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The proposal means crypto-asset transfers of any amount would need to be traced and information made available to the ‘competent authorities’.
The European Parliament voted in favour yesterday (31 March) of new rules to trace and identify crypto-asset transfers, in a bid to prevent their use in money laundering and other illegal activities.
MEPs from the economic and monetary affairs committee and the committee of civil liberties voted 93 in favour and 14 against the provision that all crypto assets would have to include information on the source of the asset and its beneficiary.
The goal is to have crypto assets be traceable in the same way as traditional money transfers, and make information available to “competent authorities”.
The new rules would also remove minimum thresholds and exemptions, which means any transfer would need to be traced regardless of the amount.
EU lawmakers had previously discussed setting a €1,000 threshold, but MEPs scrapped this as “crypto-asset transactions easily circumvent existing rules based on transaction thresholds” due to their speed and virtual nature.
MEPs also want the European Banking Authority to create a public register of high-risk businesses and services involved in crypto. Providers will have to verify that the crypto-asset source has no association with money laundering or terrorism financing before making it available to beneficiaries.
“Illicit flows in crypto assets move largely undetected across Europe and the world, which makes them an ideal instrument for ensuring anonymity,” said Spanish MEP Ernest Urtasun said. “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,” Urtasun added.
The new requirements also cover transactions from “unhosted wallets” or crypto wallets held by a private user. However, the tracing rules do not apply to person-to-person transfers conducted without a provider, such as bitcoin trading platforms, or among providers acting on their own behalf.
Paul Grewal, chief legal officer at cryptocurrency exchange Coinbase, spoke against the new proposals earlier this week, saying that “bad facts make bad law”.
Grewal argued that cash remains the most popular way to hide illegal financial activity, while law enforcement can already track digital asset transfers with advanced analytics tools.
“None of this requires upsetting the settled privacy expectations of wallet holders because the open architecture underlying digital assets is public and offers unprecedented transparency into transaction details,” Grewal wrote in a blog post on 28 March.
According to Grewal, new requirements would mean that individuals cannot take assets out of their crypto wallet to send to someone else until they share personal data about that person and verify their identity.
“Not only is this verification requirement nearly impossible to do but requiring exchanges to engage in extensive data collection, verification and retention about non-customers runs against core EU data protection principles of data minimisation and proportionality,” Grewal added.
The European Parliament is expected to vote on the adopted text in April. The new rules are part of the EU’s anti-money laundering package, which sets out measures to strengthen the EU in combating money laundering and terrorist financing.
Cryptocurrencies such as bitcoin had a narrow escape in the European Parliament last month, as MEPs voted to scrap a provision that would have banned, in effect, proof-of-work crypto assets on sustainability grounds.
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