The AMLD 5 or the Fifth Anti-Money Laundering Directive of the European Commission entered into Force on July 9, 2018, amending the previous AML Directive (AMLD4) and, although they stand on the same principals, the AMLD 5 brings new rules to the game.
Through the Directive, entities conducting business transactions are required to have in place mandatory due diligence procedures designed to detect, prevent, and report money laundering and terrorist financing. But this was old news. The new-news is that crypto-currencies or virtual currencies as well as the custodian wallet providers and virtual-currency exchange platforms have also been introduced to the due diligence procedures for the identification of their source and origins, hence their cryptographic nature “is not so crypto anymore”:
[… (d) the following points are added:
‘(18) “virtual currencies” means a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically;
(19) “custodian wallet provider” means an entity that provides services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies.’;…] Source : AMLD 5
Why were cryptocurrencies included under the AML scope?
The anonymity of virtual currencies allows their potential misuse for criminal purposes. The inclusion of providers engaged in exchange services between virtual currencies and fiat currencies and custodian wallet providers will not entirely address the issue of anonymity attached to virtual currency transactions, as a large part of the virtual currency environment will remain anonymous because users can also transact without such providers. To combat the risks related to the anonymity, national Financial Intelligence Units (FIUs) should be able to obtain information allowing them to associate virtual currency addresses to the identity of the owner of virtual currency. In addition, the possibility to allow users to self-declare to designated authorities on a voluntary basis should be further assessed.
Providers engaged in exchange services between virtual currencies and fiat currencies (that is to say coins and banknotes that are designated as legal tender and electronic money, of a country, accepted as a medium of exchange in the issuing country) as well as custodian wallet providers are under no Union obligation to identify suspicious activity. Therefore, terrorist groups may be able to transfer money into the Union financial system or within virtual currency networks by concealing transfers or by benefiting from a certain degree of anonymity on those platforms. It is therefore essential to extend the scope of Directive (EU) 2015/849 so as to include providers engaged in exchange services between virtual currencies and fiat currencies as well as custodian wallet providers. For the purposes of anti-money laundering and countering the financing of terrorism (AML/CFT), competent authorities should be able, through obliged entities, to monitor the use of virtual currencies. Such monitoring would provide a balanced and proportional approach, safeguarding technical advances and the high degree of transparency attained in the field of alternative finance and social entrepreneurship.
Is CySEC taking a stance regarding the Cryptocurrencies?
Perhaps the newest news is the Consultation Paper for the Amendment of the Law 188(I)2007 ( The National AML Law) released by the Cyprus Securities and Exchange Commission (“CySEC”), on the 19th of February, with regards to the adoption of the above mentioned changes from the AMLD 5 into the national law. Through the Consultation Paper, CySEC is proposing the transposition of the provisions of the 5th AML Directive (“AMLD5”) into the national law. This initiative emerged after CySEC has been contacted by numerous entities engaging in crypto-asset activities; most of which do not fall within the existing regulatory framework.
In the scope of addressing the AML risks emanating from crypto assets activities in a more comprehensive manner CySEC also advises to bring the following activities under the AML/CFT obligations (which are not included in AMLD5):
- exchange between crypto assets,
- transfer of virtual assets, and
- participation in and provision of financial services related to an issuer’s offer and/or sale of a crypto asset.
- custodial and/or administrative services related to crypto assets or instruments
enabling control over crypto assets; and
- participation in and provision of financial services related to an issuer’s offer and/or
sale of a crypto asset.
Persons who hold, purchase or transfer cryptocurrencies, will also be affected.
The deadline for the submission of comments on the said Consultation Paper is tight and it expires on the 28th of February.