Coinfirm reviews what’s new in this directive, why it will spur wider crypto adoption and how the firm is not only enabling partners to be in compliance – but also join the fight to actively counter threats and criminals.
A major roadblock to the mass adoption of cryptocurrencies and blockchain revolves around regulatory compliance.
Whether in line with guidelines already in law or those newly inbound, more blockchain-based and related projects and organizations are being required to provide high standards of AML/CFT analytics to be seamlessly integrated and functional in the digital economy.
European Union member states have only until the 3rd of December 2020 (Thursday) to implement the 6th Anti-Money Laundering Directive (6AMLD) – a new EU money laundering directive with a few notable ‘firsts’. The directive will be applicable to all cryptocurrency exchanges, custodians and any obliged entities set out in prior AMLDs. Ideally, by 3rd June 2021, financial institutions should be compliant.
The 6th AMLD follows on from the single market’s 5th anti-money laundering Directive (Directive (EU) 2018/843) (5AMLD), the first AML EU directive to comprehensively define breaches of law via the use of cryptocurrencies.
5AMLD has been covered extensively by Coinfirm in the article ‘5 Steps Into 5th Anti-Money Laundering Directive’ and the video below where two regulatory compliance heavyweights – Pawel Kuskowski, Coinfirm’s CEO and Lee Byrne, Global Financial Crime Compliance Advisor for R8 Consultancy – sat down to discuss the nuances.
The new directive lists 22 predicate offenses constituting money laundering and provides clear definitions for each. New to appear are cyber and environmental crime.
6AMLD is the first time that cybercrime has featured in an anti-money laundering directive.
This focus on cybercrime is a welcomed move, as the value of cryptocurrency funds gained from fraud, phishing and hacks has since ballooned to more than $20 billion, according to Coinfirm’s data.
Coinfirm has long recognized that cybercrime is a growing problem and is the key reason the firm launched a solution dedicated to helping victims of online fraud and ransomware associated with cryptocurrencies – Reclaim Crypto. The company has also partnered with Kroll, a division of Duff and Phelps and last month brought top crypto class-action lawyer David Silver onto the board to further this fight.
The investigations that Coinfirm have conducted in the past; such as the ‘LocalBitcoins Phishing Attack’, ‘Fake Singapore Coin’ and ‘Fake Sites posing as Crypto Wallets/Exchanges’, to name but a few, make the company a trusted partner in crypto compliance for 200+ international organizations and projects. The company is alerted to new and ongoing frauds early via a crypto intelligence crowdsourcing platform – AMLT Network – where members can report suspicious crypto addresses and be rewarded in AMLT, the native token.
Under 6AMLD there will also now be an additional requirement for business entities to cooperate with one another in the prosecution of money laundering-related crimes under this new update. This means that if a crime takes place between two businesses, they will now be required to work together to identify the offender and help bring evidence to the prosecution. This extends liability for business entities set out in 5AMLD, which only saw ‘obliged entities’ needing to report suspicious events with the relevant FIU (financial investigative units).
6AMLD also changes who is punished for Bitcoin and cryptocurrency money laundering. The prior directive found that only individuals were liable, however, 6AMLD will now hold legal persons to account. This means that companies and senior management will now have to be proactive with compliance.
Amongst the 22 offenses, the 6th AMLD also sets out offenses revolving around “illicit arms trafficking”, “illicit trafficking in stolen goods” and “illicit trafficking in narcotic drugs and psychotropic substances”. The arms and drugs trade is not a systematic issue for crypto retail users as there are very few actors in the blockchain community utilizing these illicit services – however, the criminally inclined minority are overly active. According to Coinfirm’s data on cryptocurrency crime on the darknet, whilst only 1.2% of wallets are associated with darknet markets (DNMs), up to 35% of cryptocurrency exchanges have received funds from DNMs.
The directive also reads that EU member states must “ensure that aiding and abetting, inciting and attempting an offence referred to in Article 3(1) and (5) is punishable as a criminal offence” – broadening the scope of whom may find themselves liable. Prior to this, only those that benefitted from the proceeds of money laundering would find themselves behind bars. Now, any legal person that aids (whether or not they received material benefit) will be landed a sentence.
Bitcoin money laundering and crypto crime remain a problem in the sector and one that Coinfirm and its partners are committed to combating. This effort is evident in the firm’s commitment to join forces with and provide actionable data to the Anti-Human Trafficking Intelligence Initiative – helping the firm’s clients and partners not only stay in compliance with 6AMLDs 2 other offenses; “trafficking in human beings and migrant smuggling” and “sexual exploitation” – but actively counter them.
