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Last Monday, the Council of the European Union announced that the Council and the Parliament had struck a deal, a provisional agreement, on stricter anti-money laundering rules.  The reason for the new regulations, so they claim, is to combat “terrorist financing,” a goal which has been fast-tracked since the 7 October Hamas terrorist attack on Israel.

As well as “enhanced due diligence” for crypto-asset service providers, the new rules set an EU-wide maximum limit of €10,000 for cash payments. In addition, according to the provisional agreement, obliged entities will need to identify and verify the identity of a person who carries out an occasional transaction in cash between €3,000 and €10,000.

As very few persons are terrorists – who are, in any case, individually monitored by other means – the reality is the EU is not countering terrorism; they are targeting anonymous methods of payment so they can track all citizens’ financial transactions.  It would seem the EU’s new anti-money laundering regulation is part of the preparation for the implementation of central bank digital currencies (“CBDCs”).

Further reading: CBDCs are steeped in human rights abuses and are a new way to track citizens

EU Anti-Money Laundering Regulation

Following Hamas’ attack on Israel on 7 October 2023, lawmakers rushed to stop terrorist organisations from using crypto to finance their operations, especially in light of reports that the Palestinian group was using digital assets to help fund its militants.

In November 2023, the European Parliament proposed adding extra due diligence measures for companies handling crypto transactions under €1,000. Other forms of payments wouldn’t need those extra measures.

The reasoning was that terror groups often use low-value transactions to conceal their funding practices.

On Monday 18 January 2024, policymakers in the European Union (“EU”) reached a provisional deal on parts of a comprehensive regulatory package to combat money laundering that will force all crypto firms to run due diligence on their customers.

Another late night, another deal! @Europarl_EN and @EUCouncil have agreed the new Anti-Money Laundering Regulation.

This means strong, consistent rules across the EU in the fight against dirty money: a game changer.

Congratulations @EU2024BE @DamienCAREME @EeroHeinaluoma pic.twitter.com/xnFL9znOcP

— Mairead McGuinness (@McGuinnessEU) January 18, 2024

The European Parliament and European Council, which gathers finance ministers from the bloc’s 27 member states, agreed to measures, including for crypto companies to apply “customer due diligence measures when carrying out transactions amounting to €1,000 or more.”

“This agreement is part and parcel of the EU’s new anti-money laundering system. It will improve the way national systems against money laundering and terrorist financing are organized and work together. This will ensure that fraudsters, organised crime and terrorists will have no space left for legitimising their proceeds through the financial system,” Belgian Minister of Finance, Vincent Van Peteghem, said in a press statement.

Crypto companies in Europe have to comply with the EU’s previous laws for anti-money laundering. To register with the national authorities, crypto service providers need to meet Anti-Money Laundering (“AML”) standards.  But the previous rulebook, AMLD5, is a directive and not a regulation. A directive means that each member state can interpret and apply the rules in its own way.  A regulation is a lot stricter than a directive, and the laws will be implemented more evenly across the 27-nation EU bloc. On top of that, the EU’s package on anti-money laundering establishes a new authority which will oversee the rules once they become law.

Further reading: EU’s Anti-Money Laundering Directive 5 (AMLD5), Coin Telegraph

Since the AML Regulation (“AMLR”) was proposed in 2021, crypto lobbyists have fought hard to make sure lawmakers don’t scrutinise the industry more than the other finance sectors.

The package may have got tougher as it went through the EU’s complex legislative process in light of US sanctions against crypto anonymising tool Tornado Cash, as well as fears that crypto was being used to evade sanctions by Russia and even Hamas, CoinDesk wrote.

DL News described the new measures for crypto companies as an attempt to outlaw and restrict some of the most prized features in crypto.  “The EU is taking aim at privacy coins and self-custody wallets under new anti-money laundering regime,” the outlet wrote. “The Council of the EU is looking to place a ban on coins which enhance anonymity … [and] prohibit companies from offering anonymous accounts.”

