Members of the European Parliament who are looking to take measures against money laundering and other financial crime have their sights set on large cryptocurrency transactions, decentralized finance (DeFi), and non-fungible tokens (NFTs). This is according to a draft bill seen by CoinDesk.
The European Parliament is currently in the process of revising and updating European Union money-laundering regulations proposed by the European Commission for 2021. This set of amendments, which are crafted to reach a compromise between various political factions, includes a proposal from progressive legislators that seeks to incorporate decentralized finance into the scope of these laws. If passed, this would mean that digital assets such as cryptocurrencies and non-fungible tokens (NFTs) used to make financial transactions would be subject to stricter oversight and regulation.
This amendment represents a major shift in policy for the EU, as it adopts a more forward-looking approach when it comes to regulating the digital economy. It would also open the door for greater innovation within financial services, while simultaneously providing consumers with increased protection against fraud and other illicit activities. To ensure transparency in this space, authorities would need to take steps such as introducing new reporting requirements for financial institutions and platforms dealing with crypto assets.
Defi subject to more regulations
The decentralized finance (DeFi) movement and the decentralized autonomous organizations (DAOs) that control it should be subject to anti-money laundering/counter-terrorist financing regulations created by the European Union. This is true regardless of whether natural or legal persons have direct or indirect control over the DeFi solutions and DAOs.
Law enforcement and financial regulators have been pushing for tighter regulations on anonymity-enhancing tools such as Tornado Cash, over concerns that they could potentially be employed to illegally move criminal funds and provide financial support to oppressive governments like North Korea. As a result of this, these services are becoming increasingly prohibited and viewed in an unfavorable light of financial crimes.
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) has encountered a large number of obstacles in their attempts to identify particular persons or entities to impose sanctions upon. A notable example of this is the case involving the open-source crypto transaction anonymizer Tornado Cash, which was targeted by the OFAC. The individual who was responsible for contributing work on the project is Alexey Pertsev, a Russian software developer, and he is currently facing legal proceedings in the Netherlands.
As complex as it can be for the OFAC to identify those whom they should target with sanctions, it appears that this example involving Tornado Cash and Alexey Pertsev is only one instance where there have been difficulties with identifying individuals or companies in order to levy economic restrictions against them. The difficulty arises from how often these entities can evade detection through use of anonymous transactions or complicated financial structures; yet even so, authorities are continuing efforts to trace these activities and ensure compliance with applicable laws.
Furthermore, while other countries may have different laws or approaches when it comes to implementing economic sanctions, many nations share common concerns related to potential illegal activities being conducted within their borders. As such, international cooperation between governments becomes essential in order for effective enforcement of applicable regulations and standards; identifying individual entities involved with illegal activity can be a difficult task even with collaboration among nations in perfect place. This makes it all the more important for authorities involved with monitoring illicit activities to continue efforts towards finding methods that enable them to uncover evidence needed for successful prosecution of those breaking applicable laws and regulations.
Anti-money laundering regulations
The proposed draft, which requires approval from the governments represented in the EU’s Council before it can be passed, will require Web3 – metaverse companies to comply with EU anti-money laundering regulations. This means that these businesses must take active steps to identify and verify their customers, using methods such as reviewing and recording identification documents, monitoring customer transactions
Under the proposed measures, the list of organizations required to abide by certain regulations – currently comprising banks, real estate agents and diamond traders – would be extended to include providers of digital wallets and other crypto-related services which are subject to the European Union’s Markets in Crypto Assets Regulations (MiCA).
Individuals and companies that accept cryptocurrency payments for products or services valued at greater than 1,000 euros (approximately US$970) may be obligated to verify the identity of their customers (KYC – Know Your Customer) and alert authorities about any suspicious transactions, according to the proposed legislation. This way identity theft and other kinds of identity fraud would be minimized. This would apply not only to buyers and sellers themselves but also to platforms that facilitate trading or mining of non-fungible tokens (NFTs) related to artwork or collectibles.
The requirement could potentially have a significant impact on businesses operating in the digital currency ecosystem. Customers may need to provide personal information and prove their identity, while companies will likely incur costs related to processing such data. Furthermore, they must ensure that they are adhering to local regulations and reporting any suspicious activities as needed.
Cryptocurrency users could experience delays in completing transactions due to the added verification steps; however, it is important that these measures are taken in order to protect against money laundering risk, financial scams and other illicit activities, but particularly money laundering.
The European Union is proposing a new anti-money laundering regulation that aims to counter the effects of emerging technologies in the Web3 space. This proposed regulation would be an addition to another EU law that identifies parties to crypto transactions. The new regulation is seen as a response to the risk posed by these emerging areas, which have become increasingly popular with people to launder money.
