The document obtained by CoinDesk from Czech officials sheds some light on the hard stance the EU regulators want to take on privacy coins. Under the new legislation, it will become illegal for financial institutions and crypto providers to hold “privacy coins” — crypto assets specifically designed to avoid being traced on a blockchain.
“Credit institutions, financial institutions and crypto-asset service providers shall be prohibited from keeping …anonymity-enhancing coins,” the draft bill seen by CoinDesk read. Dated November 9, the document was circulated by Czech officials to the EU's 26 member states for comment. The Czech Republic took over the rotating six-month presidency of the European Union from 1 July 2022 until 31 December 2022.
The document calls for crypto service providers to verify customers’ identity even for transactions under $1040 (€1000) — apparently due to fears that big crypto transactions can be easily broken into smaller ones — and further probe the nature of the business for larger payments. Those operating outside the EU jurisdiction would be obliged to verify whether their counterparties are licensed and check their money laundering controls.
Privacy coins, also referred to as “private coins” or “anonymous coins,” are cryptocurrencies that obscure transactions on the blockchain to protect users’ privacy and ensure strong data security. The most known privacy coins are Monero, Zcash, and Dash (formerly Darkcoin), but only Monero is private by default.
To pass into law, the bill still has to be agreed upon by the European Council and European Parliament. If passed successfully, the new legislation would tighten the EU’s regulatory grip on the so-called “dirty money” moved through metaverse, DeFi protocols, and NFTs.
As an anonymous EU diplomat told CoinDesk, the legislative draft responds to a demand from countries negotiating the text. The measure, they added, is aimed at avoiding risk stemming from crypto assets that were specifically designed to avoid traceability.
The bill itself consists of amendments to the existing Anti-Money Laundering Regulation proposed in July 2021 by the European Commission that, among other things, called for a ban on other privacy tools such as bearer shares and anonymous accounts. The legislation was a part of a greater campaign aimed at attacking the economic power of sanctioned entities, criminals, and terrorists and included establishing a new anti-money laundering agency, AMLA.