The deal now needs to be formally adopted by Parliament and the European Council before it can take effect.

Further reading: Anti-money laundering: Council and Parliament strike deal on stricter rules, Council of the European Union, 18 January 2024

European Commission Purposefully Ignores Human Rights and EU Treaties

In a thread on Twitter, the Human Rights in Finance EU (“HRiFEU”) Foundation refers to the EU’s new Anti-Money Laundering Regulation (“AMLR”) as “the mass surveillance” regulation.

In September last year, HRiFEU began pursuing the cancellation of the Funds Travel Rule (Reg 2023/1113), or the “Travel Rule,” which requires the unnecessary disclosure of private data in payment transactions and future crypto-asset transfers to combat money laundering and terrorism financing.  HRiFEU submitted documents to the General Court of the European Union to have this regulation annulled.

Further reading: What is the FATF Travel Rule? The Ultimate Guide to Compliance (2024), The Sumsuber, 8 January 2024

A second approach that HRiFEU took was to call on Dutch Finance Minister Sigrid Kaag to reconsider her stance and initiate the cancellation action herself. “Governments at both national and European levels are obliged to adhere to the constitution and EU treaties,” HRiFEU said.

A couple of days later, HRiFEU sent UK Prime Minister Rishi Sunak a similar letter, as the UK was already planning to implement the Travel Rule on 1 September 2023 via Regulation 5 (on crypto asset transfers) of the Money Laundering and Terrorist Financing Regulations.

“In our view, the regulation infringes and is incompatible with the rights to privacy and data protection enshrined in Articles 7 and 8 of the Charter of Fundamental Rights of the European Union, the principles of necessity of such measures in a democratic society and their proportionality, and the case law of the Court of Justice of the European Union,” HRiFEU wrote to Sunak.

The main argument HRiFEU put forward in their letters was that if every police officer can access the necessary data, then there is no need to transmit highly sensitive private data, including our national ID, along with various transactions. The requirement to include this information is unnecessary. Such a requirement constitutes an arbitrary infringement on privacy that goes against human rights.

Three years earlier, HRiFEU’s founder, Simon Lelieveldt, reported a breach of European law with the implementation of AMLD5.  He cited a paper written by Carolin Kaiser analysing the impact of the Anti-Money Laundering Directive on the fundamental right to privacy of individuals using financial services.

According to HRiFEU, the European Commission (“EC”) rejected Lelieveldt’s complaint by saying “Don’t worry we are going to evaluate the infringements of the human rights and fundamental rights by January 2022.”

“This is all very laudable of course,” HRiFEU said. “Until you start looking for the evaluation [they claim will take place] … as there is no evaluation of the human rights infringements.”

“Are we now making new laws [AMLR] without evaluating and assessing prior law [AMLRD5]?”  That can’t be right, HRiFEU said. “Surely we must have a regulation that describes how the Commission, Parliament and Member States try to make good laws?”

As it turns out, it is the EC that is the regulator of “Better Law-Making” in Europe. The interinstitutional agreement between the European Parliament, the Council of the European Union and the EC states:

The Commission shall also explain in its explanatory memoranda how the measures proposed are justified in the light of the principles of subsidiarity and proportionality and how they are compatible with fundamental rights. The Commission shall, in addition, give an account of both the scope and the results of any public and stakeholder consultation, impact assessment and ex-post evaluation of existing legislation that it has undertaken. [Emphasis added]

Interinstitutional Agreement Between the European Parliament, the Council of the European Union and the European Commission on Better Law-Making, Official Journal of the European Union, 13 April 2016, pg. 5

Ex-post evaluations are a process that assesses the effectiveness and sustainability of a project until three years after its completion. They are used throughout the EC to assess whether a specific intervention was justified and whether it worked, or is working, as expected in achieving its objectives and why.

“The legislators in Europe have agreed that the European Commission is the entity which needs to do ex-post evaluations of directives to ensure better law-making,” HRiFEU said. “They explicitly ordered a human rights evaluation [of AMLD5].”

