In July 2020, Mairead McGuinness, the European Commissioner for financial matters, stated: “Cryptocurrency is one of the newest ways to launder money. Our rules will now apply to the whole of the crypto sector. We will ban anonymous crypto wallets and make sure that crypto-asset transfers are traceable.” Thus, she promised to eliminate one of the main benefits of cryptocurrencies, namely, their anonymity.
More specifically, the EU Commission proposed to expand the current Anti-Money Laundering (AML) / Know Your Customer (KYC) laws to all providers of cryptocurrency-related services. At present, only some of those providers are regulated (e.g., custodian wallet providers and companies providing crypto to fiat exchange services). If the new proposal is adopted, it will cover the entire crypto sector. The proposal will effectively ban anonymous crypto-wallets. Just as there are no anonymous bank accounts, there would not be anonymous cryptocurrency wallets.
The new rules will require providers of cryptocurrency-related services to collect identifying information about their customers. Companies that exchange cryptocurrencies on behalf of their customers will need to collect the details of their customers as well as the names of the recipients of the transfers. To ensure compliance with the rules, the EU Commission will create a single EU anti-money laundering authority.
The proposal made by the EU Commission needs to be accepted by the European Parliament and the EU Council before becoming a law. Since this can take about two years, we can expect the proposal to become law in 2023.
EU-based cryptocurrency businesses willing to continue providing anonymous services after the new law is accepted may consider relocation to a non-EU country having less stringent AML/KYC laws. However, taking into account that the Financial Action Task Force (FATF) suggests the adoption of strict global measures regarding cryptocurrencies, it is likely that many jurisdictions around the world will adopt laws similar to the EU proposal.
The FATF is an intergovernmental organization that adopts standards and proposes measures against money laundering. The FATF has 39 members, including the EU, the Gulf Cooperation Council, the United States, the United Kingdom, Japan, Hong Kong, China, New Zealand, Russia, Australia, and Switzerland.
In July 2021, the FATF issued a report stating that 58 out of 128 reporting jurisdictions have implemented FATF Standards which impose AML and counter-terrorism financing (CFT) requirements on virtual asset service providers and virtual assets. Although there is still not an AML/CFT global regime pertaining to cryptocurrency assets, the FATF noticed “evidence of progress” in that direction.
The U.S. also plans to take strict measures aiming to prevent money laundering through the use of cryptocurrencies. The U.S. Financial Crimes Enforcement Network (FinCEN) has recently announced a Notice of Proposed Rulemaking (NPRM) which would require businesses engaged in certain transactions involving convertible virtual currency (CVC) or digital assets with legal tender status (LTDA) to “submit reports, keep records, and verify the identity of customers in relation to transactions above certain thresholds.”