Virtual Currencies and Anti-Money Laundering – The Shortcomings of the 5th AML Directive (EU) and How to Address Them

Abstract

Virtual currencies pose a serious threat to be used for money laundering, weakening the European Union’s financial system. Directive (EU) 2018/843 (the fifth anti-money laundering Directive) intends to mitigate these risks by introducing a definition of virtual currencies within Union law. Some service providers connected to virtual currencies are made subject to anti-money laundering law. Member States are required to transpose this Directive into national law by January 2020. Consultations on national level are currently ongoing.

This article analyses how the Directive applies to current forms of cryptocurrencies, their adjacent services and intermediaries. It highlights the Directive’s imprecise wording as well as its limited scope. If Member States transpose it verbatim, they will create legal uncertainty and loopholes for relevant entities. Therefore, this article seeks to contribute to the national consultations of Member States by providing concrete legislative recommendations on how to fix the Directive’s shortcomings.

Keywords: money laundering, anti-money laundering (AML), virtual currencies, cryptocurrency, token, Blockchain, ICO, Directive (EU) 2018/843

JEL Classification: K2, K22, K23, K29