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You don’t have to dig up too dark network to find sellers who offer anything from the AK47 to a piece of polonium – with bitcoin as preferred payment method. The observed anonymity and unregulated nature of virtual currencies also caused concern that they could be an ideal channel for terrorist financing. In February, three months after the attack in Paris, the European Commission announced plans to address this issue. But do virtual currencies actually represent a significant risk and how will the industry react to increased surveillance?
In his February Action Plan, the European Commission published its intention to “… improve the supervision of many financial resources used by terrorists, from cash and cultural artifacts to virtual currencies and anonymous pre-paid cards …”. This followed the media reports that connect Bitcoin with ISIL fundres. However, the law enforcement agencies from Europol to the British national crime agency subsequently spoke to reduce the risks that represent virtual currencies, suggesting that there is little or no evidence supporting these fears.
So why It’s not Bitcoin became a mechanism of financing terrorist organizations? At first glance, it seems to be responsive for the requirements – Censor resistant, alias, digital cache, which can be used to transfer values via bounds with one click on the button. However, liquidity is still low and remain difficult to transfer large amounts in and from Bitcoins. Bitcoin transparency can also deter those who want to use it for these purposes. Each individual transaction is recorded in the Blockchain – a public book that supports the currency. Identities are not recorded, but if at some point in the future identity can be tied to the Bitcoin address, the sheath of alias can be pulled aside.
This identification of the Virtual Currency beneficiaries and the possibility of monitoring the payment is exactly what the European Commission wants to achieve. Suggestions include bringing the transmission of virtual currencies within the definition of the “obliged entity” according to the fourth EU money laundering directive. The exchanges would then be required to perform due to customer analysis including KYC verification. This would greatly contribute to the deanimization of the currency, as most users often move from one currency to another using one of these services.
In addition to financing terrorist organizational organizations, large-scale risks is that the proliferation of virtual currencies can enable terrorist activities. Pseudonimic virtual currencies combined with anonymous communication networks such as Tor have enabled the dark markets to work and progress. Weapons, personal documents and other illicit goods and services are freely traded on these sites, and those who perform transactions are safe, knowing that their identity is concealed. In opposition to this, the stock exchange will be critical again, because they have the opportunity to follow the transactions of their clients and to report and / or block payments for which they are suspected of coming on or from these markets.
How will Bitcoin companies respond to the upcoming regulation of their industry? It is true that most European Bitcoin Stock Exchange is already implemented by KYC, often by very high standards. Each new law is likely to simply simply formalize the practice of which many are already adhered to and bring in the queue all residual. Many also use blockchain analysis tools such as Elliptic to check for cash payments in search of relationships on illegal entities such as dark markets.
Overall, the industry generally welcomes the formalization and application of these controls as this brings a new level of the legitimacy industry that has been defined often by frequently unfounded connections with illegal activities. EU intervention could be the first step in the rehabilitation of Bitcoin image, placing it on the path of wider adoption.
This article originally appeared in the issue of the Bulletin on money laundering from March 2016.
Compliance with EMEA regulations
