{"id":1524,"date":"2024-04-26T16:03:30","date_gmt":"2024-04-26T16:03:30","guid":{"rendered":"http:\/\/ci02dbd4a560002522"},"modified":"2024-04-26T16:03:30","modified_gmt":"2024-04-26T16:03:30","slug":"eu-parliament-adopts-aml-laws-regulating-bitcoin-based-on-questionable-assumptions","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/legal\/eu-parliament-adopts-aml-laws-regulating-bitcoin-based-on-questionable-assumptions","title":{"rendered":"EU Parliament Adopts AML Laws Regulating Bitcoin Based On Questionable Assumptions"},"content":{"rendered":"
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The European Parliament adopted<\/a> a new AML law package which increases the reporting requirements of crypto asset service providers (CASPs) when sending and receiving \u2018anonymous\u2019 payments between self-hosted wallets and custodial service providers, in addition to limits on cash transactions and the establishment of a \u2018central watchdog\u2019 agency, which will develop regulatory technical standards. <\/p>\n

Under the new laws, EU CASPs will need to perform customer due diligence on transactions originating from self-custodial wallets for transactions below 1000 EUR, and implement additional KYC measures for transactions above 1000 EUR. The laws further regulate the operation of no-KYC custodial software service providers and the use of privacy coins, effectively banning CASPs from offering privacy assets. Self-custodial software and hardware providers are exempt from the regulations.<\/p>\n

The resolution<\/a>, adopted by the European Parliament on wednesday, assumes that \u201c[t]he anonymity associated with certain electronic money products exposes them to money laundering and terrorist financing risks,\u201d and \u201c[t]he anonymity of crypto-assets exposes them to risks of misuse for criminal purposes.\u201d <\/p>\n

While lawmakers seemed to have no issues putting numbers to overall money laundering activity in the original proposal<\/a> \u2013 ranging between 2-5% of global GDP \u2013 as well as to their own inefficiencies \u2013 almost 99% of criminal profits escape confiscation \u2013 those looking for numbers corroborating \u201cthe increasing use of crypto-assets (such as Bitcoin) for money-laundering purposes\u201d are left with a link to Investopedia, explaining what Bitcoin is.<\/p>\n

Everybody knows: Crypto is for money launderers. But can anybody prove it?<\/h2>\n

With the new law package, EU AML\/CFT frameworks are updated to align with updated recommendations issued by the Financial Action Task Force \u2013 an intergovernmental body established by the G7 in 1989 to tackle money laundering and terrorist financing. <\/p>\n

According to FATF procedures,<\/a> FATF recommendations are informed by AML and CFT assessments performed by FATF regional bodies (FSRBs), the IMF, and the World Bank to \u201cproduce objective and accurate reports of a high standard in a timely way,\u201d \u201c[e]nsure that there is a level playing field, whereby mutual evaluation reports (MERs), including the executive summaries, are consistent, especially with respect to the findings, the recommendations and ratings,\u201d and \u201c[e]nsure that there is transparency and equality of treatment, in terms of the assessment process, for all countries assessed.\u201d<\/p>\n

The latest EU FSRB 2021 annual report<\/a>, released in April 2023 performed by the EU Commission’s MONEYVAL, opens with a introduction by the chair, who highlights that \u201cIt is well known that money launderers have been abusing cryptocurrencies from their inception a decade ago, initially to transfer and conceal proceeds from drug trafficking. Nowadays, their methods are becoming ever more sophisticated, and larger in scale.\u201d<\/p>\n

But MONEYVAL\u2019s report appears to fail to back its claims with sufficient data points, merely making note of the progress of implementation of virtual asset regulations. The report highlights that \u201ca 2022 typologies study will be dedicated solely to cryptocurrency money laundering trends,\u201d suggesting that no such study existed at the time of writing. <\/p>\n

The MONEYVAL typologies report<\/a> on money laundering and terrorist financing risks in the world of virtual assets seems to give no conclusive answers on the significance of cryptocurrencies in AML\/CFT efforts either; Instead, it analyzes the application and effectiveness of existing AML regulations via working groups. <\/p>\n

Notably, the typologies report states that \u201cat the national level, the sector risk analysis heavily relies on the answers received by the authorities from the private sector itself, with very little action taken towards the verification of the facts by the supervisor.\u201d It further notes that risk assessments \u201clack in depth.\u201d<\/p>\n

The latest IMF report<\/a> on policies for crypto assets makes similar statements hinting towards a lack of verifiable data on the risks of cryptocurrencies in terror financing, anti-money and financial abuse, stating that \u201csuch impacts have not been studied specifically in relation to crypto-assets\u201c. A new IMF report<\/a> released this week, which attempts to analyze cross border-flows in Bitcoin, states that \u201cmeasuring Bitcoin cross-border flows is challenging, and currently only possible with a series of non-trivial assumptions.\u201d <\/p>\n

The IMF\u2019s 2024 global financial stability report<\/a> in contrast does cite specific data, but places the overall amount of cryptoassets received by ransomware hackers at approximately $1100 Million \u2013 a mere 0.061% of crypto\u2019s $1.8 Trillion market capitalization. <\/p>\n

