With his law firm Fin Law, specialist lawyer Lutz Auffenberg has specialised in the area of fintech and innovative technologies. In particular, blockchain technology and its regulation is the focus of his work. In his guest article, he addresses the upcoming new EU Money Laundering Regulation.
This article first appeared on the Fin Law Blog.
In 2018, the so-called Fifth Money Laundering Directive created codified regulation on blockchain and DLT entities for the first time in the European Union. Virtual currencies have since been defined in European money laundering prevention regulation as a digital representation of value that has not been issued or guaranteed by any central bank or public body and is not necessarily linked to a legally established currency and does not have the legal status of currency or money, but is accepted by natural or legal persons as a medium of exchange and can be transferred, stored and traded electronically. A month ago, the EU Commission published its draft for a new EU Money Laundering Regulation, which is to be directly applicable in the member states in the future. The EU Commission would like to standardize the prevention of money laundering in the Union and thus strengthen the effectiveness in the fight against money laundering and terrorist financing. However, the EU Money Laundering Regulation will no longer include the term virtual currency.
In future, the new EU Money Laundering Regulation will include a definition for cryptocurrencies instead of virtual currencies. The move away from the term virtual currencies is consistent and logical, as, firstly, the recommendations of the Financial Action Task Force (FATF) have already been using the term cryptocurrencies since 2019 and, furthermore, there are some problems with the previous definition of virtual currencies since Central and South American countries are considering making Bitcoin legal tender. As legal tender, Bitcoin would fall outside the definition of virtual currencies. However, the draft EU Money Laundering Regulation itself does not provide a definition for cryptocurrencies.
Rather, the EU Commission is striving for uniformity of legal principles here as well and will define the term crypto assets centrally in the Markets in Crypto Assets Regulation (MiCA), which is also available in draft form, also with effect for the EU Money Laundering Regulation. According to this, crypto assets will in future be defined in the EU as a digital representation of a value or a right that can be transferred and stored electronically on the basis of distributed ledger technology or comparable technology. The requirement of a lack of legal tender status will then no longer apply, meaning that Bitcoin will constitute a crypto-value regardless of developments in Latin America.
On the basis of its blockchain strategy, the federal government has since anang 2020 initiated a national solo effort and regulated cryptocurrencies in the German Banking Act (Kreditwesengesetz, KWG) instead of virtual currencies in the Money Laundering Act. The definition in the German KWG paraphrases them in line with the definition of virtual currencies in the Fifth Money Laundering Directive as digital representations of a value that has not been issued or guaranteed by any central bank or public body and does not have the legal status of currency or money, but is accepted by natural or legal persons on the basis of an agreement or actual practice as a means of exchange or payment or is used for investment purposes and can be transferred, stored and traded electronically. In no case will the German legislator be able to maintain this definition, as the MiCA will legally take precedence over national law.