Recent EU anti-money laundering regulations (AMLR) have sparked a heated debate about balancing combating financial crime and preserving citizens’ rights to privacy and economic freedom. The new laws, approved by most of the EU Parliament’s lead committees, have drawn criticism and support from various stakeholders.
Following an article from Finbold on March 22, originally titled “Anonymous crypto wallets now illegal in the EU,” a flurry of activity occurred over the weekend on social media. The article used a blog post by Patrick Breyer, a Member of the European Parliament (MEP), as the core source and took a scathing view of the restrictive new legislation. The article’s title has since been updated to “EU bans anonymous crypto payments to hosted wallets” following debate on whether the article’s focus was overly alarmist.
Why anonymous crypto wallets were thought to be banned
Breyer’s original post highlighted that anonymous cash payments over €3,000 in commercial transactions will be banned under the new regulations, and cash payments over €10,000 will be prohibited entirely in business transactions. Additionally, anonymous crypto payments to hosted wallets will be banned without a minimum threshold.
Breyer, a self-proclaimed digital freedom fighter from the Pirate Party, voiced strong opposition to the new laws in his post. He argues that prohibiting anonymous payments would have minimal effects on crime while depriving innocent citizens of their financial freedom and privacy. Breyer points out that dissidents like the late Alexei Navalny and his wife and organizations like Wikileaks rely on anonymous donations, often in virtual currencies, to fund their activities.
Furthermore, Breyer expresses concern about the potential consequences of the EU’s “war on cash.” He warns that the creeping abolition of cash could lead to negative interest rates and increased dependence on banks, ultimately resulting in financial disenfranchisement. Instead, he calls for ways to bring the best attributes of cash into the digital future, allowing citizens to pay and donate online without their personal transactions being recorded.
Payments to anonymous wallets are banned from exchanges
However, Patrick Hansen, the EU Director of Strategy for Circle, has sought to clarify what he believes to be misinformation surrounding the AMLR. Hansen, a former MEP staff member, reported regularly on EU legislation before joining Circle and has shown a comprehensive understanding of policy. Hansen emphasizes that self-custody wallets and payments to/from these wallets are not banned under the new regulations. P2P transfers are also explicitly excluded from the AMLR.
However, Hansen acknowledges that paying merchants with crypto using a non-KYC’d (Know Your Customer) self-custody wallet will become more difficult or banned, depending on the merchant’s setup. He notes that the AMLR applies only to ‘obliged entities’ and service providers, not providers of hardware, software, or self-custody wallets that don’t have access to or control over the crypto-assets.
Under the AMLR, crypto-asset service providers (CASPs) such as exchanges will be required to follow standard KYC/AML procedures and be prohibited from providing anonymous accounts or accounts for privacy coins. Hansen argues that this aligns with existing practices and is nothing new in the industry.
For transfers between CASPs and self-custody wallets, the AMLR mandates “risk-mitigating” measures, such as blockchain analytics or collecting additional data about the origin/destination of the crypto-assets. This aligns with the Transfer of Funds Regulation (TFR), the EU implementation of the Financial Action Task Force (FATF) travel rule.
Regulatory debate on self-custodied crypto wallets in European Union continues
Ultimately, the debate surrounding the EU’s new anti-money laundering regulations highlights the ongoing tension between combating financial crime and preserving citizens’ rights to privacy and economic freedom.
While critics like Patrick Breyer see the regulations as a significant threat to these rights, others like Patrick Hansen believe that the rules largely align with existing practices and that some concerns may be overblown. As the regulations come into effect, it will be crucial to monitor their impact on the fight against money laundering and the rights of EU citizens.
It is clear that the new regulations are exceedingly strict, and there is a debate as to how requiring wallets to be KYC’d will stop illicit activity. Criminals illegally sending crypto to anonymous wallets may now simply be breaking two laws as opposed to one, while private citizens may potentially be required to KYC in order to pay for a coffee with a Lightning Wallet.
Still, a critical fact remains: holding crypto in an anonymous, non-KYC wallet will not be illegal in the EU. There will just be severe limitations on what can be done with it without being doxed. When the latest plans for the digital Euro CBDC are considered, restrictions on money transfers may become even stricter.
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