A recent report issued by the European Parliament was all about crypto-currencies like the Bitcoin. This is part of the priorities of the European Commission (EC) in dealing with Anti-Money Laundering (AML). The agency looks at accomplishing this before 2017 ends.
10 Priority Areas of EC
European Commission President Jean-Claude Juncker assumed leadership of the EC on November 1, 2014. He identified so-called 10 priority areas that should serve as guidelines for the Commission during the next five years. It has now reached the border line of its term of office.
These 10 priorities based on published reports in the Internet are the following:
Role of Virtual Currencies
The State of Play in Mid-2016 Publication did not include any piece on digital currencies. However, the 2017 version cites these crypto-currencies in Priority #7 under the subject of fighting terrorists and terrorist activities. Last July (2016), the EC introduced more stringent statutes for users of virtual currencies. There were modifications in the 4th Anti-Money Laundering Directive of 2015. This ended the ambiguity that characterizes electronic currency transactions. The following concerns were identified:
Said amendments aim at imposing rigorous policies on all these currencies which can reduce hazards such as funding of terror groups and unnamed settlements. European Parliament President Martin Schulz, European Council President Robert Fico, and Mr. Juncker said at the last part of the report that improved security for European citizens will be among the 10 points to receive priority treatment. This will ascertain considerable progress by the end of this year. Digital currencies fall under the item of improving instruments to make terrorism a criminal act and combat money laundering as well as giving financial support to terrorist groups.
Compliance by EU Members
All members of the Union are obliged to follow these new mandates by June 26 (2017) which means regulations on virtual currencies will be applied on that date. This puts crypto-currency exchanges under the Anti-Money Laundering Directive of the EU. A legal definition for the virtual currency was also established. “It is the digital representation of value which is not issued by any public office or central bank. It is accepted by legal or natural individuals as mode of payment. The currency may be stored, transferred or traded through electronics.” Said description will be incorporated into EU member-countries’ anti-money laundering laws from January 1st of this year going forward.
Union members are compelled to submit a central list that contains information regarding banks along with payment account users to authorities. This facilitates better access once there are allegations of illegal activities. Both the EU and United States adopted measures following that direction. In April of 2015, communications from the European Commission to the European Parliament, Council, European Economic and Social Committee, and Committee of the Regions mentioned that the EU-US Terrorist Financing Tracking Programme (TFTP) permits members to request a search of financial data when there is sufficient suspicion of terrorist activity. The TFTP gave leads related to many terrorist suspects and their respective supporters.
Amendments address open-source virtual currencies that permit unidentified transactions. These include Bitcoin and OneCoin. As a centralized reserve virtual currency, OneCoin already adheres to all new rules to prevent users from taking part in criminal acts. OneCoin monitors clients and implements measures that are in accordance with legal development. To avert money laundering, identity theft, financial scams, and terrorist funding, OneCoin put in force KYC (know-your-customer) policies. These stop any possible misconduct by users of said currency. OneCoin is a crypto-coin with a private Blockchain.
European Central Bank
The European Central Bank (ECB) published a legal paper citing reasons for EU members to refrain from promoting virtual currencies such as the Bitcoin. Central bank officials acknowledge technological advances associated with distributed ledger technology that governs alternative payment modes. Such currencies may have the potential to enhance efficiency, reach, payment choice, and transfer techniques. Nevertheless, legislative agencies must not promote its use because these are not legal tender and accepted as currencies by central banks and governments.
Crypto-currencies are volatile and do not have sufficient guarantee that users can exchange their digital currencies for commodities, services, and legal counterparts. The opinion states the following: “Dependence of economic factors on digital currencies can affect control of central banks over money supply if increased to a large extent in the future. There are probable dangers to price stability even as risks are limited under the existing practice. It is appropriate for EU legislative bodies, consistent with recommendations made by the Financial Action Task Force (FATF), to control virtual currencies from AML and counter-terrorist financing standpoint.”
The position of ECB is the answer to the proposal made by the European Parliament and European Council for a ruling to amend the EU Directive that focuses on the prevention of exploitation of the region’s financial system for money laundering and financing of terrorism. These institutions believe that crypto-currencies like Bitcoin create bigger risks compared to mainstream currencies.
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