On July 9, 2018, the European Union (EU) Parliament implemented changes to the anti-money laundering legislation about the transparency of cryptocurrency exchanges. The new legislation is called the 5th Anti-Money Laundering Directive.
The decision to make the changes was made by the EU Parliament earlier this year, in February, when Europol alarmed the EU, saying that, currently, 4% of the total European criminal proceeds is channelled into cryptocurrencies, particularly Bitcoin. This 4% represents approximately 4,5 million Euro of the 113 million Euro that circulates in Europe in cryptocurrencies.
Police forces have limited resources available to monitor and foil transactions in cryptocurrencies. The transactions are hard to monitor, because cryptocurrencies allow payments with anonymous pre-paid cards, allowing people to hide their identity when making transactions. A bank account, on the other hand, does have an identifiable, central authority. Even if the police does find that the transactions in a cryptocurrency have a criminal nature, it cannot block them like it can with bank accounts, because it has no method to freeze its wallets.
The London Metropolitan Police said that even small-scale drugs dealers were using cryptocurrencies to launder their money through a network of physical ATMs. Moreover, the digital currency is used to finance terrorism.
The new directive requires more transparency for the cryptocurrency sector. The level of collaboration and the exchange of information between anti-money laundering institutions and prudential supervision institutions, including the European Central Bank, will be increased. More specifically, the authorities should be able to monitor the use of cryptocurrencies better, and the person making the transactions should be identified by allowing national Financial Intelligence Units to obtain information that enables them to associate cryptocurrency addresses with the identity of their respective owners. In addition, users are required to independently report suspicious transactions to the authorities.
With the enforcement of the new directive, the Member States have 18 months to implement these rules in their national legal structures.