European Commission Plans Crackdown on Bitcoin: New Regulations by June
This post is by Chandra Lye.
The executive body of the European Union (EU) has warned of a further crackdown on virtual currencies in hopes of cutting off financing to terrorists.
Details were revealed recently in the European Commission’s Action Plan for strengthening the fight against terrorist financing and its call for Bitcoin exchanges to come under the supervision of the Anti-Money Laundering Directive.
If proposed legislation passes, virtual currency exchanges would be accountable for gathering comprehensive information about those looking to change bitcoin into traditional currency.
“We must cut off terrorists’ access to funds and enable authorities to better track financial flows to prevent devastating attacks such as those in Paris,” E.U. Commission Vice President Valdis Dombrovskis said in a statement.
Forbes has argued the currency has not been that anonymous, as each transaction has been documented on the blockchain. But a spokesperson for the E.C. said the public ledgers were not transparent enough.
“Indeed, public ledgers offer traceability to transactions between accounts,” press officer Letizia Lupini explained. “However, these accounts remain anonymous. This anonymity is potentially an incentive for unlawful activities.”
Regulators and advocacy groups have said more education is needed, not regulation.
Jason Weinstein, director of the Blockchain Alliance, told Bitcoin Magazine that restrictions were not the solution.
“Criminals and terrorists are using all sorts of technology to try to hide their activities over the Internet, but those who turn to Bitcoin as part of that effort are making a big mistake,” he said.
David Long, principal and senior consultant at the Northern California Fraud Prevention Solutions, said it would be easier to launder euros than bitcoins, “Though from an initial investigative standpoint, bitcoins might present more of a challenge due to the necessity of uncovering who is actually responsible for a given transaction or transactions.
“However, once the actor's identity is uncovered, the blockchain makes it possible to uncover most, if not all, of a person's transactions,” Long said. “This capability is without parallel when the subject is dealing in euros or dollars.”
Bitcoin was called the “single, common currency for cybercriminals within the E.U.,” in a 2015 report by Europol. Combined with the claim by Reuters that bitcoin has been the most popular virtual currency, claiming 80 percent of the European market, and in the wake of the Paris terrorist attacks, the E.U. has been compelled to act.
“With today's Action Plan we are moving swiftly to clamp down on terrorist financing, starting with legislative proposals in the coming months,” Dombrovskis said in a press release. “We want to improve the oversight of the many financial means used by terrorists, from cash and cultural artifacts to virtual currencies and anonymous pre-paid cards, while avoiding unnecessary obstacles to the functioning of payments and financial markets for ordinary, law-abiding citizens."
Yet questions have been raised about whether the regulations will accomplish what the E.C. wants.
“Those looking to remain hidden when they buy and sell bitcoins are likely already avoiding online exchanges. Most exchanges today are already following KYC/AML procedures,” virtual currency expert Michael Yeung said.
There has also been concern about what tougher regulations could mean for small businesses working in Bitcoin.
“Regulation is desirable and required, but regulation that is too onerous may end up destroying legitimate businesses in their infancy,” blockchain researcher and consultant at CryptolQ, Albert Szmigielski said.
Weinstein, director of the Blockchain Alliance, has warned in a Forbes article that complex regulation may pave the way for a black market takeover.
“Regulators should appreciate the fact that most of the Bitcoin companies are startups and do not have a lot of resources,” he said. “The simpler the landscape of compliance rules, the better it is for not only the companies but also the public for whom the regulations are there to protect.”
The new rules will be announced by the end of June. Countries will have until 2017 to put them into effect.