Louis OngBlockchain Professional
Louis Ong is a blockchain industry consultant who has been enthusiastic about new technology since he was a young boy. He co-authored the book "Blockchain: A History," and is co-founder of The Internet of Things. He is also director of... (Read More)
Thought on new EU anti-money laundering legislation
The privacy of European cryptocurrency users will potentially be dramatically impacted by new EU anti-money laundering legislation. While there are a number of important changes underway for the crypto market, there are a few provisions that should be studied carefully to see if they have the potential to affect the privacy and safety of users. The European Parliament is currently considering proposed amendments to ECPA 21. While the proposed amendments focus on providing extra safety and privacy protections in particular for digital currencies, these reforms cannot come before the EU's anti-money laundering regulations have taken place.
ECPA 21 was introduced in March 2016 as part of European Banking Regulations 2004 to amend anti-money laundering rules to require institutions to maintain "specific information on the financial interests, property rights, ownership or ownership status of persons and business entities involved in financial transactions." In light of the new legislation, regulators will require any transnational financial services that use cryptocurrencies and other technologies, including blockchain based ones or 'altcoins', to be regulated in some way — or not. But will the new Regulation allow banks and other third parties to use bitcoin or other cryptocurrencies in lieu of the traditional banking system, while the existing legislation does not? This question has not been satisfyingly answered so far.
The European Commission published a consultation on the proposed anti-money laundering regulations in April. The impact on the burgeoning blockchain industry will potentially be dramatic. In fact, critics of the new proposed legislation argue that the EU may lose its innovative edge in this new phenomenon. As blockchain technology continues to move forward, more and more companies are embracing it, and it has become a core business pillar for businesses and enterprises. This means that these companies may be able to leverage their blockchain products more effectively to move data between financial systems to achieve greater efficiency. Additionally, it opens the possibility that the blockchain could offer advantages to businesses as they begin to identify specific risks related to fraud or illegal activity. These advantages could potentially benefit those businesses whose ability to take advantage of the benefits of the blockchain network is limited, but may not be easily or quickly overcome.
What we as developers fear most, is the fact that our hard work at protecting users privacy may be at risk. It is essential that cryptocurrency enthusiasts should be able to engage in their productive activities without interference from governments. We think governments might prefer to avoid their citizens' interaction with digital currencies than do so with fiat currency or financial assets. If they do, then they will seek to take a long term view on this issue. This view may be that more people will be willing to pay more for digital currencies, which in turn reduces the currency's price and thus the number of transactions it must perform. There will be some people who may want to make use of digital currencies for legal or business purposes and others who will not or don't wish to use such currencies. The problem with this position is that there is a trade-off for society if governments find out that users of digital currencies are using them for illegal activity. They may take measures to stop such activity, but at the same time it might become harder for these users to engage in that activity in the future. The lack of knowledge is the biggest obstacle that governments can imagine at preventing the flow of goods and people to and from countries in which crypto-currencies are involved.
Although governments might imagine that this new anti-money laundering legislation will prevent terrorism and financial fraud, this new legislation might actually end up making the problem worse. A look at a list of countries that have already adopted anti-money laundering laws shows that countries that have done nothing with regard to these measures are far more vulnerable to financial crime and terrorism. Countries like the United States, Spain, the United Kingdom, France and many other countries would have to change their business models in many areas, as such financial institutions can charge customers exorbitant fees to engage in international transactions. If the U.S. government can ban foreign banks from participating in transactions, the next thing our banking industry could do would be to become heavily regulated by foreign governments. Even better, what we see with the proposed regulations would allow foreign governments to stop us from doing business even when we are engaged in legitimate commerce.
With the new regulations on digital currencies like bitcoin, the United States would have to go back to a world where we can do business with foreign governments. This will make foreign governments much more willing to provide protection for their businesses. As mentioned earlier, the U.S. has a financial crisis facing our country; foreign investors will be more willing to trust U.S. economic resources more than our government's financial systems if other governments can have some oversight and enforcement over their banks. The impact this could end up having on the state of our global economy could be significant and should thus lead us to reconsider.