This is a post to describe the upcoming Anti-Money Laundering Directive 6AMLD, which has been published by the European Parliament already on November 12, 2018 and which has to be transposed into national law by December 3, 2020 by the individual member states. Relevant local regulations have to be in place by June 3, 2021.
As traditionally these directives directly affect the cryptocurrency industry, i think it is paramount to know about the new rules and to understand the regulations. There is already a lot of discussion online, and the controversy can be found by utilizing Google.
The implementation of the AMLD is necessary, and i am taking a rather neutral stance to the topic, but i want to encourage discussion, as the general perception in the broader internet is, that the implementation of huge data analytics and “absolute financial transparency” might pose other challenges in the future, which we don’t think about yet. Please comment to start a larger discussion.
Intro - from 5AMLD to the 6AMLD
After the 5AMLD (the fifth anti-money laundering directive) in the European Union came into force on January 10, 2020, the not-yet regulated cryptosphere has experienced disruption, and most prominently this has had it’s effects on mandatory KYC throughout the exchanges. The 5AMLD introduced a few new factors in comparison to the predecessor (the 4AMLD), the most important ones being listed here:
5AMLD changes in brief overview:
- A first legal definition of cryptocurrency, as “a digital representation of value that can be digitally transferred, stored or traded” and which is accepted “as medium of exchange” has been postulated.
- Cryptocurrency exchanges had to face the same CFT/AML regulations as applied to financial institutions (already implemented in the 4AMLD). Concretely, they would have to do strict KYC, KYB and customer due diligence. This did not affect only cryptocurrency-related businesses, but can be observed with other entities as well (take your lawyer or accountant as a good example: they would have to send you forms to fill out, in order to do due diligence).
- The fifth anti-money laundering directive established a rule of public access, in which the Member States are required to allow access to beneficial ownership details of corporate and other entities. This also involved an overhaul of the verification mechanisms, to ensure the data in the registers (company registers for example) are accurate. Further the national registers have been interconnected, to facilitate cooperation between the Member States.
What are the key elements of the new 6AMLD, which will be in place by 2021?
Unified list of predicate offences: 6AMLD features a list of 22 offences for money laundering, which all EU member states have to criminalize. These offences involve “cybercrime”, as well as different types of tax offences.
Additional money laundering offences: The new directive also broadens the scope of money laundering, to include aiding, abetting and attempting to commit an offence of money laundering as a criminal offence itself.
Extension of criminal liability to legal persons: This part sounds very hard to execute in my opinion. The plan is to extend criminal liability to legal persons (such as incorporated partnerships) as well as to representatives and decision-makers of said legal entities. Essentially, if the offence commited has been for the benefit of their organization, these individuals would be liable as well. This also involves offences introduced by lack of supervision or control.
International cooperation for prosecution: Should two Member States have jurisdiction, they are required to collaborate and agree to prosecute in a single Member State. It is also mentioned that member states have to have more efficient cooperation, by utilizing “effective investigation tools”. Some of these tools (which are already operational in different countries; one example would be the tool “Graphsense”, or the company Chainalysis) involve the de-anonymization of Bitcoin transactions, as well as the deanonymization of other assets. As this is only partially possible, all the information has to be taken with a grain of salt.
(you can find the directive itself publicly available on the website of the European Commission, translated in all possible languages).
The 6MLD will largely affect how the cryptocurrency and payment space will evolve in the future - but looking at recent media coverage, reports and facts out there, cryptocurrency is rarely used for money laundering. This is because of public belief, that Bitcoin is mostly used for illicit activities (which it provably is not).
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) for example, stated that “cryptocurrency is seldom used for money laundering activities compared to fiat or other traditional methods”.
So we can agree that Bitcoin is rarely used to launder money - and in a recent piece on Quartz, the authors of an opinion piece also gave a reason on why it would be a stupid idea for pulling a heist:
“Laundering money through bitcoin is like pulling off a jewelry heist, but leaving a map to your apartment at the scene of the crime” (source: quartz).
Having said that, the public belief still is, that Bitcoin is shady, and used for illicit purposes, while in reality, the numbers look different:
“In its second National Risk Assessment, Mexico’s Financial Intelligence Unit concluded that the money laundering activities originating from banks and other financial institutions greatly outweighed any similar issues encountered by and reported by other fintech businesses like “neo” banks.” (source: cryptoslate)
To quote the CCC (the german Chaos Computer Club), I personally think that we should strengthen individual privacy, but demand more corporate transparency.
- Do you think the 5AMLD has already affected the growth of the cryptocurrency space? Do you see it as a positive or negative development?
- Is regulation necessary, or do you think it is stifling innovation?
- Do you think the AMLD measures are going too far, or not far enough?
- How do you think will the 6AMLD affect cryptocurrency regulation in Europe?
- Do you think there should be the option for financial privacy, or do you think that we need more transparency?