“And there is no such evaluation!”

HRiFEU predicted that during the press conference on Monday announcing the provisional deal on the AMLR that there would be a lot of hot air on the importance of prevention of money laundering and sticking to internationally agreed rules.  Meanwhile, the EC has not followed its own ex-post evaluation to ensure “better law making” on AMLD5.

To add to the EU’s problems, in 2008 the European Court of Justice ruled that, regardless of a UN resolution that requires the freezing of a person’s assets deemed to be a terrorist, whatever is agreed in Europe needs to fit within the EU rule of law and needs to be proportional and balanced. The case related to Usama bin Laden, members of the Al-Qaeda network, the Taliban and other associated individuals, groups, undertakings and entities.

The European Court of Justice said that “by and in itself any EU rules need to comply with proportionality and not infringe on human rights without proper motivation,” HRiFEU said and highlighted the paragraph below from the judgement.

Para. 285.  It follows from all those considerations that the obligations imposed by an international agreement cannot have the effect of prejudicing the constitutional principles of the EC Treaty, which include the principle that all Community acts must respect fundamental rights, that respect constituting a condition of their lawfulness which it is for the Court to review in the framework of the complete system of legal remedies established by the Treaty.

Restrictive measures taken against persons and entities associated with Usama bin Laden, the Al-Qaeda network and the Taliban – United Nations Security Council etc., Judgement of the Court, European  Court of Justice, 2008

HRiFEU ended its Twitter thread with a call out to the European Court of Justice: “This means that the European Commission, the European Parliament and the European Council do not themselves motivate and justify each mass surveillance human rights infringement measure in the upcoming AML regulation against other human rights are failing to act properly under EU rules.”

“Of course, there is lip service being paid to: we respect the GDPR and human rights, but it is exactly that. Lip service. Where is the evaluation on human rights infringements that should have been here 2 years ago, in January 2022?”

HRiFEU opened a second complaint with the EC regarding human rights violations in the Netherlands as a result of the wrongful implementation of AMLD5. “But the Commission was stalling,” they said.  After the EC failed to register their complaint, HRiFEU submitted a complaint to the European Ombudsman who intervened and managed to get their complaint registered.

However, the EC is once again stalling.  HRiFEU requested a meeting in January 2024 but even after three requests, they had no response from the EC.  HRiFEU had to work through the Ombudsman, again, who managed to secure a meeting for HRiFEU with the EC.

The catch: The meeting is with “the same directorate (outside office hours!) that promised to do the human rights evaluation and didn’t,” HRiFEU said.

So HRiFEU requested that one or two representatives from the Directorate-General for Justice and Consumers (“DG Justice”) be present and that the meeting be held during normal office hours.

Explaining why they were requesting representatives from the DG Justice, HRiFEU wrote to the Financial Stability, Financial Services and Capital Markets Union (“FISMA”):“Our concern is that the attention, priority and expertise at FISMA itself may not be sufficient to appreciate the human rights arguments.  In this respect, we noted with concern that the promised January 2022 evaluation of AMLD against human rights has not been executed at all.”

The EC responded that it was not necessary to involve the DG Justice.

“Well, that’s just not good enough an answer coming from the same staff that previously promised a human rights evaluation,” HRiFEU said.

They have again written to the EC emphasising their failure to evaluate human rights in the implementation of AMLD5 and the pending AMLR pointing out that “this gaping hole” makes the legislator and the Commission liable:

We believe it is crucial to emphasise the potential legal ramifications of a failure to act in accordance with EU treaties and agreements on human rights.  As responsible stakeholders, we are compelled to express our reservations and concerns about the Commission’s responsibilities and potential liability for damages that may arise from a failure to uphold the spirit of these agreements.

Human Rights in Finance EU on Twitter

You can read Human Rights in Finance EU’s Twitter thread HERE or on the Threadreader App HERE.