The Fifth AML Directive extends to cryptocurrencies

EU Member States have until January 10, 2020 to implement MLD5 into their national legislation. MLD5 brings for the first time certain virtual currency service providers within the scope of EU anti-money laundering and terrorist financing regulations. Its objective is to cover “all the potential uses of virtual currencies,” such as “means of exchange, investment, store-of-value or use in online casinos.”

The reason behind the extension of the AML regime to virtual currencies is the fact that in 2016 the European Commission identified the ability for virtual currencies to be abused to conceal transactions related to terrorist financing, due to the relative anonymity of the virtual currency environment and the lack of an EU-level reporting mechanism for identifying suspicious activity.

To tackle these issues, providers engaged in exchange services between virtual currencies and fiat currencies (“virtual currency exchange platforms”) and providers of services to hold, store and transfer virtual currencies (“custodian wallet providers”) have been made “obliged entities” for the purposes of the EU anti-money laundering and terrorist-financing framework.

This means that providers of those services will be subject to the same obligations to carry out customer due diligence and report suspicious transactions as other companies designated as obliged entities under EU law, including credit institutions, financial institutions and certain professionals such as auditors and accountants.

The EU acknowledges that regulating virtual currency exchange providers and custodian wallet providers will not entirely address the issue of anonymity attached to virtual currency transactions, since users can transact without going through such providers. But to fight the risks related to anonymity, MLD5 states that national financial intelligence units should be able to obtain information allowing them to associate virtual currency addresses to the identity of the owner of virtual currency.