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Jorge Valero
Nicholas Comfort
European Union is working to give its new anti-money-laundering watchdog oversight of cryptocurrency firms due to concerns that they’re used to process illicit funds, according to people familiar with the matter.
European Commission and other authorities are negotiating the remit and design of the body, which is expected to start operations in 2024 and be fully functional two years later. A group of states led by Germany is seeking to make the inclusion of cryptocurrency firms more explicit, said an EU diplomat briefed on the discussions. The people asked not to be named as the details aren’t public.
The EU is setting up the new authority after a series of scandals in recent years showed the bloc’s patchwork of regulations left it open to flows of dirty cash. The $2 trillion market for cryptocurrencies has boomed as companies and investors look to reap returns, yet it’s also opened a new front for law enforcement as widespread anonymity attracts criminals and rogue nations.
The German-led group includes Spain, Austria, Italy, Luxembourg and The Netherlands. They want the EU watchdog’s remit to cover the riskiest cross-border entities among banks, financial institutions and crypto assets service providers, the EU diplomat said. The Commission’s proposal, published in July, only makes oblique reference to “virtual assets.”
Read More: EU’s Dirty Money Watchdog May Not Cover Enough Firms, ECB Says
The Commission declined to comment.
The proposed changes have yet to be formally discussed among EU member states, meaning it isn’t yet clear how broadly it will be supported or how crypto firms will ultimately be treated, said the officials. The European Parliament will have a say in the final text.
“It is key that the scope of the new EU authority explicitly includes crypto-assets, given that this is one of the fields more prone to money laundering activities,” said Luis Garicano, one of the leading EU lawmakers for the proposal.
The fight against money laundering in the EU is currently the responsibility of national authorities across the bloc, which means they sometimes lack information about events outside their borders and raises the risk that they aren’t sufficiently independent.
The vulnerability of Europe’s financial system to illicit funds was on display over the last decade. Danske Bank A/S’s Baltic operations were allegedly used to launder Russian money, and Deutsche Bank AG and other lenders have also been faulted for weak controls. In 2018, the U.S. Treasury named Latvia’s ABLV Bank AS as a primary money laundering concern over allegedly corrupt funds flowing through it from Russia and Ukraine, as well as for links to North Korea’s weapons program.
The U.S. Justice Department this month named a veteran cybersecurity prosecutor to lead a new team dedicated to investigating and prosecuting illicit cryptocurrency schemes carried out by cyber criminals and nation states including North Korea and Iran.
Read More: DOJ Amps Up Crypto Scrutiny, Naming Head of Enforcement Team
Illicit transactions almost 80% to $14 billion, an all-time high, in 2021, according to block-chain analytics firm Chainalysis. Still, crime made up a much smaller share of total crypto transaction volume, which increased drastically last year, the firm said.
