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MALTA – BLOCKCHAIN ISLAND AND THE NEXT AML DIRECTIVE

posted 6 years ago

MALTA – BLOCKCHAIN ISLAND AND THE NEXT AML DIRECTIVE

June 2018 – the
text of the Fifth Money Laundering Directive (EU/2018/843) (“5AMLD”) was
published in the Official Journal of the EU and Malta approved three
distributed ledger technology (DLT) and crypto-related acts.

HOW WILL THE FIFTH
MONEY LAUNDERING DIRECTIVE AND THE THREE DLT AND CRYPTO ACTS CO-EXIST?

With great foresight and a commitment to living up to
the name “Blockchain Island”, the Maltese Parliament approved three
crypto-friendly pieces of legislation, namely: the Innovative Technology
Arrangements and Services Act, the Virtual Financial Assets Act, and the Malta
Digital Innovation Authority Act.

The first two acts provide for the regulation of
digital ledger technologies (of which blockchain is one type), and also other
virtual financial assets, under the supervision of the Malta Digital Innovation
Authority.

The Malta Digital Innovation Authority, once set up,
will have, as its mandate, the promotion of consistent principles for the
“development of visions, skills, and other qualities relating to technology
innovation”.

In anticipation of the advantages of benefitting from
this regulatory environment, several large cryptocurrency exchanges have moved
their operations to Malta, including OKEx, BitBay and Binance, to name but a
few.

BUT HOW
WILL 5AMLD IMPACT LARGE CRYPTOCURRENCY EXCHANGES POSITIVELY, EXACTLY…?

5AMLD provides for the inclusion of exchange platforms
for virtual currencies and digital wallet providers in the group of obliged
entities under anti-money laundering law.

This will naturally result in higher standards being
applied, which, while coming at a cost, both in terms of infrastructure, human
resources and loss of business, is virtually guaranteed to place those
businesses which embrace this new regulatory environment as a cut above the
rest, cementing them as serious businesses in an industry which is still wildly
mistrusted and wary of scams.

Obligations will be imposed on exchange platforms for
virtual currencies (such as Bitcoin) and the providers of digital wallets for
virtual currencies, as well as electronic exchange offices where virtual
currencies can be changed into fiat money, or vice versa.

Whether or not these provisions are sufficient to put
an end to money laundering using virtual currencies is highly doubtful due to
the fact that virtual currencies can still be exchanged between private persons
without any monitoring, in peer-to-peer transactions, which are, after all, at
the heart of the crypto currency revolution currently being experienced.

However, it is undoubtedly a step in the right
direction, and as happened in the past with the regulation of remote gaming in
Malta, the industry flourished under the stability and goodwill the companies
licensed in Malta gained, for merely being regulated by a Maltese regulatory
authority.

When it comes to high-risk countries, it will then be
up to the individual Member States to ensure stricter requirements are put in
place. Prior consent by management of any customer coming from a high-risk
country would need to be sought. In this respect, Member States should
therefore impose harsher statutory regulations which prohibit the establishment
of branches and/or subsidiaries in high-risk countries by obliged entities or,
at the very least, impose an increased monitoring. To this day, it is not clear
which route Member States lawmakers will take. Without question, this will
create a standardised approach to business relationships involving high risk
countries.

Moreover, the Member States are set to introduce a new
central electronic system that allows for the identification of every natural
or legal person holding or controlling a bank account or a safe deposit box.
Supervisory authorities should obtain unrestricted access to this register in
order to perform their duties.

5AMLD is drafted as a minimum-harmonizing directive,
which means EU Member States can apply more rigorous requirements should they
consider it necessary.

The Directive (EU) 2018/843 is available here.

 

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