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European Commission releases Action Plan, which includes virtual currencies

The European Commission recently released an Action Plan, calling on all member states to adopt the 4th Anti-Money Laundering Directive. Initially proposed last May, the directive is supposed to be in effect by the end of 2016.

The European Commission recently released an Action Plan, calling on all member states to adopt the 4th Anti-Money Laundering Directive. Initially proposed last May, the directive is supposed to be in effect by the end of 2016 at the latest.

According to the Commission, the recent attacks in the European Union (EU) demonstrate a need to combat terrorism, and the European Agenda has identified a number of areas which will assist in fighting terrorist financing.

Frans Timmermans"We have to cut off the resources that terrorists use to carry out their heinous crimes. By detecting and disrupting the financing of terrorist networks, we can reduce their ability to travel, to buy weapons and explosives, to plot attacks and to spread hate and fear online.”
— – Frans Timmermans, European Commission First Vice-President

The Action Plan being proposed will focus on tracing terrorists through their financial movements, and preventing them from moving funds or other assets. It also aims to disrupt sources of revenue used by terrorist organizations, and target their capacity to raise funds.

The Commission states that closing off options for terrorism funding is crucial for security, but may adversely affect the lives of citizens, and company activities throughout the EU: “The Commission’s proposals will balance the need to increase security with the need to protect fundamental rights, including data protection, and economic freedoms.”

The Action Plan will attempt to ensure safeguards, enhance the power of EU Financial Intelligence Units, and to centralise national bank payment account registers and central data retrieval systems in all Member States. This will allow for faster, and easier access to information about account holders.

The paper also highlights cash, which is “widely used” in the financing of terrorist activities, alongside a number of possible restrictions. A common limit on cash payments is suggested, as current Member State limits are inconsistent. Controls may be imposed on shipments of cash above 10,000 euros, including mail and freight services, supplementing the current routine checks on people crossing borders.

Currently, Germany, Britain and Austria do not apply limits to consumer cash payments. France imposes a ceiling of 3000 euros for French residents, while Italy appears to be going in the opposite direction in a move to boost retail sales, with plans to raise its ceiling from 1,000 to 3,000 euros.

The Commission has also warned against the 500 euro banknotes, as they are "in high demand among criminal elements,” due to their high value and low volume.

According to the paper, innovation in financial services and technological change could create opportunities which may at times be abused to conceal terrorist financing. Novel financial tools such as virtual currencies are posing new challenges to combating terrorist financing.

Therefore, digital currencies and their platforms will be included in The Action Plan,”to prevent their abuse for money laundering and terrorist financing purposes.”

The Commission also proposes bringing virtual currency exchange platforms under the scope of the Anti-Money Laundering Directive, so that these platforms have to apply customer due diligence controls, ending the “anonymity associated with such exchanges.”

European Commission“Highly versatile criminals are quick to switch to new channels if existing ones become too risky. For innovative financial tools, it is critical to be able to manage the risks relating to their anonymity, such as virtual currencies.”
— – European Commission

The European Parliament recently discussed bitcoin and other digital currencies for the first time. Approximately a dozen politicians and regulators from the Eurozone contributed to a list of questions, which ranged from tax evasion, to money laundering and regulation. Jeremy Millar, Partner at Magister Advisors LLP, shared his views on virtual currencies following the discussion.

Prior to establishing Magister Advisors, Millar spent five years working for Goldman Sachs, and assisted in the build of Oracle Corporation: “This gives me a dual perspective on virtual currencies: that of a disruptive technology market and their potential implications for financial markets.”

Millar explained that the initial interaction of Bitcoin with the regulated, fiat financial system took place when early virtual currency companies were attempting to open commercial bank accounts as money transfer agents: “Many banks refused, concerned with fulfilling their own KYC and AML requirements. As a result, in large Bitcoin companies today you will find up to 40% of the staff working in compliance.”

Millar also highlights several services that could alleviate the Commission’s concerns. Chainalysis was specifically built to to spot connections between digital identities. “Our products allow financial institutions to develop trust lines between them as well as identify malicious actors. Our mission is to create tools that respect user privacy and prevent abuse of our financial system,” states the company.

Another company referred to by Millar is UK based Elliptic, a blockchain intelligence company founded in 2013. “We identify illicit activity on the Bitcoin blockchain and provide our services to the leading Bitcoin companies and law enforcement agencies globally.”

Jeremy Millar"This is far beyond the capabilities of banks today to monitor cash deposits.”
— – Jeremy Millar, Partner at Magister Advisors LLP


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