The European Union's new anti-money laundering regulations (AMLR) have sparked a debate about the balance between fighting financial crime and protecting citizens' privacy and economic freedom. The new laws passed by most of the key committees of the EU Parliament have received mixed reactions from many stakeholders.

The Beginning of the European Union's New War

Following an article from Finbold titled “Anonymous crypto wallets are now illegal in the EU,” a wave of activity occurred on social media over the weekend. This article quotes a blog post by Patrick Breyer (Member of the European Parliament (MEP). It took a harsh view of the new restrictive legislation. The title of the article was later updated to “EU ban crypto payments and anonymous wallets.”

Breyer's original article highlighted that anonymous cash transactions above 3,000 EUR in commercial transactions will be prohibited under the new regulations. Cash transactions over 10,000 EUR will be completely prohibited in business transactions. Additionally, anonymous crypto payments to hosted wallets will be strictly prohibited. These transactions don't even have a minimum threshold.

Are Your Rights and Financial Freedom Threatened?

Breyer, spoke out strongly against the new law in his post. He said banning anonymous payments would have little impact on crime. While it deprives citizens of their financial freedom and privacy. Breyer points out that organizations like Wikileaks depend on anonymous donations. These are regularly deposited in cryptocurrency to fund operations.

Furthermore, Breyer expressed concern about the potential consequences of the "war on cash." He warned that phasing out cash could lead to negative interest rates. Dependence on banks will increase. Ultimately leading to loss of financial benefits. Instead, he calls for finding ways to bring the best qualities of cash into the digital future. The EU should allow citizens to pay and donate online without recording individual transactions.

Payments to Anonymous Wallets Banned from Exchanges

However, Circle's Director of EU Strategy Patrick Hansen has clarified what he sees as misinformation surrounding AMLR. Hansen reported regularly on EU law before joining Circle. He has demonstrated a deep understanding of policy. Hansen emphasized that self-hosted wallets are not banned under the new regulations. Transactions through these wallets are also completely normal. P2P transactions are also specifically excluded from AMLR.

Hansen admitted that it will become more difficult to pay suppliers with crypto using self-custodial wallets without KYC. They will even be banned depending on the provider's settings. AMLR only applies to 'mandated entities' and service providers. They do not apply to hardware or software vendors.

According to AMLR, digital asset service providers (CASPs) such as exchanges will have to follow standard KYC/AML procedures. They are prohibited from providing anonymous accounts or accounts for private tokens. Hansen says this is current and not new in the industry.

For transfers between CASPs and self-custodial wallets, AMLR requires “risk mitigation” measures. These could be blockchain analytics or gathering more data about the origin/destination of the asset. This is in line with the EU's Money Transfer Regulations (TFR) and the Financial Action Task Force (FATF).

Debate Within the European Union Continues

The conflicting debate highlights the tension between fighting financial crime and protecting privacy and economic freedom.

People like Patrick Breyer see regulation as a major threat. Others like Patrick Hansen believe the rules are largely consistent. Some concerns may be exaggerated. As the regulations come into force, it will be important to monitor their impact on the fight against money laundering and the rights of EU citizens.

Obviously the new regulations are extremely strict. A debate about how requiring wallets to be KYC will prevent illegal activity will rage. Criminals transferring illegal funds to anonymous wallets can now simply violate two laws instead of one. While citizens will likely have to KYC to pay for a cup of coffee using Lightning Wallet.

However, one important fact remains: holding cryptocurrency in an anonymous, zero-KYC wallet is not prohibited in the EU. It's just that there will be strict limitations on what can be done with it. Restrictions on money transfers could become even stricter. Especially when the latest plans for a digital Euro CBDC are considered.