Recently, the European Commission published the Supranational Risk Assessment Report (Report) in which it assessed risks factors that pose threats to EU markets and cross-border relations, such as money laundering (ML) and terrorist financing (TF). The Commission analyzed the risks of different sectors and financial products, including virtual currencies, and distinguished two variables in the study: threat and vulnerability. The Commission concluded that the actual threat of TF and ML related to virtual currencies is moderately significant, but that the possible vulnerabilities posed by virtual currencies are significant or very significant.
The Commission Staff Working Document, which accompanied the Report, noted that:
“LEAs [law enforcement authorities] have gathered some information according to which terrorist groups may use virtual currencies to finance terrorist activities. However, the use of virtual currencies requires technical expertise which makes it less attractive.”
The report continued, “few investigations have been conducted on virtual currencies which seem to be rarely used by criminal organisations. While they may have a high intent to use due to VCs characteristics (anonymity in particular), the level of capability is lower due to high technology required.”
Accordingly, the Commission rated the threat of TF and ML related to virtual currencies was moderate. The European authority, however, concluded that virtual currencies are vulnerable to a significant degree to criminal and/or terrorist use. The Commission highlighted that a lack of regulatory framework poses the greatest risk for virtual currencies. It also stated that the inherent risks are “very high due to the features of the virtual currencies (internet, cross-border and anonymity).” This isn’t surprising as the anonymity debate has been echoing throughout EU chambers.
In March 2017, the European Parliament published the “Amending Directive (EU) 2015/849,” which stated that anonymity was one of the main hindrances to the adoption of virtual currencies. As a result, EU officials proposed increased transparency by trusted officials.
“To combat the risks related to the anonymity, national Financial Intelligence Units (FIUs) should be able to associate virtual currency addresses to the identity of the owner of virtual currencies.”
Nevertheless, the results of the Commission’s threat assessment are not surprising. Recent events have not exactly sold virtual currency to EU officials. After the WannaCry ransomware crippled computer systems across Europe, EU authorities took clear-cut steps to eradicate the possibility of criminal use with virtual currencies. As a result, in June 2017, the EU announced a new initiative called TITANIUM (Tools for the Investigation of Transactions in Underground Markets) that calls for multiple EU law enforcement agencies, INTERPOL, and researchers to work together to develop technical solutions for investigating and alleviating the risk of crime and terrorism within the darknet markets and virtual currencies.