Coinfirm has long been proactively solving compliance issues with innovative RegTech offerings. Coinfirm’s blockchain agnostic AML & Analytics Platform is able to keep any crypto-based or related business in check by countering bitcoin money laundering, whilst the firm’s Travel Rule solution was launched in answer to the FATF’s directive. Coinfirm recently launched the world’s first DeFi AML solution – AMLT Oracle – before any laws or directives have come into force around decentralized financial models.
Unlike many jurisdictions, the single market has been at the forefront of cryptocurrencies’ regulatory activities, seen as being balanced and clear – and therefore enticing to innovation. On 24th September 2020, the European Commission published its proposed regulation on Markets in Crypto-assets (MiCA), specifically focused on crypto and crypto providers.
In MiCa’s ‘Consideration 8’, the regulation sought to harmonize with the global body for financial regulations, the Financial Action Task Force or ‘FATF’ (an entity that Coinfirm regularly consults with);
Legislation should also contribute to the objective of combating money laundering and the financing of terrorism. Any definition of ‘crypto-assets’ should therefore correspond to the definition of ‘virtual assets’ set out in the recommendations of the Financial Action Task Force (FATF)34. For the same reason, any list of crypto-asset services should also encompass virtual asset services that are likely to raise money-laundering concerns and that are identified as such by the FATF.“MiCa’s ‘Consideration 8’
However, not all rules have been taken up with the same fervour – the FATF’s deputy, David Lewis, recently lamented that the travel rule is still “not yet being implemented globally or effectively” in the private sector.
What is irrefutable is that jurisdictions and organizations that take on board guidelines faster are seen as significantly safer in the eyes of retail users and institutional partners. 6AMLD is no exception.
Whilst many in the traditional financial sector might have before derided bitcoin, it is very clearly now being accepted as a safe haven asset. By the end of Q2 2020, Fidelity reported in a survey of almost 800 institutional investors that 36% owned crypto assets. Europe is the most bullish on the sector, with up to 45% of respondents being long.
It is not coincidental that the big-ticket appetite is most prevalent in a region with the most concise and stable cryptocurrency regulations in the world. 6AMLD continues this by closing loopholes in prior AMLDs, harmonizing predicate offenses and counters the latest growing threats.
Traditional finance may be starting to turn bullish on the underlying assets of cryptocurrency but blockchain – the tech – has always been seen as a darling of innovation in banking. Whether that be streamlining the back office of trade finance operations, tokenization of derivatives or reducing settlement times, bankers have taken to blockchain like ducks to water.
And blockchain’s use case of “digital trust” is probably on more minds.
In September of this year, a financial crime horror story laid bare the glaring inefficiency in the traditional financial sector – with many in the blockchain industry positing that cryptographic tracing is a far more transparent method to follow cybercrimes. The FinCEN Files that have been coming out from the International Consortium of Investigative Journalists have made many question how to incorporate blockchain technology into business models. With it, trust – a central tenet of the banking world – becomes permissionless.
As more financial institutions become cryptocurrency custodians and more cryptocurrency exchanges offer traditional financial products, the line between which is which may become ever more blurred in the long run.
The blockchain industry and bitcoin’s use cases have come a long way from the murky days of the Silk Road – but some FIUs are some way away from catching low hanging fruit.
According to an investigation launched by Coinfirm’s new service – Reclaim Fork – millions of dollars in illicit funds have been overlooked by authorities seizing bitcoin money laundering proceeds in the United States. This was deduced in relation to the $1 billion seized by the FBI from Silk Road, the infamous and defunct DNM.
With research showing that non-compliance costs 2.71x the cost of maintaining or meeting compliance requirements, following guidelines set out by 6AMLD and others is a prudent move in the long run. The non-compliance costs come from the expenses associated with business disruption, productivity losses, fines, penalties, reputation and settlement costs, among others.
Any crypto exchange, custodian or organization dealing with an obliged entity should contact Coinfirm for their compliance needs related to 5AMLD, 6AMLD, MiCa and the FATF’s Travel Rule. Creating a safer blockchain economy and providing the most comprehensive blockchain SARs since 2016.
Are you interested in how Coinfirm can strengthen your crypto compliance and enable you to meet the upcoming 6AMLD requirements? Contact us today.
Coinfirm is a global leader in AML and regulatory technology for blockchain and cryptocurrencies. It offers the industry’s largest blockchain coverage, supporting over 1,500 cryptocurrencies and protocols including Bitcoin, Ethereum and many more. Coinfirm’s solutions are used by market leaders globally, ranging from crypto exchanges such as Binance, and protocols like XRP, to major financial institutions like PKO Bank Polski. Coinfirm is the first firm to offer an AML solution to DeFi in the form of the AMLT Oracle. The company’s services also include Trudatum, a standalone regtech platform that allows any file to be registered, signed, and verified with 100% accuracy.
The firm carries out industry analysis demonstrating compliance strengths and weaknesses in the crypto sector as seen in the Know Your Exchange report.