Amongst the sound and fury of the recent debate on the terms of the UK’s exit from the EU, a particular detail of the Outline Political Declaration has received relatively little attention, writes John Binns of BCL Solicitors LLP.
It comes in the context of the parties’ intentions to continue to cooperate in tackling money laundering and terrorist financing and says that they will go beyond the standards of the Financial Action Task Force ‘with regard to beneficial ownership transparency and ending the anonymity associated with the use of virtual currencies’.
On one view, this phrase does no more than restate the decision already taken by the EU to adopt it Fifth Money Laundering Directive (MLD5), and by the UK to implement and adhere to its terms even after its departure. It is certainly true that some of the main provisions of MLD5 are about collecting and making available more information on the beneficial ownership of companies and trusts that hold assets in the EU, and about bringing some aspects of virtual currencies into the regulated sector, where Know Your Customer (KYC) data about the owners will need to be collected.
The key part of that last phrase, however, is ‘come aspects’. Though the changes brought about the MLD5 to virtual currencies will be significant, they are specifically restricted to the providers of virtual currency exchanges and custodian wallet providers. Broadly speaking, these are the services that allow virtual currencies and traditional (‘fiat’) currencies to be converted into each other: MLD5 does not, therefore, affect the many transactions that take place between parties where no fiat currencies are involved.
It may of course be that those responsible for drafting this part of the Declaration were simply not very careful in expressing themselves. In such an important document, however, the choice of these words in relation to virtual currencies must surely be worthy of attention. Could it be that the EU and UK intend to interpret MLD5’s terms in a broader way than has been commonly understood? Or should we expect that the next directive from the former, and/or a future set of regulations from the latter, will indeed go further by ‘ending the anonymity’ of virtual currencies altogether in their respective jurisdictions?
If so, we can expect that such efforts will not be received with open arms by everyone and are likely to face some opposition. While there are distinct opportunities in the blockchain technology to integrate KYC data, the relative ease and efficiency of virtual currency transactions, and their anonymity, are seen as positive features by many. And while the Declaration envisages a continued joint approach by the EU and the UK after the latter’s departure, this is one area where there is clearly potential for some regulatory divergence.
*This article was first published in Money Laundering Bulletin (Published: 26th November 2018). For further information please visit www.moneylaunderingbulletin.com.
John Binns is a partner at BCL specialising in all aspects of business crime, with a particular interest in confiscation, civil recovery and money laundering under the Proceeds of Crime Act 2002 (“POCA”). He has particular expertise in the myriad legal provisions on anti-money laundering (“AML”) requirements in the regulated sector under the Money Laundering Regulations (“MLR”), civil recovery and confiscation of the proceeds of crime, and criminal offences of money laundering under POCA, as well as related areas such as financial sanctions. He advises businesses (inside and outside the regulated sector) on AML policies and procedures generally, as well as particular risks that may arise under the MLR, POCA, and sanctions laws, including advice on the submission of Suspicious Activity Reports and consent requests. He regularly represents individuals and businesses in connection with confiscation, property freezing and restraint orders, including in relation to applications to defend, discharge or vary such orders.