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Cryptocurrency AML and KYC Requirements from 5AMLD

On January 10th, the European Union’s 5th Anti-Money Laundering Directive (5AMLD) went into effect. Not only does this directive affect arts and antiquities, but it also applies to cryptocurrency companies. Cryptocurrency AML and KYC regulations have been a talking point globally. How can regulators control a market with digital currency? In a effort to prevent money laundering and financial crime, European crypto companies will now require more information from their customers than ever before. If cryptocurrency companies refuse to comply, they can face very large fines. One company, Bottle Pay, are ceasing operations completely claiming that user experience would be negatively affected. According to an 5AMLD fact sheet released by the EU, one of the purposes of the new law will be to “tackle terrorist financing risks linked to anonymous use of virtual currencies and prepaid instruments.”

Companies that deal with cryptocurrency are unhappy with the new regulations, but they may be necessary. Ciphertrace released a report in August 2019 stating that illegal cryptocurrency activities may exceed $4.3 billion in 2019. A dark-web drug trafficker was recently arrested after trying to launder more than $19 million worth of illegal gains through cryptocurrency. The first case against an unlicensed money remittance business operating a cryptocurrency ATM occurred last year. Without the know-your-customer regulations, it may be impossible to tell where money is being sent and for what purpose. The lack of previous regulations allowed criminals to hide their identities and launder money effectively.

Although there is substantial push back from these companies, the regulations are most likely here to stay. With the United States quickly following suite in crypto regulations, these companies may have decide to comply or not do business at all in the EU and US. Cryptocurrency AML and KYC compliance may become a norm, as it has in many other markets.

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