Business 26 June 2018Cecille de Jesus
EU’s new directive wants access to identities behind wallets, monitor crypto transfers
They insist that the proposal ‘seeks to ensure a proper balance between the need to ensure protection of privacy and of personal data and the need for more transparency in financial and economic activities.’
The European Union (EU) has recently adopted a new directive to cover cryptocurrencies in order to fight money laundering and terrorist financing activities. The directive, titled Directive (EU) 2015/849, seeks to fill in regulatory gaps in dealing with cryptocurrencies, but adds that the proposal does not intend to obstruct normal, legal financial transactions.
“…gaps still exist in the oversight of the many financial means used by terrorists, from cash and trade in cultural artefacts to virtual currencies and anonymous pre-paid cards. This proposal seeks to address those gaps while avoiding unnecessary obstacles to the functioning of payments and financial markets for ordinary, law abiding citizens and businesses, so balancing the need to increase security with the need to protect fundamental rights, including data protection, and economic freedoms,” the directive states.
Under the directive, Financial Intelligence Units (FIUs) can access cryptocurrency wallet information—the identities behind wallets, and “monitor transfers,” with specific attention to “high-risk third countries.”
“Virtual currency transfers are currently not monitored in any way by public authorities within the EU… To adequately respond to risks, it is essential to provide a regulatory framework for the functioning of exchanges as well as of custodian wallet providers that operate as gatekeepers permit the public to have access to the various schemes of virtual currencies As obliged entities under the 4AMLD, similarly to financial institutions, they become subject to the obligation to implement preventive measures and report suspicious transactions.”
“The amendments proposed seek to ensure a proper balance between the need to ensure protection of privacy and of personal data and the need for more transparency in financial and economic activities.”
However, it brings to question whether tracking transactions and seeing full identities behind the wallets would give authorities power that may be subjected to abuse. Blockchain transactions are already publicly verifiable. And as regulators catch up with AML and KYC requirements, it will become increasingly difficult for criminals to hide their identities and move funds around as it stands. In fact, intelligence analyst turned money laundering investigator Matt Peyer thinks Bitcoin’s role in terrorist financing is overblown.
“Despite the possible potential, Bitcoin and other digital currencies currently play a limited role in terrorist financing. The value instability and likely ability to trace the coins create major flaws, which cannot be easily overlooked. Furthermore, the lack of places that accept Bitcoins in terror havens equals a gold mine with no way to access the resources. Bitcoin may someday rise in value, but with better options like gold, oil or uncut gems, the risk outweighs the potential,” Meyer wrote.
Although Meyer adds that pre-emptive measures have their place.
“The situation for Bitcoin and terror funding may change in the future. As ISIS shifts to carrying out isolated attacks in urban European areas, digital currency may carry more value. Additionally, developers continue to create new digital currencies with greater privacy features. Despite the lack of usage by terrorists, intelligence agencies need to maintain a close eye on Bitcoin to keep it from becoming a more significant issue,” he concluded.
Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.
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