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 at the center of his work. In his guest article he addresses the upcoming new EU money laundering regulation.
This article is first on the Fin Law Blog appeared.
With the so-called fifth money laundering directive, codified regulation on blockchain and DLT units was created for the first time in the European Union in 2018. Since then, virtual currencies have been defined in European money laundering prevention regulation as the digital representation of a value that has not been issued or guaranteed by any central bank or public body and is not necessarily linked to a legally defined currency and which does not have the legal status of a currency or money, but is accepted as a medium of exchange by natural or legal persons and which can be transmitted, stored and traded electronically. A month ago, the EU Commission published its draft for a new EU money laundering regulation, which is to be directly applicable in the member states in the future. The EU Commission would like to standardize the prevention of money laundering in the Union and thus strengthen the effectiveness in the fight against money laundering and terrorist financing. However, the EU money laundering regulation should no longer recognize the term virtual currency.
The new EU money laundering regulation will in future contain a definition for crypto values instead of virtual currencies. The move away from the concept of virtual currencies is consistent and logical, because on the one hand the recommendations of the Financial Action Task Force (FATF) have been using the concept of crypto values since 2019 and there have also been some problems with the previous definition of virtual currencies since mid- and South American countries are considering making BTC legal tender. As legal tender, BTC would fall out of the definition of virtual currencies. However, the draft EU money laundering regulation does not provide for a definition of crypto values.
Rather, the EU Commission is trying to ensure uniformity of the legal provisions at this point and will define the term crypto values centrally in the Markets in Crypto Assets Regulation (MiCA), which is also in the draft, with effect for the EU money laundering regulation. According to this, crypto values in the EU will in future be defined as the digital representation of a value or a right that can be electronically transmitted and stored on the basis of distributed ledger technology or a comparable technology. The requirement of a missing status as legal tender will then be omitted, so that BTC will represent a crypto value regardless of the developments in Latin America.
On the basis of its blockchain strategy, the federal government has initiated a national solo effort since the beginning of 2020 and instead of virtual currencies in the Money Laundering Act, it has regulated crypto values in the Banking Act (KWG). The definition in the German KWG describes it based on the definition of virtual currencies in the fifth money laundering directive as digital representations of a value that has not been issued or guaranteed by any central bank or public body and does not have the legal status of a currency or money, but is accepted as a means of exchange or payment by natural or legal persons on the basis of an agreement or actual practice or is used for investment purposes and which can be transmitted, stored and traded electronically. In no case will the German legislator be able to maintain this definition, as the MiCA will take precedence over national law.