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Friday, Sep 22, 2023

EU crackdown on crypto transfers raises privacy concerns

EU crackdown on crypto transfers raises privacy concerns

EU lawmakers voted for measures that would expand anti-money laundering requirements and call for crypto firms to reveal the personal information of their customers.

EU lawmakers have voted in favour of measures requiring cryptocurrency companies to collect and share data that would bar anonymous transactions.

Two EU parliamentary committees, the Committee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties (LUBE) voted yesterday to expand anti-money laundering (AML) requirements that apply to conventional payments over €1,000 ($1,115) to the crypto sector.

Back in December, European governments said they wanted to scrap the €1,000 threshold for crypto because digital payments could easily circumvent the limit, and include private wallets that regulated crypto firms do not operate.

The plan will also remove the floor for crypto payments, so payers and recipients of even small crypto transactions would need to be identified, including those with unhosted or self-hosted wallets.

Further measures being deliberated could see unregulated crypto exchanges cut off from the financial system altogether.

“Illicit flows in crypto-assets move largely undetected across Europe and the world, which makes them an ideal instrument for ensuring anonymity,” Ernest Urtasun, co-rapporteur for ECON, said in a statement.

Co-rapporteur for LIBE, Assita Kanko, said that the legislation seeks to protect people against the criminal use of crypto-assets and “normalise the crypto world as it grows” by implementing rules that create trust.

“More than a decade after the creation of Bitcoin, it is high time we took these important steps for our citizens,” Kanko said in a statement.

Members of the centre-right European People’s Party (EPP) have come out in opposition to Thursday’s vote.

EPP economic spokesperson, MEP Markus Ferber, said he was “personally sceptical” on the issue of banning any technology without a legitimate reason.

“With the provisions added to the transfer of funds regulation, the use of unhosted wallets will become unnecessarily onerous,” Ferber told TRT World in an emailed statement, adding that it will make certain types of crypto usages “fairly unattractive.”

Ferber warned that creating a “burdensome regulatory environment” will be bad for Europe, and “sends the wrong signal about the EU’s openness for innovation.”

“The biggest problem with killing innovation by regulation is that you do not know what you lose in the end,” he said.

Crypto industry reaction

Meanwhile, the crypto sector reacted critically to the EU’s move, one that many industry participants believe will stifle innovation and invade privacy.

Major US crypto exchange Coinbase came out warning that heavy-handed privacy violations could face legal challenges in EU courts.

Coinbase CEO Brian Armstrong warned that under the new rules, the exchange would have to report to the authorities any time a customer received over EUR 1,000 of crypto from a self-hosted wallet.

Pascal Gauthier, chairman and CEO of digital wallet firm Ledger, rebuked the vote, stating that the “EU Parliament chose fear over freedom.”

European decentralised finance (DeFi) firm Unstoppable Finance’s head of strategy and business development Patrick Hansen called the proposals a “big disappointment” and a “threat to individual privacy.”

Hansen noted it would be difficult for crypto service providers to verify an “unhosted” counterpart and warned that to stay compliant and not compromise their legal position, some firms may choose to cut off transactions with unhosted wallets altogether.

Paul Grewal, chief legal officer at Coinbase, wrote in a March 27 blog that “bad facts make bad law,” prior to the EU’s vote.

“If adopted,” he wrote, “this revision would unleash an entire surveillance regime on exchanges like Coinbase, stifle innovation, and undermine the self-hosted wallets that individuals use to securely protect their digital assets.”

For the new rules to be enacted, they must be passed via trialogue negotiations between the EU Parliament, European Council and the European Commission. If they remain unopposed, it would give the crypto industry nine to 18 months to come into full compliance with the legislation.


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