market,” said Kevin Hackl, head of digital banking at the IT association. “However, such cut-and-paste adoption of traditional money laundering regulations shows that the promising crypto trade is simply not yet understood. Unlike traditional financial flows, immutable blockchain can detect fraudulent behavior, for example with the help of so-called chain analysis tools.”
Cryptocurrency supporters had stormed the project. Paul Grewal, for example, chief legal officer of US marketplace Coinbase, has warned of an impending “comprehensive surveillance regime” on online exchanges. This could stifle innovation and “undermine the self-hosted wallets individuals use to securely protect their digital assets.” Coinbase has also set up an automated system for interested parties to send protest emails to lawmakers.
Opponents of the initiative complain that crypto companies will likely have to refuse transactions with non-hosted wallets in the future. As a rule, they have no means of verifying the identity of users. Moreover, the reporting and verification requirements are disproportionate.
European parliamentarians even had to listen on Twitter, they should help Ukrainians by keeping cryptocurrencies “free from strict regulation in these important times”. Kanko opposed it“What a disgusting exploitation of the horrible situation of Ukrainian refugees to support a selfish perspective and fake news. If you’re not funding crimes or child pornography and laundering money, you don’t have to worry about the impact of our new legislation, designed to protect society.
Illegal flows of crypto assets “move largely undetected across Europe and the world, making it an ideal tool to ensure anonymity,” Urtasun pointed out. Scandals like the Panama Papers showed that criminals thrive where they can operate in secret and anonymously. With the draft regulation, the EU will fill this gap, but also strengthen data protection. Meanwhile, Patrick Breyer (Pirate Party) complains, “A total ban on anonymous cryptocurrency payments would not have a significant impact on crime,” but would rob law-abiding citizens of their financial freedom.
The adopted text constitutes MEPs’ position for the ongoing negotiations with the Council of Ministers on the final form of the legislation, which should be in place by the summer. The European Parliament still has to confirm the mandate during its April plenary session.