EU Parliament Adopts AML Laws Regulating Bitcoin Based On Questionable Assumptions

european parliament adopted In addition to restrictions on cash transactions and the “establishment of a central authority,” the new AML law package also requires crypto asset service providers (CASPs) to report when sending and receiving “anonymous” payments between self-hosted wallets and custodial service providers. Reinforce requirements. Supervisory bodies develop regulatory technical standards.

Under the new law, EU CASPs will be required to carry out customer due diligence on transactions from self-custodial wallets for transactions under 1,000 euros and additional KYC measures for transactions over 1,000 euros. The law further regulates the operation of non-KYC storage software service providers and the use of privacy coins, effectively prohibiting CASPs from offering privacy assets. Providers of self-storage software and hardware are exempt from regulation.

of solutionThe proposal, adopted by the European Parliament on Wednesday, is based on the following assumptions:[t]The anonymity associated with certain electronic money products exposes them to money laundering and terrorist financing risks. ”[t]The anonymity of crypto assets puts them at risk of being misused for criminal purposes. ”

Lawmakers seem to have no problem putting up numbers on overall money laundering activity in the country, but original proposal – Ranging from 2-5% of global GDP – and its own inefficiencies – Almost 99% of criminal proceeds escape confiscation – “The use of crypto assets (such as Bitcoin) for money laundering People looking for numbers to back up the “Increase Purpose” leaves a link to Investopedia that explains what Bitcoin is.

Everyone knows: virtual currencies are for money laundering. But can anyone prove it?

The new legal package brings the EU AML/CFT framework in line with the latest recommendations issued by the Financial Action Working Group, an intergovernmental body established by the G7 in 1989 to tackle money laundering and the financing of terrorism. Will be updated.

according to FATF procedure, The FATF recommendations are based on AML and CFT assessments conducted by the FATF Regional Bodies (FSRB), the IMF, and the World Bank to “produce high standards of objective and accurate reporting in a timely manner.” Masu.[e]Ensuring a level playing field, with consistent Mutual Evaluation Reports (MERs), including summaries, particularly with regard to findings, recommendations and evaluations. ”[e]Ensure transparency and equal treatment of all countries assessed in the assessment process. ”

Latest EU FSRB 2021 Annual ReportThe report, published by the EU Commission MONEYVAL in April 2023, begins with an introduction by the Chair and highlights that: Human trafficking. Today, their methods are becoming more sophisticated and larger. ”

However, the MONEYVAL report fails to support its claims with sufficient data points and appears to merely document the progress of implementing crypto asset regulations. The report emphasizes that “the 2022 typology study will be dedicated solely to crypto money laundering trends,” suggesting that no such study existed at the time of writing.

moneyval typology report Regarding money laundering and terrorist financing risks in the world of crypto assets, there also appears to be no definitive answer regarding the importance of cryptocurrencies in AML/CFT efforts. Instead, it will analyze the application and effectiveness of existing he AML regulations through working groups.

Notably, the typology report notes that, “At the national level, sector risk analysis relies heavily on the responses authorities receive from the private sector itself, with little action taken by supervisors to verify the facts.” “It has not been done.” It also said there was a “lack of depth” in risk assessments.

of Latest IMF report A similar statement on crypto-assets policy alluded to the lack of verifiable data on the risks of cryptocurrencies in terrorist financing, anti-money, and financial abuse, stating that “such impacts should be studied specifically in relation to crypto-assets.” “It has not been done.”a new IMF report A paper published this week attempting to analyze cross-border flows of Bitcoin states that “Measuring cross-border flows of Bitcoin is difficult and currently requires a series of non-trivial assumptions.” It is impossible.”

IMF 2024 Global Financial Stability Report In contrast, citing specific data, the total amount of crypto assets received by ransomware hackers is said to be approximately $1.1 billion, which is just 0.061% of the $1.8 trillion market capitalization of cryptocurrencies. It doesn’t work.

world bank’s 2023 report Based on lessons learned from the first generation of money laundering and terrorist financing risk assessments, it was found that “some new issues, such as the VA, were not covered by the previous NRA.” [virtual asset] […]” and should ensure that “authorities and private parties provide more data for input” and “assess more risks such as VASP”.

world bank Published in 2022 The report on national assessments of money laundering risks does not mention cryptocurrencies at all, only stating that they should be “further studied”.of paper “Illegal Transaction Flows: Concepts, Measurements, and Evidence,” published in the World Bank Research Observer in 2020, also makes no mention of virtual assets, Bitcoin, or cryptocurrencies.

A paper published by the World Bank on the adoption of crypto assets also does not provide any further insight into the impact of cryptocurrencies on AML/CFT efforts – Paper “Cryptocurrency activities around the world” and “What does digital money mean for emerging markets and developing countries?” merely refers readers to existing FATF recommendations.

world bank paper The following sentence is quoted in “Deciphering International Capital Flows in a New Era”: academic paper It claimed to have researched the impact of cryptocurrencies on money laundering and found that “about a quarter of Bitcoin users engage in illegal activities.” Although there are a number of scientific papers attempting to assess the importance of cryptocurrencies in illicit trade flows, scholars widely question the accuracy of the methods applied. claim Commonly applied heuristics have been found to have error rates greater than 92%. In particular, methods based on user behavior claimed judged it to be “least reliable” and concluded that their application should not be used to warrant thorough investigative action.

Assessing proportionality: national security vs. human rights

The estimated range of fraudulent transaction volume is as follows: 0.34% 46% of all on-chain transaction volume in 2023 and 46% of all Bitcoin transaction volume in 2019, with a clear lack of critical understanding of the importance of cryptocurrencies in enabling the facilitation of illegal transactions It highlights that.

in 2024 National Risk Assessment; The Swiss Federal Police classifies this “significant lack of data” as an “inherent risk” due to “insufficient numbers and statistics”. The assessment highlights that the lack of data on crypto capital flows is “not unique to Switzerland.”

The assessment highlights the ECB’s statement that it “pointed out the lack of reliable statistics” on financial flows related to cryptocurrencies. The report also highlighted the IMF’s statement that “significant data gaps continue to make it difficult to assess the true extent of VA.” [virtual assets] Its use in the financial system also impedes risk analysis by financial authorities. The report notes that the IMF recommends starting an international exchange of statistical data on virtual currency transactions as early as 2019 to “address data gaps.”

Seemingly reflecting MONEYVAL’s concerns regarding the assessment of suspicious transaction reports, this assessment provides both quantitative information regarding criminal procedures in virtual currency transactions and a qualitative assessment of the challenges of virtual currency in law enforcement operations. The investigation conducted between the national police and the public prosecutor’s office to gather information was “piecemeal” and of “limited relevance.”

cyber security expert Warning Analyzes the risks of virtual currency de-anonymization tactics in relation to established fundamental rights, and shows that future regulatory concepts will It has been made clear that there is a possibility of a conflict with the rights. The right to freedom of expression and information as established in the Charter of Fundamental Rights of the European Union and the European Convention on Human Rights.

As set out in Article 5 of the Maastricht Treaty, measures applied by the European Union “shall not go beyond what is necessary to achieve the objectives of the Treaty”. How MEPs can vote informedly on the proportionality of the EU’s new AML law, given the seeming lack of conclusive data on the importance of cryptocurrencies in anti-money laundering and countering the financing of terrorism. It is questionable whether he did so.

This is a guest post by L0la L33tz. The opinions expressed are entirely their own and do not necessarily reflect the opinions of his BTC Inc or Bitcoin Magazine.

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