The recently announced regulation in the European Union which at first glance looks as if it bans all anonymous payments with crypto currency, appears to do nothing of the kind. Instead it seeks to broaden the bloc's anti-money laundering and terrorist financing efforts.
After news of the EU agreement from the Committees of Economic and Monetary Affairs, and Civil Liberties, Justice and Home Affairs broke, reports appeared suggesting anonymous crypto payments would be banned in the EU.
Patrick Breyer of the civil libertarian Pirate Party and a Member of the European Parliament, issued a statement which strongly opposed the new regulation.
"Anonymous cash payments over €3,000 will be banned in commercial transactions. Cash payments over €10,000 will even be completely banned in business transactions," Breyer wrote.
"And anonymous payments in cryptocurrencies to wallets operated by providers (hosted wallets) will be prohibited even for minimum amounts without a threshold," he added.
However, a closer reading of the incoming legislation points to its purpose being to crypto asset service providers and crowdfunding platforms, which the EU has long been working on.
This direction is outlined in the 329-page document for the regulation detailing a new instrument that "is part of a comprehensive package aiming at strengthening the Union's AML/CFT framework."
Patrick Hansen, a German lawyer and USDC stable coin provider Circle staffer, published his take on the new regulation, saying it's nothing new as such, and it does not ban anonymous crypto transactions for self-custodial wallets.
Hansen notes that the regulation affects all crypto exchanges and custodial wallet providers in the EU. These are already regulated under the Markets in Crypto Assets (MiCA) directives from 2019 and 2020.
What will happen as outlined in section 93 of the regulation is that exchanges and wallet providers will be prohibited from providing anonymous accounts. This means the businesses can't service anonymous users, which is a harmonisation with existing AML regulation.
Self-custody wallets are not caught by the new regulation, section 93 states:
The prohibition does not apply to providers of hardware and software or providers of self-hosted wallets insofar as they do not possess access to or control over those crypto-assets wallets .
There will be changes however, such as the limit of €10,000 for cash payments for goods and services that Breyer mentioned, with EU member states being able to set it even lower.
The limit applies to self-hosted wallets that can be used freely to purchase goods and services. Wallets hosted by providers can also be used, but requires customer due diligence and identification prior to transactions over €1,000.
While the illicit use of crypto currency for money laundering, ransomware extortion payments and other criminal purposes such as "pig butchering" romance scams remains high, blockchain analytics firm Chainalysis' research suggests it dropped last year.
Chainalysis suggested this is due to the general financial conditions in the world.
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