Like a horror movie villain that just won’t die, European lawmakers just won’t stop coming up with new ways to thwart the ambitions of “crypto” brethren.
Members of the European Parliament are reportedly considering a new draft of anti-money laundering (AML) and countering the financing of terrorism (CFT) laws that would cover a range of digital asset transactions by European Union (EU) residents. The sectors potentially placed under the AML/CFT microscope include decentralized finance (DeFi) platforms, the decentralized autonomous organizations (DAOs) that govern DeFi operations, and entities that operate Web3 companies.
The new draft is being drafted as “compromise amendments” to the broader plan to update the EU’s AML/CFT laws that has been in the works for more than a year. Non-fungible tokens (NFTs) were put squarely in the EU’s crosshairs in July, but the individuals behind DeFi/DAO operations are now sweating the realization that they are not exempt from oversight either.
The draft text warns DeFi “developers, owners or operators” that they should properly “assess risks” before “launching or using a software or platform.” The text seeks to apply existing AML/CFT rules to DeFi transactions if they are “controlled directly or indirectly, including through smart contracts or voting protocols, by natural and legal persons.”
Back in July, the European Central Bank (ECB) issued a bulletin poking holes in the myth of DeFi decentralization, stating that “in reality, governance is often concentrated” and “DeFi applications maintain a high of centralization.” (As our own Joshua Henslee noted, it’s all decentralized until someone fixes it.)
The draft text of the European Parliament also warns that Web3 companies could be exploited by unscrupulous actors looking for ill-gotten gains through transactions involving virtual real estate or other metaverse assets. The plan is to include Web3 firms along with banks, diamond dealers, real estate brokers and so on on the list of entities required to monitor all transactions over €1,000 ($973.13).
The EU is promoting crypto-surveillance on a number of fronts, including the Markets in Crypto-Assets (MiCA) regulations and the formation of a new Anti-Money Laundering Authority (AMLA) that will take a consistent continent-wide approach to tracking dodgy transactions ensure.
But the process of aligning the wishes of the European Parliament, European Commission, European Council and the EU’s other decision-making bodies has been compared to herding cats, and some fine cats don’t seem at all keen to get caught up on crypto issues to become For example…
Unstable reaction
Just last week, crypto bros celebrated the leak of the latest MiCA draft that appeared to scrap proposed restrictions on transactions with stablecoins pegged to fiat currencies other than the euro, such as Circle’s dollar-denominated USDC and Tether’s USDT . (Stablecoins denominated in euros, such as Circle’s new EUROC, seem obvious.)
However, following protests from France’s central bankers, enough EU member states — reportedly including Germany, Italy and the Netherlands — have been convinced to impose a €200 million ($194.6 million) daily limit on non-euro stablecoin transactions in reinsert the MiCA text.
Predictably, “crypto” supporters cry foul, arguing that the cap is nowhere near high enough to guarantee no interruptions to the rampant stablecoin-based wash trading that ensures the artificial “number rises” trajectory of most major digital tokens. Honestly, doesn’t that EU pulse understand there are pockets to dump here?
MiCA is expected to face a vote by the European Parliament’s Economic and Monetary Affairs Committee in October or November, and there will no doubt be more furious lobbying and horse-trading before that vote is cast. And ECB President Christine Lagarde has already called for a MiCA 2, so whatever happens over the next few months could be as permanent as the screen of an Etch-a-Sketch.
Trust Jeff Bezos… What could possibly go wrong?
Much of the EU’s stablecoin fear stems from fears that its central bank digital currency (CBDC) project may not be able to compete. The ECB is developing a “digital euro”, but the potential involvement of US tech giant Amazon is raising red flags among EU politicians.
Fabio Panetta, ECB executive board member, gave a speech to the economic and monetary affairs committee this week about the importance of securing EU control over digital payments. However, committee members questioned why Amazon – the only non-EU firm of the five companies chosen to help test the digital euro’s potential – was given the task of developing e-commerce application prototypes for the digital euro.
Committee members wondered whether the company’s record – it was fined €746 million ($725 million) last year for breaching EU privacy rules and recently threatened to leave the EU altogether to avoid additional penalties for breaching antitrust regulations – making it a suitable partner for such a sensitive and important project.
Panetta tried to allay these concerns by claiming that Amazon was chosen in part because it was the only company to apply for the e-com prototype job. But Panetta’s claim that Amazon did not receive payment or access to any data obtained from the trials only raised new questions about why, without any apparent compensation, the notoriously cutthroat Amazon was so eager to participate.
At another meeting this week, ECB adviser Jürgen Schaaf also tried to play down concerns about Amazon’s involvement, saying the five companies involved were chosen based on “technological considerations” alone.
Schaaf added that the results of the current “prototyping” phase – which is expected to end in Q1 2023 – will not necessarily feed directly into the subsequent “experimental” portion of the trials, suggesting that Amazon’s involvement could ends when the current phase is over. The entire process is expected to take up to two years.
Schaaf also said that Amazon’s participation is intended to indicate that the digital euro will not stop at the EU’s borders. Strengthening the EU’s “monetary autonomy with a digital euro does not mean that Europe will close all its gates to retailers from abroad.” The ECB’s Lagarde similarly expressed hope that a digital euro would be adopted outside the EU.
See: The BSV Global Blockchain Convention panel, Law & Order: Regulatory Compliance for Blockchain & Digital Assets
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