Crypto transfers, including ones from unhosted or self-hosted wallets, will now have to be reported by crypto service providers to relevant authorities after European Union (EU) legislators voted to approve measures to prohibit anonymous transactions, according to a press release. Unhosted wallets refer to private wallets, which do not rely on third parties such as exchanges, as per Decrypt.
The proposal was floated in order to expand anti-money laundering (AML) requirements (that apply to fiat payments over €1,000) to the crypto sector. However, the lawmakers did away with the 1,000-euro ceiling for crypto payments because crypto transactions “easily circumvent existing rules based on transaction thresholds”.
“Illicit flows in crypto-assets move largely undetected across Europe and the world, which makes them an ideal instrument for ensuring anonymity. With this proposal for a regulation, the EU will close this loophole.” — Ernest Urtasun, co-rapporteur for ECON.
Votes in favour of the proposal were cast by over 90 members of the Committee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties, Justice and Home Affairs (LIBE). The proposal will now have to be agreed upon by both the European Parliament and the EU Council, in order to become law, CoinDesk said in its report.
If these rules come into effect, it would be the first time that crypto-asset transfers will be traced. The move may end up having a significant impact on how the EU handles and records crypto transactions which may also serve as a blueprint for other countries including India.
What are the other measures in the proposal?
The proposal stipulated that transfers of crypto assets will have to include information on the source of the asset and its beneficiary, which then should be made available to the competent authorities.
“The aim is to ensure that crypto transfers can be traced and suspicious transactions blocked. The rules would not apply to person-to-person transfers conducted without a provider, such as bitcoins trading platforms, or among providers acting on their own behalf,” the release said.
The proposal also dictated that the European Banking Authority (EBA) must create a public register of businesses and services involved in crypto assets that may have a high risk of money-laundering, terrorist financing, and other criminal activities, as per the release. The list must also include non-compliant providers.
A separate proposal would stop transfers being made to “non-compliant” crypto service providers, which includes those operating in the EU without authorisation or that are not affiliated to or established in any jurisdiction, CoinDesk reported.
How did the crypto community react?
The crypto industry expressed concern and dismay at the measures delineated in the proposal. “The proposal is anti-innovation, anti-privacy, and anti-law enforcement,” said Coinbase Co-founder and CEO Brian Armstrong in a tweet.
He said that the measures treat crypto holders differently compared to fiat.
“This eviscerates all of the EU’s work to be a global leader in privacy law and policy. It also disproportionately punishes crypto holders and erodes their individual rights in deeply concerning ways. It’s bad policy,” Armstrong wrote.
Pascal Gauthier of Ledger, a digital wallet firm, stated: “EU representatives have missed something crucial: what’s at stake is the next revolution of the Internet: Web3 or the ‘Internet of value.’ This digital shift has the potential to create thousands of jobs and a vibrant industry on European soil.”
Today, the 🇪🇺 EU Parliament chose fear over freedom.
A new regulation was just voted on that paves the way for a massive surveillance regime over Europe's financial landscape.
— Pascal Gauthier (@_pgauthier) March 31, 2022
Gaunthier warned that EU policymakers will ensure that the Web3 revolution won’t happen in Europe. “We are repeating past mistakes that prevented us from leading the first Internet revolution.”
Crypto Council for Innovation (CCI), a global alliance of crypto companies, in a statement, said: “We are heartened by the fact that the provisions only passed by thin margins, and that the Commission’s experts understand why the new regime would be deeply counterproductive, particularly when it comes to bolstering security. We look forward to continuing the conversation with policymakers to discuss the benefits of crypto and the challenges these new measures would pose if adopted.”
How India plans to trace crypto transactions
The regulatory uncertainty around crypto has been felt across the world as India recently tried to trace crypto transactions with the help of 1 percent tax deducted at source (TDS). The measure was announced as part of the tax regime for crypto in which gains will be taxed at 30 percent without any provision to offset losses.
The new provisions are set to come into effect from April 1, 2022. The move was criticised by many in the crypto industry which said that the rate was prohibitive and discourages people from investing in the sector.
On TDS, Finance Minister Nirmala Sitharaman said that the feature was to ensure authorities are able to track transactions.
“It’s not an additional tax, it’s not a new tax; the taxpayer can always reconcile it with the total tax that he has to pay to the government. There is no new taxation because of the TDS. The TDS principle has always been the same,” Sitharaman said.
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