EMCDDA Report Calls for More Strict Inspection of Crypto User IDs

Key Points:

• According to an EMCDDA report, crypto exchange customers should undergo more stringent identification verification.
• The report comes as EU politicians press for tighter anti-money laundering checks on crypto transactions.

A report commissioned by the European Monitoring Center for Drugs and Drug Addiction (EMCDDA), an agency of the European Commission, called for stricter identity checks on cryptocurrency exchange users to ensure that exchanges, brokers, and ATM users can be identified when cashing out illicit proceeds.

According to the report, which was written by Kim Grauer and Eric Jardine of Chainalysis, the usage of darknet markets is persistent and growing despite enforcement attempts. Chainalysis is a blockchain research platform that offers blockchain analytics solutions to regulators, including contracts for millions of dollars with US government agencies.

Forbidding the use of crypto totally has minimal effect on darknet activities, and police-led shut down, such as Hydra in 2022, have only short-term effects as new options emerge to replace it, according to the report, but investigators may also increase their capacity to react.

The report also said that law enforcement needed to be trained on the techniques being used and the new investigative techniques needed to conduct such investigations.

These proposals include requiring virtual asset service providers to be registered or regulated, as well as maintaining strong anti-money laundering (AML) processes, including client due diligence (KYC).

“Finally, it is critical that countries around the world implement the recommendations from the Financial Action Task Force’s Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers.”

Implementing such regulations would help to ensure that when law enforcement is investigating the illicit use of cryptocurrency, such as someone cashing out funds from an exchange and sending them to another exchange, they can obtain identifying information about users linked to the cryptocurrency flows in order to conduct additional investigations.

Next Monday, EU legislators will vote on historic new crypto licensing requirements, which would involve identification checks on individuals transferring payments.

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