Digital currency or digital money has distinct properties similar to physical currencies, but allows for instantaneous transactions and borderless transfer-of-ownership. Both virtual currencies and cryptocurrencies are types of digital currencies, but the converse is incorrect. Like traditional money these currencies may be used to buy physical goods and services but could also be restricted to certain communities such as for example for use inside an on-line game or social network.
In a recent announcement, the European Parliament (EU) released a new directive related to the anti-money laundering (AML) issue that focuses particularly on digital currencies, even if the EU considers it to be marginal but with a possibility to increase in the future.
AML vs. freedom?
The EU Directive 2015/849 – that requires Compliance by June of 2017 – wants to avoid potential money laundering. This is the fourth to address this issue, with the first directive enacted back in 1991.
The EU’s definition of money laundering has been changed among the different directives and the latest one is focused on Bitcoin and digital currencies with the goal of a new regulation for wallets and cryptocurrencies admins.
From this perspective, it is impossible not to link this directive to the continuous wrong association of Bitcoin to illegal activities.
As I wrote in a recent article, can regulation be a good answer to AML-related issues? Regulating or being afraid of something because it might be used for illegal activities is like blaming fiat currencies because they are used to buy drugs or weapons.
Сash money and digital currencies, in fact, have a few characteristics in common, especially if you consider their anonymous status. And AML existed even before cryptocurrencies.
Anonymous digital currencies
One of the major cryptocurrencies benefit is its free and anonymous status, considering that they are not controlled by any central bank and that transactions are executed through encrypted systems thanks to the Blockchain.
Also, we have to say that Bitcoin is not so anonymous as most people believe; instead we can say that ZCash and Monero completely hide their user’s data.
That said, the most recent directive issued in July indicates that digital currencies “don’t possess the legal status of currency or money” and “cannot be anonymous.”
The EU went on to say:
“The credibility of virtual currencies will not rise if they are used for criminal purposes. In this context, anonymity will become more a hindrance than an asset for virtual currencies taking up and their potential benefits to spread. The inclusion of virtual exchange platforms and custodian wallet providers will not entirely address the issue of anonymity attached to virtual currency transactions, as a large part of the virtual currency environment will remain anonymous because users can also transact without exchange platforms or custodian wallet providers. To combat the risks related to the anonymity, national Financial Intelligence Units (FIUs) should be able to associate virtual currency addresses to the identity of the owner of virtual currencies. In addition, the possibility to allow users to self-declare to designated authorities on a voluntary basis should be further assessed.”
The EU Parliament also suggested the creation of a central database to register users’ info and wallets addresses, as well as a self-declaration form for the users of cryptocurrencies.
Behind this move, the Parliament explained that the main goal is to “monitor the use of virtual currencies in order to identify suspicious activities.”