The crypto industry is ramping up a last-minute lobbying campaign to prevent EU legislators from developing tougher rules that’ll “track and trace” people’s cryptocurrencies.
At issue is the final round of negotiations on the so-called Transfer of Funds Regulation (TFR) that MEPs and EU capitals will begin on Thursday. The bill aims to prevent the crypto market from becoming a laundromat for dirty money, requiring companies to check who’s sending funds, of any amount, in the form of cryptocurrencies — and who receives them.
Crypto chief executives and lobbyists fear the European Parliament could introduce amendments that would force crypto companies to carry out extra identity checks on people who use digital wallets that hold cryptocurrencies outside of exchanges. These wallets are designed to safeguard against hackers and offer users a high degree of anonymity.
“Sometimes European regulation feels like we’re trying to kill a fly with a hammer,” Pascal Gauthier, the CEO of Ledger, a Paris-based company that offers a USB-like digital wallet, told POLITICO.
The Parliament’s amendments pose a threat to people’s personal freedom and privacy, while demanding extra identity checks would stall Europe’s future market for the Internet of Things, where people can interact with machines without a middleman, lobbyists have warned.
“Everyone’s still uninformed and … shooting from the hip on everything that they’ve heard in the past, which is [that] Bitcoin and cryptocurrencies are bad for energy and therefore bad for the planet,” said the Frenchman, whose company published on Wednesday a 27-page document that outlines policy recommendations that legislators should take onboard. “[Or that] it’s for pedophiles and criminals.”
Crypto companies and lobby groups have also been contacting legislators and arranging town hall-like debates to warn them of the amendments’ unintended consequences. One of those was Blockchain for Europe, which hosted a workshop Tuesday, while the International Association for Trusted Blockchain Applications is running a panel debate in the Parliament on preserving technological neutrality in the EU’s anti-money laundering standards.
The goal is to ensure the Parliament’s changes are left out of the final piece of EU law that should emerge from so-called trilogue negotiations before the summer break. Crypto companies’ efforts could pay off, as the negotiating position of EU governments in the Council leaves non-custodial wallets untouched.
The industry’s last-ditch campaign is risky, though. Most lobbyists in Brussels target legislators in the Parliament and Council when they’re developing their amendments much earlier in the legislative process. Positions are much more difficult to influence once trilogue negotiations begin. Lobbyists are also concerned that the online attacks that some MEPs have faced from crypto trolls could hurt their chances, despite having condemned the abuse.
Diligence or overkill?
MEPs are dismissing the alarmism and insist that extra due diligence checks are needed to prevent illicit financiers from moving funds around undetected. As they see it, they’re simply ensuring the crypto market follows the same anti-money laundering standards that are enforced in the financial sector when transferring funds.
“Those rules exist in the [currency] world,” Ernest Urtasun, the Spanish Green MEP who shepherded TFR through Parliament alongside Belgium’s Assita Kanko of the European Conservatives and Reformists, told POLITICO earlier this month. “We are not scaling up surveillance. We are applying the same set of rules to crypto, adapted to an instrument that has different characteristics and risks, and only in case an intermediary is involved.”
These checks are overkill, as far as the industry is concerned, especially considering how little money is laundered through the crypto market when compared with money laundered through the conventional financial system. Lobbyists point out that up to $2 trillion is laundered through the world’s financial system each year, in spite of existing standards.
More broadly, these checks suggest a backward-looking mentality, according to Ledger’s Gauthier. Many EU officials and analysts estimate that only around 1 percent of crypto transactions involve illicit addresses. Crypto exchanges also carry out ID checks on anyone who wants to cash out their digital assets, while crypto transactions are recorded on an online distributed ledger, or blockchain.
Legislators should instead encourage national authorities to make better use of the blockchain to trace suspicious activity rather than slap the industry with regulatory demands that are burdensome for tech startups, lobbyists say.
Extra checks on non-custodial wallets would also stifle the Internet of Things market, the blockchain foundation IOTA warned in an open letter to legislators. Smart cars with these wallets, for example, wouldn’t be able to automatically pay for parking. Restricting this emerging marketplace will only make Europe a less attractive place for tech companies — including Ledger — to do business.
“If we feel that Europe is the least favorable playground … it will automatically push us towards better blue skies,” Gauthier said.
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