Specialist lawyer Lutz Auffenberg and his law firm Fin Law have specialized in the field of fintech and innovative technologies. In particular, blockchain technology and its regulation are the focus of his activities. In his guest contribution he is dedicated to the implementation of the FATF Travel Rule on the part of the EU Commission.
This article first appeared on the Fin Law Blog.
In hardly any other area is the EU Commission as active as in regulating the fight against money laundering and terrorist financing. The fourth Anti-Money Laundering Directive was only passed in 2015, and the member states had to implement it by June 26, 2017. Before this deadline had expired, a fifth anti-money laundering guideline was issued, which for the first time included virtual currencies in European money laundering prevention regulation and raised certain crypto exchange services and crypto custodian service providers to the status of persons obliged to pay under anti-money laundering law. In June 2021, the EU Commission announced that it would like to fundamentally amend the European fight against money laundering and terrorist financing again and published drafts for a total of four very far-reaching regulatory projects: The core is the new European money laundering regulation, the so-called single rule book for the entire Union and should be directly applicable to market participants. The sixth money laundering directive is intended in particular to regulate the cooperation between the European and national authorities involved in money laundering prevention. With the new AMLA regulation, a new central European authority is to be created, which is supposed to promote the exchange of information between the nationally competent authorities and the market participants who are obliged under money laundering law. The fourth project concerns the implementation of the travel rule recommended by the Financial Action Task Force (FAFT).
As early as 2019, the FATF included the much-criticized travel rule in its FATF recommendations to the member states on effective anti-money laundering and terrorist financing measures, according to which the member states are to impose on service providers involved in crypto transactions the obligation to collect and exchange comprehensive information about the transaction and the parties involved in the transaction . The recommendation concerns data such as the names and addresses, the national identification numbers and the whereabouts of the parties involved in the transaction as well as the transaction date, the wallet addresses involved and, if applicable, bank account numbers. The EU Commission is now taking on the implementation of the Travel Rule and is choosing an initially obvious path. By expanding the European money transfer regulation to include crypto service providers, the recommendations of the FATF are to be regulated uniformly for all of Europe. The specific type of implementation, however, seems a bit unimaginative at first, because the obligations already applicable to service providers involved in payment transactions with bank money are in principle only extended to crypto service providers and crypto transactions.
The approach chosen by the EU Commission of extending the scope of the Money Transfer Ordinance to include crypto service providers is obvious. However, it does not take into account the technical characteristics of crypto transactions at all. Transactions with crypto values basically work decentrally, so that the involvement of crypto service providers is not mandatory. Especially in transactions for money laundering or terrorist financing purposes, those involved in the transaction will rarely or never choose the route via crypto service providers and instead process transactions directly with one another. The measures will therefore primarily affect honest users and service providers. Nevertheless, the application of a money transfer regulation that also includes crypto transactions will considerably limit the possibilities of money launderers and terrorist financiers, especially when it comes to exchanging crypto values for fiat money. In addition, the market participants will collect a huge amount of data for the law enforcement authorities, which should significantly increase the effectiveness of the tracing of crypto transactions within the European Union. A more targeted regulation, which takes more account of the technical characteristics of crypto transactions, would nevertheless be desirable for the future. Should the EU Commission stick to its activism in AML regulation, a new regulation proposal that could address this issue should come in the year after next at the latest.