EU Proposal Calls for Privacy Coin Ban
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EU Proposal Calls for Privacy Coin Ban

1 year ago

A proposal making rounds in the European Commission would forbid financial institutions from handling privacy coins as part of a larger crackdown on anonymous financial transactions.

EU Proposal Calls for Privacy Coin Ban

A new anti-money-laundering bill reportedly proposes an outright ban on privacy coins like Monero, Dash and Zcash in the European Union.

A draft of the bill seen by CoinDesk says that “credit institutions, financial institutions and crypto-asset service providers shall be prohibited from keeping […] anonymity-enhancing coins.”

The move to ban privacy coins that seek to make it difficult or impossible to track cryptocurrency transactions comes as part of a Czech proposal on a larger anti-money-laundering (AML) bill that would also create a new EU-wide agency (AMLA) to oversee large financial institutions, ban large cash transfers, and forbid non-crypto privacy-focused financial instruments such as bearer shares and anonymous accounts.

It would also single out crypto, requiring cryptocurrency exchanges and other service providers to collect know-your-customer (KYC) information identifying customers even for transactions under €1,000 — a harsher requirement than for banks and other traditional money services businesses.

EU crypto service providers would also have to vet non-EU counterparties for licensing and AML controls, CoinDesk said.

This would be on top of restrictions in the agreed-to but not-yet-passed Markets in Crypto-Assets (MiCA) crypto regulatory framework that requires crypto exchanges to identify users before transferring anonymous assets, with extra controls required for privacy coins.

The EU did pull back from a proposal in earlier drafts of MiCA to require AML checks on all transactions, regardless of how small, to unhosted wallets. It did, however, impose that requirement on transactions between crypto-asset service providers like exchanges to hosted wallets.

That set crypto transactions apart from those by traditional financial institutions, where AML checks start at €1,000.

U.S. Targeting Anonymizers

The move comes as part of a broader assault on privacy coins and anonymity services, most notably by the U.S., which imposed sanctions on Tornado Cash after the mixing service was used by North Korean hackers to launder stolen crypto tokens.

That move by the Treasury Department’s Office of Foreign Assets Control (OFAC) broke new ground, marking the first time sanctions had been imposed on anything but a person or business, but rather on computer code, long seen as constitutionally protected writing. Coinbase has backed one lawsuit challenging the OFAC action.

More broadly, the IRS has for several years been funding attempts to break the anonymity of privacy coins by technological means.

And the Treasury Department is looking again into imposing KYC checks on unhosted wallets, a proposal first made by former Treasury Secretary Steven Mnuchin in 2020, which received strong crypto industry pushback for effectively eliminating privacy in crypto transactions.
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