On 19 April 2018, the European Parliament adopted the proposal for the fifth Anti-money Laundering (AML) Directive, which will make a number of changes to the fourth AML Directive, implemented in Belgium by the Anti-money Laundering and Terrorist Financing Act and in effect since 16 October 2017.
The revised directive forms part of the European Commission's action plan, launched in February 2016 following a number of horrendous terrorist attacks in the European Union and the financial affairs brought to light by the Panama Papers, intended to ramp up the fight against the financing of terrorism. The plan contains a series of measures to combat terrorist financing and to ensure greater transparency in financial transactions.
The fourth AML Directive applies to a wide range of sectors deemed to be at risk for money laundering or terrorist financing. By means of this directive, the European legislature wishes to extend the scope of application of the fourth AML Directive to professional providers of virtual currency exchange services (i.e. cryptocurrency exchanges and virtual currency exchange platforms such as Binance, Bittrex or Coinbase to name but a few) as well as providers of cryptocurrency wallets or custodian wallets (such as Bitcoin Core, Electrum and Jaxx). This extended scope should contribute to faster and better detection of suspicious cryptocurrency transactions which are characterised by a higher degree of anonymity than traditional financial transactions and consequently are more likely to be used for terrorist financing.
The European legislature is one of the first to propose a legal definition for cryptocurrencies or virtual currencies. The fifth AML Directive defines a virtual currency as: "a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically".
The European Parliament goes a step further by including in the fifth AML Directive a legal definition for a custodian wallet provider, i.e. "an entity that provides services to safeguard private cryptographic keys on behalf of their customers, to hold, store and transfer virtual currencies".
Including so-called cryptocurrency exchanges and custodian wallet providers in the definition of "obliged entities" set out in the fourth AML Directive means that they will be subject to the same obligations as other such entities to take preventive measures and report suspicious activities. The European legislature also extends the Member States' obligation to register exchange offices, amongst others, to providers of virtual currency exchange services and custodian wallet providers.
The European Commission is of the opinion that the proposed measures will not affect the ability of a cryptocurrency exchange platform to execute its activities and will not have a negative impact on the benefits offered by distributed ledger technology (DLT), which forms the basis for virtual currency. The fifth AML Directive is expected to enter into force at the end of 2019 and will then have to be transposed into national law within 18 months.
This initiative by the European legislature is a clear example of a shift in the focus of the European Union to the increasingly fast-growing virtual currency sector and the use of DLT in general. In Belgium as well the authorities are aware of the need for a regulatory framework. For example, the FSMA has already issued four warnings to the effect that, at present, there is no supervision of online cryptocurrency platforms and several cases of (identity) fraud have already been notified. The last warning is dated 7 May 2018.
In addition, Justice Minister Koen Geens announced in April 2017 an initiative to take clear measures to combat the abuse of virtual currency including extension of the statutory obligation to cooperate with the courts to the virtual currency sector and facilitation of the confiscation of virtual currency.
It is therefore not unrealistic to conclude that in the course of 2018, there will be more legislative initiatives on issues relating to the use of new technologies, such as the blockchain and initial coin offerings (ICOs).