Crypto-assets need to be traced and identified to stop their use in criminal behaviour, MEPs voted on Thursday. The move is part of the EU's new anti-money laundering package, which aims for crypto-assets to be traced in the same way as traditional money transfers.
There are currently no rules in place for tracing transfers of crypto-assets like Bitcoin or other electronic money tokens.
“Illicit flows in crypto-assets move largely undetected across Europe and the world, which makes them an ideal instrument for ensuring anonymity," said Ernest Urtasun, a Greens MEP and rapporteur on the proposal in the European Parliament.
"As illustrated by all the recent money-laundering scandals, from the Panama Papers to the Pandora Papers, criminals thrive where rules allowing for confidentiality allow for secrecy and anonymity. With this proposal for a regulation, the EU will close this loophole.”
Crypto-heists
Hackers stole more than half a billion dollars ($615 billion) in one of the largest crypto-heists ever against Ronin, an online games platform and Blockchain network. According to Chainalysis, in 2021 cryptocurrency crimes soared to an all-time high, with criminal actors stealing up to $14 billion in digital currencies, up 79% from 2020.
In 2020 Belgians reported nearly €3 million worth of cryptocurrency frauds. In response the Belgian government in January voted to extend its anti-money laundering act to regulate crypto exchanges, including banning providers outside the European Economic Area, as reported by Belgian law firm Astrea.
As a result of the legislation, Belgian banks blocked flows of cryptocurrency income in an attempt to crack down on anti-money laundering in February. The banks consider crypto-assets risky due to the lack of rules on their transfers, and want to avoid huge fines for accepting money in which the origin isn't clear.
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New rules
According to the regulations agreed by MEPs, cryptocurrency transfers will need to include information on the source of the transfer and the destined beneficiary. This information needs to be available to relevant authorities, making it easier to trace crypto transfers and block dubious transactions.
Moreover, the MEP's want the European Banking Authority to make a public register of companies dealing in cryptocurrency, particularly as it may lead to a heightened risk of terrorism financing or money laundering.
Users would need to verify the source of the asset in order to transfer cryptocurrencies, and ensure that there is no risk of criminal activity.
The adopted text will be negotiated with European governments and will be then voted on by the European Parliament in the April plenary session.
How does crypto work?
Cryptocurrencies are decentralised currencies that are not controlled by a government or a regulatory authority. It works outside the banking system by using different types of coin, with Bitcoin being the most used.
Users can buy cryptocurrency from individual users, central exchanges and brokers, or sell them. Once bought the currency goes into a digital wallet, where users can buy goods, trade, or exchange them for cash.
Blockchain technology ensures anonymity for users and is a type of digital ledger in which authorised users grant access.
