EU Council agrees on drastic AML measures for crypto
EU Council agrees on drastic AML measures for crypto
juin 30 2022
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European Union’s stance on crypto takes form, and this form is heavily bureaucratic.

Yesterday the EU Council reached a provisional agreement on crypto AML rules, previously voted by the EU Parliament.

Key takeaways:

📌 All cryptoasset service providers (CASP) must comply with the AML “travel rule”, i.e. gather information about the parties involved in a crypto transaction

📌 The travel rule for crypto concerns all transactions, even as small as €1 (unlike the travel rule for fiat that has a €1000 threshold)

📌CASP will be obliged to verify the identity of the beneficial owners of unhosted wallets for all transactions over €1000

📌 For smaller transactions to/from unhosted wallets, CASP will be “required to collect information and apply enhanced due diligence”

📌 A special crypto AML body will be created to supervise the CASP.

Ernest Utasun, the EU lawmaker who shared the agreement’s main points in his Twitter, called it “the most ambitious travel rule for transfers of the cryptoassets in the world”, and he is right if “ambitious” means “constraining”. The new requirements will put a heavy reporting burden on all crypto service providers, making them slower and more expensive. What’s more, the pooling of user data by centralized entities can pose threats to personal privacy and open the door to hacks and phishing attacks.

The concept of AML in the fiat system relies heavily on surveillance 👀 One can argue that in a siloed and opaque system that is fiat this is the only way to ensure that people trusted with handling money are doing it responsibly.

It is not perfect: even the FATF recognizes that the effectiveness of preventing money laundering currently stands at less than 30%. Thus, $1.6 trillion (2.7% of the global GDP) estimated to be laundered every year does not come as a surprise, and financial institutions are regularly charged with money laundering (this week it was Credit Suisse found guilty of helping Bulgarian drug traffickers launder over CHF 146 million) 🧼

Crypto is different. The totality of all crypto transactions ever made can be easily found online, and with the existing and constantly improving on-chain analytics tools a variety of suspicious behaviors can be revealed and traced.

Crypto transactions are pseudonymous, and they should stay this way to preserve users’ privacy and safety. However, if a potentially criminal activity is discovered, it can be traced to its originators, and the law enforcement is getting more and more skilled in it 👩‍💻

We believe that applying fiat AML principles to crypto is illogical and inefficient, especially when one could easily bypass centralized crypto exchanges, lenders, and other services.

What is really needed to combat the prospects of money laundering in crypto (which accounts for only 0.05% of all crypto transactions) is a better understanding of on-chain practices and not more paperwork.

It is a pity that EU lawmakers don’t push their reasoning as far.