A key element involves the creation of a central register of beneficial ownership of legal entities and
related ownership arrangements, plus ongoing monitoring of those
arrangements, with the intention that:
"The enhanced public
scrutiny will contribute to preventing the misuse of legal entities
and legal arrangements for ...predicate offences such as tax evasion."
Other key provisions may be seen as closely related to this ambition:
- creating a central register of all citizens' bank/payment accounts;
- enabling authorities to go hunting for evidence of suspicious activity even in the absence of a 'suspicious activity report';
- imposing customer due diligence and transaction monitoring obligations on 'virtual currency' exchanges and wallet providers; and
- reducing the limit of anonymity for prepaid cards/instruments.
The FinTech crowd will no doubt be concerned about stealth regulation of distributed ledger technology or blockchains, via the virtual currency requirements. A "virtual currency" is quite broadly defined as:
"...a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by a natural or legal person as a means of payment and can be transferred, stored or traded electronically."
Even if exchanges and wallet providers are prepared to tolerate AML regulation as the price for entering the 'mainstream',
trying to regulate 'virtual currencies' (or any aspect of digital ledger technology or blockchains) at this early stage is very problematic. The above definition is broad but still does not cover
every characteristic of a currency (
which the Isle of Man has tried to capture). Indeed, the ECB has bluntly responded that
so-called 'virtual currencies' are not currencies or money, pointing out they can also be used
for other purposes and the holders don't need to use exchanges or wallet
providers. The
courts are also struggling with the concept that such 'currencies' are 'ownable' or 'property', as
Lavy and Khoo have also explained.
Little wonder that the EESC recommends creating some kind of "European tool for monitoring, coordinating and anticipating technological change." But quite how Europe intends to 'anticipate' let alone 'coordinate' blockchain development is anyone's guess!
In any event, retailers should breathe a sigh of relief. Gift cards and other 'closed loop' instruments generally would not fit the MLD5 definition of a virtual currency, since they typically cannot be transferred or traded electronically. And there is a specific exclusion consistent with the 'limited network' exemption from the definition of electronic money (and therefore 'funds') for instruments that can be used to acquire goods or services only in the premises of the issuer, or within a limited network of service providers under direct commercial agreement with a professional issuer, or that can be used only to acquire a very limited range of goods or services. But note that the limited network exemption will be
significantly narrower from January 2018, especially for programs transacting more than EUR1m a year.
At least someone wins!
