Virtual Assets: A Legal, Causal, and Case Study Analysis of the Influence of COVID-19 on the Use of Virtual Assets to Launder Money and of the European Union Regulatory Reaction on It

Abstract

During COVID-19, the use of virtual assets to launder money surged. Because of COVID-19 consequences, including the recent migration to the digital sphere, money laundering criminals now find it easier to use virtual assets to launder illicit money. In response to this phenomenon, FATF published several recommendations and guidelines on virtual assets, and the European Union proposed a few important legal frameworks which effectively mitigate money laundering using virtual assets and its adverse effects on the economy.

This thesis aims to measure the efficiency of the European Union’s post-COVID-19 legal frameworks on money laundering through the use of virtual assets. To this end, this thesis provides a causal analysis of the impact of COVID-19 on the use of virtual assets to launder money. The thesis also introduces FATF and briefly examines its recommendations on virtual assets. Following this, a comparative legal analysis of the European Union’s legal frameworks pre-COVID-19 compared to during COVID-19 was conducted. The focal frameworks included the AMLD5 and the proposals for the AMLD6, AMLR, the reform on the Regulation 2015/847, and MiCA.

A case study was conducted to test the efficiency of these frameworks. This case study used a hypothetical crypto-asset service provider currently under investigation. The service provider needed advice from a consultant firm to establish the company in Italy and to improve its compliance procedures. Through the report provided by the consultant firm, the application of the discussed EU legal frameworks was tested in a hypothetical scenario. This case study provided a practical measure of the efficiency of these frameworks in combating money laundering. The results suggest that the current proposals discussed by the European Union will mitigate money laundering using virtual assets and alleviate the adverse effects on the economy.

Keywords: Mica; Virtual Assets; EU AML/CTF Package; COVID-19