Anti-money laundering and crypto: a war against privacy and anonimity

A direct attack to the crypto-sector from the FATF is coming in Europe (and in the rest of the world as well): total surveillance and criminalisation of privacy technologies.

In the European Union, efforts are underway to push forward a new update to anti-money laundering regulations, with a package proposed by the European Commission in July 2021.

In addition to updating existing regulations, the intention is to extend their application to the crypto sector as well — following the FATF guidelines (more on this later). Today we will try to understand some key points of the package and what are the (serious) implications regarding privacy and anonymity.

The AML-CFT legislative package

It all begins on July 20, 2021, with the presentation of an ambitious package to update anti-money laundering and counter-terrorism financing regulations (AML-CFT).

The package consists of four legislative proposals:

1. A Regulation establishing a new EU AML/CFT Authority

2. A Regulation on AML/CFT, containing directly-applicable rules, including in the areas of Customer Due Diligence and Beneficial Ownership

3. A sixth Directive on AML/CFT (“AMLD6”), replacing the existing Directive 2015/849/EU (the fourth AML directive as amended by the fifth AML directive)

4. A revision of the 2015 Regulation on Transfers of Funds to trace transfers of crypto-assets (application of the so-called "travel rule").

What is currently being widely discussed in the crypto world is the fourth proposal, which among other things extends the application of the travel rule to cryptocurrency transactions. The proposal was voted on and adopted on March 31, 2022, by the European Parliament's ECON (Economic and Monetary Affairs) and LIBE (Civil Liberties, Justice and Home Affairs) committees, with over 80 amendments.

The proposal, as adopted, will soon be voted on in plenary session by the European Parliament, and then proceed to subsequent legislative steps.

War on anonymity

The main European legislation on anti-money laundering and counter-terrorism financing today is EU Directive 2015/849. In 2018, this Directive was amended to extend its scope to include "virtual currencies" and "providers engaged in exchange services between virtual currencies and fiat currencies." So, it is not the first time that the European Union has extended AML-CFT regulations to the crypto world.

What changes now is that the European Union has decided to vigorously oppose any instance of anonymity in the financial sector, including the crypto sector.