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EU anti-money laundering efforts target crypto service providers

Author: Syedur Rahman  24 March 2024
2 min read

Syed Rahman explains how the European Union’s new AML measures affect the cryptocurrency sector.

The European Union’s (EU’s) latest set of anti-money laundering laws bans crypto asset service providers from servicing and providing custody to anonymous cryptocurrency accounts.

The move, which has been introduced to prevent the use of the financial system for money laundering or terrorist financing, alleges that such assets present “risks of misuse for criminal purposes.”

This represents a toughening of the EU’s stance on anonymous cryptocurrency accounts and cryptocurrencies that provide a degree of privacy.

The EU’s 329-page document that details the new rules refers to anonymity-enhancing coins and accounts that enable details of transactions to be concealed or disguised - a possible reference to mixers such as Tornado Cash or privacy coins such as Monero.

While the new measures do not apply to hardware or software providers or providers of unhosted wallets that do not have direct control of the crypto asset wallets of their users, these measures are certainly significant.

Spotlight

This latest directive will bring succinct rules in throughout the EU as well as grant further powers to the Financial Intelligence Units. Furthermore, relevant authorities and the media will now be able to identify who owns and controls companies that fall within the remit of the directive.

This will shine a spotlight on those perpetrating and breaching anti-money laundering regulations and make it clear to the public what their ill intentions really are. There is an argument to be made, however, that those perpetrating money laundering are not likely to care about the public’s perception of them.

Whilst there has been much noise from the EU in respect of passing legislation and directives with the intention of combating crypto-related financial crime, drastic enforcement action from the relevant EU agencies is yet to be seen. It is hoped that these increased powers will facilitate further enforcement action against those engaging in illicit activities.

As with any new regulations that are brought in, this latest move may have a stunting effect on the development of the market. The crypto market clearly has the ability to generate immense profits, which has prompted worldwide attention. However, tighter and more stringent regulations may well have the knock-on effect of limiting legitimate companies’ ability to keep facilitating this growth.

The €10,000 cap on cash payments will no doubt help limit illicit activity. But a bi-product of this is going to be restricted cashflow on crypto exchanges. It remains to be seen, therefore, whether legislation that reduces the potential for illicit activity to take place can also avoid hampering legitimate companies’ ability to grow within the market.

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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, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.

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