Regulation
Bitcoin and privacy threatened by the new EU regulation
In this illustration, the representation of Bitcoin is seen with the European Union flag in the background… [+] photo taken in Poland on November 29, 2020. Photo illustration by Jakub Porzycki/NurPhoto
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The European Parliament recently adopted the revision of the anti-money laundering regulation, despite significant opposition from the public and citizens humanitarian groups. The coalition to build real changealso known as BTC
Bitcoin
Coalition urged members of parliament to reject the proposals due to concerns about violations of financial freedoms and privacy. However, their efforts were unsuccessful ea majority vote adopted the proposals.
During informal discussions, the European Commission, Parliament and Council did not take into account public feedback on the proposed changes. This action was seen as a diminishing of the role of European Parliamentthe only directly elected EU body, and has raised concerns about the potential for increased abuse of financial data by authoritarian regimes.
Implications and key questions
The new regulation could influence financial rules worldwide, impacting personal financial freedoms not only in the EU, but globally. It labels privacy-based payment instruments and crowdfunding platforms as high risk, potentially restricting financial operations under the guise of preventing money laundering and terrorist financing.
Fund-raising: AMLR classifies all crowdfunding platforms as high risk, which could increase operational costs, reduce the donor base and hinder vital efforts for activists and aid workers. NGO during crises.
Financial exclusion: The new rules remove protections that helped include more people in the financial system and prevented unfair restrictions that would impact immigrants, dual citizens and other often vulnerable people. This denies them necessary financial protections and potentially increases discrimination within the financial system.
Privacy payment tools: Labeling private digital wallets or self-hosted wallets as risks ignores their role in promoting financial access and supporting humanitarian efforts, potentially hindering NGOs’ ability to move funds securely to areas under oppressive regimes.
Anti-money laundering legislation extends beyond the borders of the EU. The regulation sets a potentially influential global financial regulatory precedent third countries. The proposal aims privacy payment and crowdfunding tools Pleases self-hosted wallets and mixers, also labeling them as high risk.
The day after the adoption of the anti-money laundering directive, attention shifted to the activities of Austria’s Raiffeisen Bank International in Russia. MPs raised concerns over the bank’s plans to continue and expand its operations by hiring more than 2,000 new employees, highlighting a critical gap in the enforcement of sanctions and anti-money laundering regulations. While AMLR targets technologies such as bitcoin wallets and mixers, larger financial institutions continue operations that could violate sanctions or facilitate money laundering.
Seth Hertlein, global head of policy at Ledger, expresses concern about the potential overshoot. In a recent Comment on LinkedIn, Hertlein criticized the removal of Article 41(a) as suggesting a shift towards monitoring individuals rather than protecting their financial freedom. You said: “The deletion of Article 41(a) is truly shameful and clearly demonstrates what Member States’ priorities are. No problem with a small reduction in risks, as long as their surveillance apparatus remains in place.”
Regulation support
Proponents argue that the Anti-Money Laundering Regulation strengthens the EU’s defenses against complex global threats such as money laundering and terrorist financing. AMLR fills gaps exploited by criminals by regulating digital wallets and mixers.
Supporters see AMLR as a crucial tool for combating widespread financial crimes. They see the regulation as a necessary step to safeguard the economic stability of the EU and beyond. Circle’s Patrick Hansen commented on the recent approval of the package by the European Parliament.
Future results and global influence
The acceptance of AMLR will likely have a global impact financial regulationpotentially leading to an increase regulatory burdens that disproportionately affect smaller entities and nonprofits, stifling innovation and civic engagement. Human rights and humanitarian groups fear this regulation could signal a shift towards more restrictive financial environments and attacks on privacy globally.
Given the importance of financial security and freedoma more balanced approach to financial regulation is needed to protect fundamental rights and support greater growth inclusive finance ecosystem that supports social and humanitarian initiatives.
Lyudmyla Kozlovska, president of the Open Dialogue Foundation and coordinator of the BTC Coalition, presents the findings of seven reports published by the Open Dialogue Foundation in the last two years. These reports reveal how banks in third countries, such as Kazakhstan and Turkey, are being used to launder money or evade sanctions by authoritarian regimes. ‘Dictators don’t need bitcoin wallets or mixers; they prefer established banks, especially Western ones operating in regions such as Russia, which has recently contributed 800 million euros in taxes to the Kremlin‘says Kozlovska.
The case of ING Bank, a major European bank operating in Russia, illustrates the problem of inconsistent enforcement of financial regulation. While ING has been flagged among other EU banks for its operations in Russia, it has maintained services that raise concerns about adherence to AML and CFT laws, especially given geopolitical tensions and economic sanctions.
This also demonstrates the broader problem of inconsistent enforcement of financial regulation. The bank discontinued its services with the Open Dialogue Foundation in a politically motivated campaign against the foundation under the pretext of complying with laws against money laundering and countering terrorist financing, influenced by the coordinated attack of the Polish Law and Justice party, the Plahotniuc and Nazarbayev regimes.
What’s next?
The scale of illicit activities involving traditional fiat currencies globally should also be considered for context. According to United Nations, between $800 and $2 trillion is laundered each year, representing approximately 2-5% of global GDP. This data demonstrates the challenges of fighting financial crimes within traditional banking systems, where the majority of money laundering still occurs. Lawmakers must balance the fight against these crimes with the need to protect fundamental financial freedoms and promote financial inclusion.
As AMLR is set to influence global financial regulatory standards, its acceptance marks an important moment for the future of financial regulation both within the EU and internationally. Members of the Parliamentary Assembly of the Council of Europe are calling for urgent reforms to ensure that the regulation it does not inadvertently harm those it intends to protect.
To mitigate these consequences, Lyudmyla Kozlovska invites privacy advocates to engage with future MEPs on their policy proposals. “We must educate EU politicians about the social necessity of bitcoin payments and crowdfunding mechanisms and prevent the misuse of anti-money laundering and counter-terrorism financing laws,” Kozlovska urges her.
The acceptance of the anti-money laundering regulation marks a significant moment in the EU’s efforts to combat financial crimes. However, as the regulation sets new precedents, it also raises concerns about potential overreach and the impact on privacy and financial freedom. This balance between security and freedom remains a crucial challenge, as stakeholders across the spectrum call for a nuanced approach that supports both effective law enforcement and fundamental human rights.