New EU legislation prohibits unidentified cryptocurrency transactions

Lea Hogg March 26, 2024

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New EU legislation prohibits unidentified cryptocurrency transactions

In a decisive move to combat money laundering, the European Union has enacted robust new laws that focus on the anonymity of both cash and cryptocurrency transactions. These laws aim to eliminate the loopholes that have historically enabled illicit financial activities by imposing restrictions on cash transactions. The legislation sets a limit on cash payments, forbidding any transaction over €10,000 and effectively making anonymous cash transactions above €3,000 illegal.

The new Anti-Money Laundering (AML) regulations also extend to digital currencies, encompassing the rapidly growing cryptocurrency market. The EU has controversially prohibited the use of unidentified cryptocurrency wallets, including all types of digital wallets not operated by a licensed provider, whether they are mobile, desktop, or browser-based.

The implementation of these new AML regulations is projected to begin within three years of their official introduction. However, legal specialists from the Dublin-based law firm Dillon Eustace anticipate that the laws will be fully functional well before the standard timeline.

While these laws could potentially curb money laundering, they have faced criticism. Patrick Breyer, a member of the European Parliament representing the German Pirate Party, has expressed concerns about the laws’ impact on individual financial freedom. He argues that anonymous transactions are a fundamental human right necessary for personal financial independence and warns of potential economic and social repercussions from the EU’s stringent stance on cash transactions.

The effectiveness of the new AML laws in preventing money laundering is yet to be determined. While some view these measures as essential, others worry that they may encroach on financial privacy and freedom. The wider implications for unbanked individuals who rely on cash and businesses handling high-value transactions are also a matter of concern. Additionally, the regulations on self-custody wallets raise questions about the possibility of technological bypasses, such as decentralized exchanges or privacy-centric blockchains.

As the EU tightens control over financial transactions, the future of cryptocurrency in the region is uncertain. The clampdown on anonymity not only brings up privacy issues but also presents obstacles to financial inclusion and innovation, potentially impeding the widespread acceptance of digital currencies in Europe. The evolving story of the EU’s new AML laws will undoubtedly influence the crossroads of finance, technology, and regulation in the coming years.

Exceptions to the regulations

The EU has made a clear distinction by excluding private transactions between individuals from the cash payment limit.?This exclusion acknowledges the importance of cash in everyday transactions among citizens, ensuring that personal and small-scale financial activities remain unaffected.

Furthermore, the Anti-Money Laundering and Countering the Financing of Terrorism Authority (AMLA) will be the central authority coordinating national authorities to ensure the correct and consistent application of EU rules.?However, to avoid situations of possibly conflicting communications with supervised entities, the coordination role of the Authority should in principle be limited to interaction with relevant supervisory authorities, and should not include any direct interaction with non-selected obliged entities, except in duly justified cases.

These exceptions are part of the EU’s efforts to balance the need for stringent anti-money laundering measures with the practical realities of financial transactions and the rights of individuals. It’s important to note that while these regulations are robust, they are also designed to be fair and considerate of various circumstances.