Greetings, esteemed crypto enthusiasts. This week will talk about money laundering and measures trying to prevent it. According to a fresh leak, the European Union is set to soon introduce new cryptocurrency rules affecting all member states. The laws are expected to be influenced by the FATF, who has proposed that states should even profile crypto users to investigate suspicious transactions.
In contrast new studies reveal that current KYC – Know Your Customer – rules already seem to suffice excellently to curb criminality. It also appears that even the most anonymous coins pose a lesser risk of money laundering than previously thought. Additionally dark crypto markets are reportedly a bigger problem in Eastern Europe than the West.
We still have to wait until the end of September to find out what Europe is up to this time. While cryptocurrencies will most likely get a clearer legal position, it is also possible that the upcoming regulation will make using them more difficult than it is.
The previous weekly news can be read here.
EU’s new crypto rules have leaked
A draft regarding the European Union’s new digital currency regulations has been leaked, reports Coindesk. Based on the draft it seems the EU wants to treat cryptocurrencies in a similar fashion to other financial instruments.
The draft legislation concerns all crypto utilities, whether they are traditional cryptocurrencies, decentralized finance utilities, blockchain-based stocks or stablecoins pegged to fiat currencies. The leaked draft suggest the EU will largely follow the guidelines set by the Financial Action Task Force.
The leaked draft is still quite unclear and doesn’t directly reveal if the change will ease or hamper the life of European crypto actors. While cryptocurrencies will likely get improved regulatory clarity in Europe, a too strict implementation of the FATF’s proposals may cause even further restrictions for crypto actors.
The finalized rules are set to be published by the end of September and are expected to take effect some time later. According to some estimates it may even take several years to implement the rules.
FATF: Crypto users should be profiled
The Financial Action Task Force, an intergovernmental organization against money laundering, has proposed that all the world’s countries start profiling crypto users as a preventive measure. The FATF has published a report in which it details different user traits that should create suspicions of possible illegal behavior.
Measures proposed by the FATF include comparing the financial history of users with the transactions they have sent or received. If for instance a young person with no earlier business activity gains large sums in crypto, it may according to the FATF suggest money laundering, scams or other illicit behavior.
Another red flag mentioned by the FATF is if the profiled user is much older than the average crypto user, or if there is activity on websites or forums linked to criminality.
The FATF also lists using privacy coins like Monero or Zcash through exchanges with poor KYC practices as a matter that should alarm regulators.
Privacy coins are not a money laundering risk
US-based international law firm Perkins Cole has published a new study regarding the use of anonymous crypto coins for money laundering. According to the report, privacy coins carry a much smaller risk for money laundering than has been estimated earlier.
Privacy coins refer to cryptocurrencies with specific focus on anonymity. Most cryptocurrencies operate on open blockchains, whereby transactions and wallet balances are visible for everyone. Privacy coins in turn use different mechanisms to make tracking transactions much harder. Known privacy coins include Monero, Dash and Zcash.
According to the study there is ample evidence proving privacy coins are used very marginally for money laundering. The report also states that the benefits of privacy coins outweigh their risks.
”Not only do privacy coins provide public benefits that substantially outweigh their risks, existing AML regulations properly and sufficiently cover those risks, providing a proven framework for combating money laundering and related crime,” the report concludes.
Most dark crypto activity in Eastern Europe
According to blockchain analysis firm Chainalysis, a majority of darknet commerce and ransomware traffic is located in Eastern Europe. 21% of the world’s darknet activity is traced to Eastern Europe, while the same number for ransomware value is 23%.
Western Europe is also a close contender with an estimated share of 19% of all darknet markets. Other regions follow behind with lower numbers.
Chainalysis also notes that the sixth biggest cryptocurrency service in Eastern Europe is the darknet marketplace Hydra. According to chainalysis, Hydra has produced up to $1.2 billion dollars worth of crypto revenue during the years 2019-2020.
Chainalysis also points out that while criminal crypto activity is on a high level in Eastern Europe, also legal crypto traffic is growing. Chainalysis reports that Russia and Ukraine are the leading duo in crypto adoption statistics.
Bahamas plans to publish central bank digital currency
The Commonwealth of The Bahamas has entered the race between states competing for the first national digital currency. The Bahamas have announced they will publish their own official central bank digital currency (CBDC) already by October this year.
At first these central bank digital tokens are only to be produced for $48 000 dollars. However, if the project succeeds the amount will most likely be raised. The purpose of the CBDC is to improve the possibility of Bahamian citizens to partake in the economy and use normal financial services.
“A lot of residents in those more remote islands don’t have access to digital payment infrastructure or banking infrastructure,” explained Chaozhen Chen from the central bank.
In addition to the Bahamas at least China, Jamaica and Barbados are also planning to launch a national digital currency. Venezuela’s petro currency can also be seen as one, although this notion has been criticized.
If the Oxford English Dictionary’s definition is used, any digital currency controlled by a centralized authority does not meet the criteria of being called an actual cryptocurrency.
Song rights transferred with blockchain for the first time
Russian pop star Oleg Kenzov has executed the first transfer of song copyrights by using a government-backed blockchain, reports Russian media service VC.ru. Kenzov transferred the rights to his song called “Po Kaifu” to music service FONMIX.
The transfer marks a historic moment for the music industry. The event was also witnessed by many leading companies in the industry, including Warner Music, Sony Music and Universal Music.
Music companies believe blockchain technology will improve music distribution in the future, particularly when it comes to smaller artists. Additionally blockchain is expected to expedite and ease the transfer and surveillance of song rights.