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Privacy-Enhancing Crypto Coins may be prohibited under leaked EU plans
According to a leaked draft of a money laundering bill obtained by CoinDesk, the European Union may prohibit banks and cryptocurrency providers from trading in privacy-enhancing coins such as zcash, monero, and dash. The ideas from Czech authorities, who are chairing talks among EU states on the proposed bill, would be the next nail in the coffin for anonymous payment methods, following the summer’s stringent new laws. “Credit institutions, financial institutions, and crypto-asset service providers must be barred from keeping…anonymity-enhancing coins,” according to a legislative draft obtained by CoinDesk and circulated for discussion to the bloc’s other 26 member states on Nov. 9.
According to an EU ambassador, the action was designed to eliminate the risk posed by crypto assets that are expressly engineered to elude traceability. The prohibition on privacy coins, which prevent eavesdropping on blockchain activities, is meant to match the prohibition on anonymous instruments such as bearer shares and anonymous accounts included in the original law proposal. According to the diplomat, who spoke on the condition of anonymity because the negotiations are taking place behind closed doors, the Czech proposal responds to a demand from countries debating the text.
The European Commission proposed the Anti-Money Laundering Regulation in July 2021 as part of a package that would also prohibit big cash transactions and establish a new anti-money laundering agency, AMLA, to review policies at large financial institutions. According to the Czech government’s intentions, crypto asset providers would be required to authenticate customers’ identities even for small transactions of less than 1,000 euros ($1,040), and to investigate the nature and purpose of the business for larger payments. That would make laws more onerous than for other types of organizations, such as banks, where due diligence rules only apply to larger payments, owing to concerns that crypto payments can be easily broken up into smaller chunks.
The document also proposed that crypto service providers conducting business outside the EU verify whether their counterparty is licensed and what money laundering controls they have, with details of the vetting to be set by AMLA. The European Parliament has focused their rival changes to the bill on the processing of dirty money via the metaverse, decentralized finance, and non-fungible tokens (NFTs). To become legislation, the bill must be approved by both the Council and the European Parliament.
If it does, it will be the latest in a regulatory assault on online anonymity, which has genuine uses but regulators are concerned can be used to process illegal transactions, circumvent sanctions, or raise funding for terrorists and other pariahs.
The US Treasury placed sanctions on Tornado Cash, an Ethereum-based privacy tool, in August, alleging that it was used to raise funds for North Korea’s weapons development – the first time sanction powers were used against a decentralized protocol. The EU’s Markets in Crypto Assets Regulation (MiCA), negotiated but not yet implemented, prohibits exchanges from enabling the trading of anonymous crypto assets unless the holders have been recognized. A parallel set of laws for the movement of cash requires additional checks on anyone dealing with cryptocurrencies such as monero or dash.