Europe votes to crack down on anonymous crypto transfers

Lawmakers in the European Union have pushed forward tougher rules requiring crypto transfers to be traceable just like electronic money transfers are. 

The new proposed rules require crypto service providers to retain identity records about the sender and recipient of crypto transfers and make the records available to “competent authorities”. 

They’re part of an EU package for anti-money laundering (AML) and countering financing of terrorism (CFT) in response to a European Commission (EC) proposal on AML/CTF outlined last July. The EC wanted to ban anonymous crypto wallets. 

SEE: Cryptocurrency scams pose largest threat to investors

The MEPs lawmakers want the European Banking Authority (EBA) to create a public register of crypto providers that have a high risk of breaching AML/CTF rules, alongside a “non-exhaustive list of non-compliant providers.” 

“Before making the crypto-assets available to beneficiaries, providers would have to verify that the source of the asset is not subject to restrictive measures and that there are no risks of money laundering or terrorism financing,” they announced.  

MEPs from the Committee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties (LIBE) on Thursday voted on the text of the legislation, with 93 votes for it, 14 against, and 14 abstentions. It will be put to the vote at the European Parliament’s plenary session in April.

“Illicit flows in crypto-assets move largely undetected across Europe and the world, which makes them an ideal instrument for ensuring anonymity,” Ernest Urtasun, vice char of the Greens/European Free Alliance in Spain and co-rapporteur for ECON, said in a statement.

Urtusan noted key changes made to the EC proposal, including the removal of a €1,000 minimum for threshold for monitoring wire transfers because criminals carry out crypto transactions differently.

“Criminals use transfers of small amounts to cover up large operations (smurfing). Multiple small transfers can be done automatically using multiple dispersed addresses. Criminal activities such as frauds, scams, hacks, terrorist financing can be done with small amounts,” he explained on Twitter. 

The public register aims to help providers identify non-compliant entities, high-risk providers of services in crypto-assets, services like crypto mixers and tumblers, and crypto-asset wallets with links to criminal activities. 

SEE: Where blockchain and cryptocurrency will take us next

On privacy protections, Urtusan notes: “No information will be included in the transfer itself or transmitted to the counterparty if there is a risk that such counterparty is not able to protect the confidentiality of the data. We clarify the period and conditions of data retention.”

Also, transfers to and from unhosted wallets will be subject to traceability rules and reporting, and identity information will need to be verified.

Earlier in the week, Coinbase chief legal officer Paul Grewal said that law enforcement can already track and trace digital asset transfers with advanced analytics tools and said none of this requires upsetting the settled privacy expectations of wallet holders.

Coinbase described it as a ‘critical EU vote’ and Grewal warned: “If adopted, this revision would unleash an entire surveillance regime on exchanges like Coinbase, stifle innovation, and undermine the self-hosted wallets that individuals use to securely protect their digital assets.”