The World Bank\u2019s 2023 report<\/a> on lessons learned from the first generation of money laundering and terrorist financing risk assessments found that \u201csome new issues were not covered in the last NRA, such as VA [virtual asset] […]\u201d, and that it should be ensured that \u201cauthorities and private entities provide more data for input\u201d and \u201cassess more risks such as VASPs.\u201d <\/p>\n

A World Bank 2022 publication<\/a> on national assessments of money laundering risks makes no mention of cryptocurrencies at all, beyond finding that virtual currencies should be \u201cstudied further\u201d. The paper<\/a> \u201cIllicit Transaction Flows: Concepts, Measurement and Evidence\u201d published in the World Bank Research Observer in 2020, makes no mention of virtual assets, bitcoin or cryptocurrencies either.<\/p>\n

Papers published by the World Bank on crypto asset adoption do not provide much more insight into the impacts of cryptocurrencies on AML\/CFT efforts either \u2013 The papers \u201cCrypto-Asset Activity around the World<\/a>\u201d and \u201cWhat Does Digital Money Mean for Emerging Markets and Developing Economies?<\/a>\u201d simply re-refer readers to existing FATF recommendations. <\/p>\n

The World Bank paper<\/a> \u201cDecrypting New Age International Capital Flows\u201d cites a single academic paper<\/a> on the effects of cryptocurrencies on money laundering, claiming to have found that \u201capproximately one-quarter of bitcoin users are involved in illegal activity.\u201d While there are many scientific papers attempting to assess the sig
\nnificance of cryptocurrencies in illicit transaction flows, academics broadly question the accuracy of applied methodologies, claiming<\/a> to have found error rates of over 92% in commonly applied heuristics. Particularly methods based on user behavior are argued<\/a> to be \u201cthe most unreliable\u201d, concluding that their application should not be used to warrant intense investigative measures.<\/p>\n

Assessing Proportionality: National Security vs. Human Rights<\/h2>\n

Estimates of illicit transaction volumes range between 0.34%<\/a> in all on-chain transaction volume in 2023 and 46% of all bitcoin transaction volume in 2019, highlighting the apparent lack of a conclusive understanding of the significance of cryptocurrencies in enabling the facilitation of illicit transactions.<\/p>\n

In a 2024 National Risk Assessment,<\/a> the Swiss federal police classifies such \u201ctremendous lack of data\u201d as an \u201cinherent risk\u201d, citing \u201cinsufficient figures and statistics\u201d. The assessment highlights that the lack of data on cryptocurrency financial flows is \u201cnot unique to Switzerland\u201d. <\/p>\n

The assessment highlights statements made by the ECB, which \u201cpointed to a lack of reliable statistics\u201d on financial flows associated with cryptocurrencies. It further highlights statements made by the IMF, finding that \u201csignificant data gaps continue to make it difficult to assess the true extent of VA [virtual assets] use in the financial system, which also hampers risk analysis by financial authorities\u201d. It notes that the IMF has recommended to initiate an international exchange of statistical data on cryptocurrency transactions to \u201caddress the lack of data\u201d as early as 2019. <\/p>\n

Seemingly echoing MONEYVAL\u2019s concerns on the evaluation of suspicious transaction reports, the assessment finds a survey conducted among national police and prosecutors to gather quantitative information on criminal proceedings in cryptocurrency transactions and qualitative assessments of the challenges of cryptocurrency for the work of law enforcement to be \u201cfragmentary\u201d and \u201cof limited relevance\u201d. <\/p>\n

Cybersecurity experts warn<\/a> of the risks of cryptocurrency deanonymization tactics in relation to established fundamental rights, finding that future regulatory concepts may collide with fundamental rights such as the right to freedom of association, the right to privacy and the right to informational self-determination, the right to freedom of expression, and the right to freedom of information as established in the Charter of Fundamental Rights of the European Union as well as the European Convention on Human Rights. <\/p>\n

As governed by article 5 of the Maastricht Treaty, actions applied by the European Union \u201cshall not exceed what is necessary to achieve the objective of the Treaties.\u201d It is questionable how MEPs have issued an informed vote on the proportionality of the EU\u2019s new AML laws when no conclusive data on the significance of cryptocurrency in anti-money laundering and counter terrorist financing efforts appears to exist.<\/p>\n

 This is a guest post by L0la L33tz. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

On Wednesday, the European Parliament adopted a new AML package increasing crypto asset service provider\u2019s reporting requirements for anonymous payments. But it appears that the package\u2019s crypto laws are largely based on assumptions, not facts.<\/p>\n","protected":false},"author":2528,"featured_media":1525,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[36],"tags":[544,733,686,59],"class_list":{"0":"post-1524","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-legal","8":"tag-aml","9":"tag-european-parliament","10":"tag-european-union","11":"tag-opinion"},"author_data":{"id":2528,"name":"L0La L33Tz","nicename":"l0la-l33tz","avatar_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2025\/03\/cropped-1p9qrztI_400x400-1-96x96.jpg"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/default_european_union_parliament_1.jpg","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/1524","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/2528"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=1524"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/1524\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/1525"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=1524"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=1524"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=1524"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}