Summary:
The European Union (EU) has passed stringent anti-money laundering (AML) laws that ban cryptocurrency service providers from offering services and custody to anonymous crypto asset accounts. The decision is aimed at reducing the risks of money laundering and terrorist financing, as anonymity in cryptocurrency transactions poses a challenge for tracing funds and identifying suspicious activities. Privacy-enhancing coins like Monero and protocols like Tornado Cash are likely to be affected. Some critics, such as Patrick Breyer of the Pirate Party, argue that the law infringes on privacy rights, potentially overstepping in its attempt to regulate a global digital space.
EU Anti-Money Laundering Laws Ban Provision of Services for Anonymous Cryptocurrency Accounts
EU Toughens Laws Regarding Anonymous Cryptocurrency Accounts
The European Union (EU) has toughened its stance on anonymous cryptocurrency accounts and privacy-enhancing cryptocurrencies. The proposal for the “prevention of the use of the financial system for the purposes of money laundering or terrorist financing,” approved by the European Parliament on March 19, bans cryptocurrency service providers from providing services and custody for “anonymous crypto asset accounts.”
As justification for this decision, the proposal states that the anonymous characteristics of crypto assets expose them “to risks of misuse for criminal purposes,” and that these “do not allow the traceability of crypto-asset transfers.” Consequently, using these makes identifying suspicious transactions that might pose risks for service providers difficult.
The document, which spans 329 pages, mentions anonymity-enhancing coins and accounts allowing for the anonymization or increased obfuscation of transactions among the elements that should be banned from interacting with crypto service providers. This hints at the exclusion of assets that have been anonymized through mixing protocols such as Tornado Cash, and also privacy coins such as monero.
These measures do not apply to hardware or software providers, and providers of unhosted wallets that do not have direct control of the crypto asset wallets of their users. The EU Council and the Parliament convened to apply these measures in December 2022.
Patrick Breyer, a member of the European Parliament since 2019 and part of Pirate Party Germany, voted against this proposal, explaining that it might have negative repercussions.
Breyer stated:
We have a right to pay and donate online without our personal transactions being recorded. If the EU believes it can regulate virtual currencies at a regional level, it hasn’t understood the global nature of the Internet.
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