The European Union (EU) proposed its own “travel rule” for crypto Tuesday to bolster anti-money laundering (AML) frameworks, much to the delight of EU commissioner Mairead McGuinness, who we learned hates anonymous crypto wallets.
McGuinness — the head of the EU capital markets union, as well as bloc financial services and stability — launched the proposal to stamp out “dirty money.”
The package of reforms is intended to tackle financial crime by filling gaps in EU regulation (mostly by adding “crypto-assets” to existing language).
Similar to US proposals and on recommendation of global money watchdog Financial Action Task Force (FATF), the EU’s travel rule would:
- Force companies handling crypto (like exchanges and payments providers) to keep details of all parties, including names and addresses.
- Establish a central AML authority with oversight of the crypto ecosystem across the EU.
- Supposedly help law enforcement agencies curb money laundering.
McGuinness then took to Twitter to label crypto “one of the newest ways to launder money,” specifically singling out “anonymous crypto wallets.”
“We will ban anonymous crypto wallets and make sure that crypto-asset transfers are traceable.”
Most crypto wallets are anonymous
Despite McGuinesses’ alarming rhetoric, the EU’s directive would only apply to what the US calls Virtual Asset Service Providers (VASPs) — companies offering custody and payments services, crypto exchanges, and the like.
Such travel rules, if enacted, wouldn’t force all crypto wallet owners declare their addresses to the government.
Rather, the EU would require crypto companies log Know-Your-Customer (KYC) data for transactions over a certain threshold (FATF says $3,000 while FinCEN wants a much lower cap).
Say, if you withdraw Bitcoin from an exchange, the exchange must provide details of that transaction (who owns of the receiving address) to authorities on request.
In practice, the travel rule brings crypto in line with traditional finance by forcing platforms to dox users who transact over a certain threshold, but it doesn’t do much to track crypto outside of that activity.
And it wouldn’t give the EU AML Authority (the incoming crypto overseer) power to systematically dox every crypto wallet out there (most crypto wallets are anonymous) across the internet — as much as McGuinness might enjoy such overzealous measures.
Although, the FATF has pushed to force developers of Decentralized Finance (DeFi) platforms (like decentralized exchanges) to keep records of users, even though (technically) no single entity is responsible for activity on the network.
How such rules would be feasible for most DeFi platforms isn’t yet clear (which could well be the point).
In any case, CoinDesk senior columnist David Z. Morris noted it’s likely that McGuinness and her team were muddled over the rule.
Earlier this year, Chainalysis reported just 0.34% of all crypto transactions in 2020 ($10 billion) could be classed as “illicit,” mostly scams and darknet market transactions.