A Guide to Anti-Money Laundering for Crypto Firms

European Parliament Agrees New Rules to Stop Illicit Crypto Flows

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The European Parliament has outlined new legislation that ensures the traceability of crypto-assets. The rules are part of a wider anti-money laundering (AML) package that will align with the Markets in Crypto-assets rules (MiCA). 

The legislation extends the Financial Action Task Force’s Travel Rule to crypto assets, requiring the originators and beneficiaries of all digital funds transfers to exchange identifying information. The agreement also covers transactions from unhosted wallets, but does not apply to person-to-person transfers conducted without providers, such as bitcoin trading platforms.

Members of the European Parliament (MEPs) from the Committee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties (LIBE) discussed the need for increased transparency of crypto-asset transfers earlier this year, stating that “criminals thrive where rules allowing for confidentiality allow for secrecy and anonymity.” The new legislation aims to close this loophole.

Traceability of transfers of crypto-assets

Following the agreement between Parliament and Council negotiators, crypto-asset service providers (CASPs) will need to provide information on the source of the asset and its beneficiary to competent authorities in case of an investigation into money laundering and terrorist financing. 

Due to their speed and virtual nature, crypto-asset transactions can easily evade existing rules based on transaction thresholds. Because of this, Parliament negotiators noted that there would be no minimum thresholds or exemptions for low-value transfers.

Stopping money laundering and terrorism financing

Before the crypto-assets are made available to beneficiaries, CASPs will also 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 at play.

Negotiators also agreed that a public register of non-compliant and non-supervised CASPs will be set up by MiCA, detailing the firms that EU CASPs would not be permitted to trade with.

Markets in Crypto Assets (MiCA)

Introduced in 2020 by the European Commission, MiCA provides a robust legal framework for developing crypto-asset markets within the EU. Due to its ability to increase credibility, promote adoption by conventional banks, and offer crypto companies a single license to operate across the bloc, MiCA has been generally welcomed across the industry. 

The involvement of MiCA in this proposed legislation by Parliament, points to a more comprehensive, strategic view of crypto assets being adopted by the EU and a greater understanding of how they integrate into the broader financial services ecosystem. 

Compliance staff should be aware that additional crypto-asset rules will likely arise, with the European Central Bank’s Christine Lagarde saying further laws would be needed to deal with new areas like crypto lending. Staff working in these areas should be aware of the changing landscape and ensure they remain abreast of any updates to the EU’s next set of proposed AML measures and how they relate to the crypto space.

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Originally published July 8, 2022, updated July 8, 2022

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