EU Commission Proposes Central Database Record of Bitcoin Users

in #bitcoin8 years ago

 

The European Commission – the executive arm of the European Union  – has proposed a directive aimed preventing the use the financial  system for terrorist financing which includes a central database for  bitcoin and virtual currency users’ identities and wallet addresses  accessible to government financial intelligence units (FIUs).   The proposal seeks to require member states to bring into force the regulations necessary to comply with this directive by Jan. 1, 2017. The updated anti-money laundering rules adopted May of 2015 marked an  important step to improve the effectiveness of EU attempts to combat  money laundering from criminal activities and to fight financing  terrorist activities, the proposal noted. The global financial system makes it easy to hide and move funds by  creating layers of companies, crossing borders and hiding money streams.  Terrorists and other criminals can cover their tracks. 

Sound Financial System Needed

The proposal seeks to address the gaps in the oversight of terrorist  financial tactics, including the use of virtual currency, and at the  same time avoid unneeded obstacles for law-abiding businesses. It noted  the need to balance the need to improve security and the need to protect  fundamental rights, including economic freedom and data protection. On Feb. 2, 2016, the commission gave an action plan to strengthen the  fight against terrorist financing, focusing on two main areas: 1)  tracing terrorists through financial movement and preventing the  movement of assets, and 2) disrupting the sources of revenue terrorist  organizations use. On Feb. 12, 2016, the EU’s Economic and Financial Affairs Ministers  Council (ECOFIN) asked the commission to offer a proposal to amend the  Fourth Money Laundering Directive (4AMLD) by the second quarter. On  April 22, ECOFIN also sought action to improve the accessibility of  beneficial ownership registers. The European Parliament in May voted in a non-binding resolution to approve a proposal for a task force to look into virtual currencies, CCN reported. 

EU Seeks To Empower Member States

The new proposal provides a framework to enable member states to be up to date and better equipped to meet challenges. The amendments seek a single market for payments establishing more  innovative and safer payment services across the EU. They also seek a  framework for private and public online services, electronic commerce, a  reformed data protection regime, and a digital single market for  Europe. Because organized criminal and terrorism financing can damage the  financial sector’s stability and threaten the internal market, any  measures adopted solely at the national level could have adverse effects  on the EU Single Market. Given the cross-border nature of the terrorist  threats, the proposed rules must be consistent at the Union level to be  effective. 

Focus On Virtual Currency

To allow authorities to monitor suspicious virtual currency  transactions, all gatekeepers that control access to virtual currencies  should be defined as obliged entities under 4AMLD, especially wallet  providers and exchanges, the proposal noted. The commission consulted with public authorities on the proposal,  along with representatives of the payment services sector, financial  sector, financial intelligence units, Europol, consumer organizations,  and virtual currency market players (wallet providers, exchanges and  others.) The commission completed surveys on Jan. 27, 2016 of member states on  how national authorities collect data to assess suspected terrorist  activities and to what extent the information can be used by national  authorities to detect terrorist financing. The survey also examined the  extent to which prepaid instruments and virtual currencies have been  used in terrorist financing. 

Insufficient Monitoring Cited

The proposal’s impact assessment noted the following: 1) Suspicious transactions involving high-risk countries are not  efficiently monitored due to uncoordinated customer due diligence  requirements;
2) Suspicious transactions through virtual currencies are not sufficiently monitored by the authorities;
3) Current measures to mitigate money laundering and terrorist financing  risks associated with anonymous prepaid instruments are insufficient;
4) FIUs are limited in ensuring timely access to – and exchange of – information held by obliged entities;
5) FIUs lack access to information on the identity of holders of payment accounts. The option to improve detection of suspicious virtual currency  transactions consists of a combination of means: bringing virtual  currency exchange platforms and custodial wallet providers under the  scope of the directive, while allowing more time to consider options for  a voluntary self-identification of virtual currency users. 

Central Registry Sought For Virtual Currency

The option retained to provide FIUs access to information on the  identity of payment account holders is to put in place an automated  central mechanism – such as a central registry or an electronic data  retrieval system – at the member state level. This mechanism would be  directly accessible to national FIUs and other authorities active in the  field of anti-money laundering or counter-terrorist financing. The commission proposes to amend Article 2, to add to the list of  obliged entities virtual currency exchange platforms as well as wallet  providers. A number of risks were highlighted in respect of providers of  exchange services between virtual currencies and fiat currencies. The  proposal noted virtual currency transactions benefit from a higher  degree of anonymity than classical financial fund transfers and  therefore entail a risk that virtual currency may be used by terrorist  organizations. The EU does not monitor virtual currency transfers, since no rules  have been set. To adequately respond to risks, it is necessary to  provide a regulatory framework for the functioning of exchanges as well  as of custodian wallet providers. Also read: Digital currencies see strict rule proposals by the European Commission 

Anonymity As A Hindrance To Virtual Currencies

The proposal noted the credibility of virtual currencies will not  improve if they are used for criminal purposes. In this context,  anonymity will be more of a hindrance than an asset for virtual  currencies. The inclusion of virtual exchange platforms and wallet providers in  the directive will not fully address the issue of anonymity connected to  virtual currency transactions since a large part of the virtual  currency environment will remain anonymous as users can also transact  without exchange platforms or wallets, the proposal noted. To counter the risks related to the anonymity, national 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 authorities voluntarily should be considered. The proposal defines “virtual currencies” as “a digital  representation of value that is neither issued by a central bank or a  public authority, nor necessarily attached to a fiat currency, but is  accepted by natural or legal persons as a means of payment and can be  transferred, stored or traded electronically.” 

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