Recent EU Anti-Money Laundering (AMLR) regulations have sparked a heated debate about the balance between combating financial crime and preserving citizens’ rights to privacy and economic freedom. The new laws, approved by most of the leading committees of the EU Parliament, have received criticism and support from various stakeholders.
In response to an article by Finbold on March 22: originally titled “Anonymous crypto wallets are now illegal in the EU,” it said activity took place on social media last weekend. The article used a blog post by Member of the European Parliament (MEP) Patrick Breyer as its main source and took a scathing stance on the restrictive new legislation. The title of the article has since been updated to “EU bans anonymous crypto payments to hosted wallets” after debate over whether the focus of the article was overly alarmist.
Why people thought anonymous crypto wallets were banned
Breyer’s original message highlighted that anonymous cash payments of more than €3,000 in commercial transactions will be prohibited under the new regulations, and that cash payments of more than €10,000 will be completely prohibited in business transactions. Additionally, anonymous crypto payments to hosted wallets will be banned with no minimum threshold.
Breyer, a self-proclaimed digital freedom fighter from the Pirate Party, expressed strong opposition to the new laws in his position. He argues that banning anonymous payments would have minimal impact on crime, while depriving innocent citizens of their financial freedom and privacy. Breyer points out that dissidents such as the late Alexei Navalny and his wife and organizations such as Wikileaks rely on anonymous donations, often in virtual currencies, to finance their activities.
Furthermore, Breyer expresses concern about the possible consequences of the EU’s ‘war on cash’. He warns that the creeping abolition of cash could lead to negative interest rates and greater dependence on banks, ultimately resulting in the deprivation of financial rights. Instead, he’s calling for ways to bring the best features of cash into the digital future, allowing citizens to pay and donate online without having their personal transactions recorded.
Payments to anonymous wallets are excluded from exchanges
However, Patrick Hansen, the EU Strategy Director for Circle, has done so tried to clarify which he believes is disinformation surrounding the AMLR. Hansen, a former MEP, regularly reported on EU law before joining Circle and has demonstrated a comprehensive understanding of policy. Hansen emphasizes that self-custodial wallets and payments to/from these wallets are not prohibited under the new regulations. P2P transfers are also explicitly excluded from the AMLR.
However, Hansen acknowledges that paying merchants with cryptocurrency using a non-KYC (Know Your Customer) self-custody wallet will become more difficult or prohibited depending on the merchant’s settings. He notes that the AMLR only applies to “obligated entities” and service providers, and not to providers of hardware, software or self-custodial wallets that do not have access to or control over the crypto assets.
Under the AMLR, crypto asset service providers (CASPs), such as exchanges, will be required to follow standard KYC/AML procedures and will be prohibited from offering anonymous or privacy coin accounts. Hansen states that this is in line with existing practices and is nothing new in the industry.
For transfers between CASPs and self-custodial wallets, the AMLR prescribes “risk mitigation” measures, such as blockchain analysis or collecting additional data on the origin/destination of the crypto assets. This corresponds to the Transfer of Funds Regulation (TFR), the EU implementation of the Financial Action Task Force (FATF) travel rule.
The regulatory debate over self-managed crypto wallets in the European Union continues
Ultimately, the debate surrounding the new EU anti-money laundering legislation highlights the ongoing tension between fighting financial crime and preserving citizens’ rights to privacy and economic freedom.
While critics like Patrick Breyer see the regulations as a significant threat to these rights, others, like Patrick Hansen, believe the rules are largely in line with existing practices and that some concerns may be overstated. As the regulations come into effect, it will be crucial to monitor their impact on the fight against money laundering and the rights of EU citizens.
It is clear that the new regulations are extremely strict, and there is debate about how mandating KYC for wallets will stop illegal activities. Criminals who illegally send crypto to anonymous wallets can now simply break two laws instead of one, while private citizens may be required to KYC to pay for a cup of coffee with a Lightning Wallet.
Yet a crucial fact remains: holding crypto in an anonymous, non-KYC wallet will not be illegal in the EU. There will just be severe limitations on what can be done with it without being sedated. When the latest plans for the digital Euro CBDC are taken into consideration, restrictions on money transfers could become even stricter.