Implications for using cryptocurrency for illegitimate activities.
The fact that there is no generally accepted definition of the term cryptocurrencies available in the regulatory space causes a spring of speculations around the emergence of Blockchain and Cryptocurrency.
It is evident the Cash Control Regulation was not written with movements of cryptocurrencies in mind. It was written with physical movements of cash in mind, explaining inter alia the requirement to declare and the involvement of customs authorities. Cryptocurrencies are normally not moved physically: when they move, they move digitally.
While cryptocurrency is making headlines, its’ other half (blockchain) has been dragged to the spotlight. The scope of blockchain is, however, much wider than that of cryptocurrencies. It can be applied in a large variety of sectors (e.g. trade and commerce, healthcare, governance, …), has numerous potential applications, e.g. relating to pledging of collateral, the registration of shares, bonds and other assets, the operation of land registers, etc. Therefore, it would be too blunt to associate blockchain with money laundering, terrorist financing or tax evasion. It is just technology, which is not designed to launder money, facilitate terrorist financing or evade taxes, and has numerous applications throughout the whole lawful economy.
“Admittedly, cryptocurrencies are the first well known application putting blockchain technology into the spotlight, but nowadays blockchain has clearly outgrown the context of cryptocurrencies. Therefore, we suggest leaving blockchain out of the money laundering, terrorist financing and tax evasion perspective and focus on the illicit use cases of cryptocurrencies.”- TAX3 Study.
The fact that cryptocurrencies exhibit a wide range of different features makes scoping the Crypto-Market a hard nut to crack. Some of the cryptocurrencies are based on Bitcoins original open-source protocol, while others constitute an entirely new platform and eco-system.
“Anonymity is also the major issue when it comes to tax evasion. When a tax authority does not know who enters into the taxable transaction, because of the anonymity involved, it cannot detect nor sanction this tax evasion.”- TAX3 Study.
Most are characterized as pseudo-anonymous, yet some are said to be totally anonymous (meaning that the amount of coins their users own, send and receive is not observable , traceable or linked through the blockchain’s transaction history). This makes the cash control framework intrinsically unfit to track nor Tax movements of cryptocurrencies.
Conclusion
“From a regulatory perspective, a G20 initiative on a global framework for regulating and overseeing cryptocurrencies, to the extent necessary, would be welcome.”- TAX3 Study.
The aim to regulate transactions done using cryptocurrency is not entirely evasive, but the existing framework (i.e. the AMLD5 which does not capture the entire Crypto-Market ) is clearly inadequate to execute the plan. What options are left to explore? Could the amendment of existing frameworks suffice? Is it enough to place a ban on the aspects of cryptocurrency that are non-compliant? Is the anonymous feature on the cryptocurrency really a threat and can it be tackled?
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