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European Union rules to stop illicit cryptoasset transfers

Author: Syedur Rahman  20 July 2022

Syed Rahman of Rahman Ravelli summarises the EU’s approach to tackling crypto-related money laundering

The European Union (EU) has created its first rules for tracing transfers of cryptoassets.

The rules, which are part of the EU’s new anti-money laundering measures, are intended to ensure that cryptoassets can be traced in the same way as traditional money transfers. They will be aligned with the EU’s Markets in Crypto-assets rules (MiCA) regulatory framework.

The agreement that has been reached extends the so-called “travel rule” that exists for traditional finance to cover transfers in crypto assets. The rule requires that information on the source of the asset and its beneficiary travels with the transaction and is then stored on both sides of the transfer.

Cryptoasset services providers (CASPs) will have to provide this information to competent authorities if an investigation is conducted into money laundering and terrorist financing.

The Rules

Under the rules, there are no minimum thresholds or exemptions for low-value transfers, as had been originally proposed. Before making cryptoassets available to beneficiaries, providers will have to verify that the source of the asset is not subject to restrictive measures or sanctions, and that there are no risks of money laundering or terrorism financing.

A register is to be set up of non-compliant and non-supervised CASPs, with which EU CASPs would not be allowed to trade. This is to be outlined fully in MiCA.

The rules will also cover transactions from so-called un-hosted wallets  - which are a cryptoasset wallet address that is in the custody of a private user - when they interact with hosted wallets managed by CASPs.

If a customer sends or receives more than 1,000 euros to or from their own unhosted wallet, the CASP will need to verify whether that wallet is effectively owned or controlled by that customer.

The rules, however, do not apply to person-to-person transfers conducted without a provider, such as Bitcoin trading platforms, or among providers that are acting on their own behalf.

Intention

The intention of the rules is to make the EU framework for tackling money laundering tighter and to reduce the risks and lack of security surrounding cryptoassets.

It is arguably one of the most comprehensive sets of rules for crypto transfers anywhere in the world and may well go some way to preventing the use of such assets for money laundering and other criminal activities.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, civil recovery, cryptocurrency and high-stakes commercial disputes.

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