The EU Response to Criminal Misuse of Cryptocurrencies

The EU Response to Criminal Misuse of Cryptocurrencies The young, already outdated 5th Anti-Money Laundering Directive

Combatting criminal misuse of cryptocurrencies was at the core of the FATF agenda under the US Presidency, culminating in June 2019 with the thorough extension of international standards against money laundering over virtual assets’ markets. This echoed the first legislative measure regulating virtual currencies adopted by the EU a year before. Directive 2018/843, better known as the 5th Anti-Money Laundering Directive, fails however to address key technological breakthroughs and new business models, which continuously make the evergrowing and fast-paced crypto economy evolve. Against this background, the present contribution investigates shortfalls and challenges that lay ahead in the light of the new FATF Recommendations. It ultimately argues that the preventive anti-money laundering measures cannot dispense with the establishment of a cross-border integrated supervisory and enforcement system.

TABLE OF CONTENTS

I. Introduction

II. ‘Cryptocrimes’, a spreading phenomena

A. Understanding a disruptive technology

B. Mapping the dark side of the crypto-economy

III. The EU policy choice: when crime prevention and detection takes precedence over harmonized regulation

IV. Defining the new object of AML regulations: a legal conundrum

A. Virtual currencies, fiat and electronic money.

B. Virtual currencies, digital tokens and virtual assets

V. Identifying obliged entities: transposing or reshaping the AML enforcement architecture?

A. Targeting the gatekeepers: exchanges and custodial wallet providers

B. Users and minors, the excluded market players

C. Further inclusion of virtual assets service providers

VI. Implementing costumer due diligence: collection, decryption and analysis of transactions data

A. From ‘pseudonimity’ to privacy coins

B. Mixers, tumbler and other anonymity-enhancing tools

C. Expertise and analysis software

VII. Conclusive remarks