In almost no other field the EU Commission is as active as in the field of regulation of the combat against money-laundering and terrorism financing. The fourth Anti-Money-Laundering Directive had only been released in 2015 and had to be transposed by the member states until the 26^th of June 2017. Even prior to the expiration of this deadline, the issuance of the fifth Anti-Money-Laundering Directive had already been initiated. The fifth Anti-Money-Laundering Directive was the first piece of regulation that included virtual currencies into the regulatory regime of European anti-money-laundering prevention and it also regulated certain crypto exchange and crypto custody service providers as obliged entities in the sense of the AML regulations. In June of 2021 the EU Commission announced that it intends to fundamentally revise the European money-laundering and terrorism financing regulation again and published drafts for a total of four very far-reaching regulatory projects: The centerpiece is the new European AML Regulation, which as a so-called Single-Rule-Book will provide uniform regulations for the entirety of the Union and which is intended to be directly applicable to all market participants. The sixth Anti-Money-Laundering Directive will especially be focused on the regulation of the cooperation of the national and European authorities that are tasked with money-laundering prevention. The new AMLA Directive intends to create a new centralized European authority, which is supposed to facilitate the flow of information between the competent national authorities and the market participants being regulated as obliged entities. The fourth project is focused on the implementation of Travel Rule, as it is recommended by the Financial Action Task Force (FATF).

How Does the EU Commission Intend to Implement the FATF Travel Rule?

The FATF included the critically discussed Travel Rule already in 2019 in its recommendations to the member states regarding effective anti-money-laundering and terrorism financing measurements. According to the FATF Travel Rule, member states are supposed to obligate service providers that are involved in crypto transactions to collect comprehensive information about the individual transaction itself as well as about the transaction participants and to share this information with each other. The recommendation calls for data such as the names and addresses, the national identification numbers and the whereabouts of the transaction participants as well as the transaction date, associated wallet addresses and banking information where applicable. The EU Commission now tackles the implementation of the Travel Rule and chooses a rather obvious way to do so. By amending the European Money Transfer Regulation to include crypto service providers, the FATF regulations are intended to be uniformly implemented in Europe. The actual implementation seems somewhat unimaginative, because the obligations that are already applicable to service providers engaging in the transaction of book money are merely amended to also be applicable to crypto service providers and crypto transactions.

Is the Inclusion of Crypto Transactions in the European Money Transfer Regulation the Right Way?

The approach of the EU Commission to expand the scope of application of the Money Transfer Regulation to include crypto service providers is at first sight natural. Nevertheless, this approach does not take into account the technical features and intricacies of crypto transactions. Transactions of crypto assets generally work in a decentralized way, so that the involvement of crypto service providers is not compulsory. Especially transactions for money-laundering or terrorism financing purposes will therefore seldom or rather never include transaction participants that actually choose to involve a crypto service provider, but instead will be settled directly between the transaction participants. Therefore, these measurements will affect primarily the honest and fair users and service providers. The application of a Money Transfer Regulation which is also applicable to crypto transactions will nevertheless substantially limit the options of money-laundering and terrorism financing, especially when it comes to the exchange of crypto assets to fiat money. Furthermore, the market participants will collect a huge amount of data for the prosecution authorities, which will probably increase the effectiveness of backtracking crypto transactions in the European Union considerably. A targeted regulation that takes the technical features and intricacies of crypto transactions into account would nevertheless be preferable for the future. A new regulatory proposal which tackles this subject could be put forward at the latest in the year after the next, should the EU commission keep up its pace regarding AML regulations.

Attorney Lutz Auffenberg, LL.M. (London)

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Abstract:

The EU commission intends the implementation of no less than four regulatory measurements to the European Anti-Money-Laundering regulation. In the process it will also tackle the implementation of the FATF Travel Rule.