Last Updated: 22 June 2022
The British Treasury has decided that crypto companies do not need to collect information about the wallets held by users. As a result, users will not have to prove that a particular receipt address belongs to them. The reason for this is that the government is concerned about privacy.
Argument for Nexit
What a difference from the Netherlands, which is burdened by pressure from the EU. Here, users of crypto platforms have to prove that a wallet to which they want to send their coins is actually a wallet under their control. Of course, this is nonsense because Dutch users often only need to send a screenshot of a wallet and a visible recipient address. From that wallet, Dutch people can send bitcoin and other coins to any other address.
The Netherlands is braver than Henry
The European Parliament voted in March to prohibit anonymous crypto transactions, and, since then, several countries have transposed this into law. The Netherlands is the best of the class and, of course, had these rules in place since 2020 (thank Wopke Hoekstra).
The argumentation from the EU and from Hoekstra, our former Minister of Finance who introduced this in the Netherlands, is that crypto can be used for money laundering and financing terrorism.
No good evidence for disproportionate criminal activity
It is nice to see that sometimes reason can prevail with governments too. The British government will not require crypto companies to collect personal data for all transfers to their own wallets.
In a report this month, the UK Treasury writes that “many individuals who hold crypto-assets for legitimate purposes use non-hosted wallets” and that there is no “good evidence” that such wallets are disproportionately used for criminal activity. The government does expect crypto companies to collect personal information for “transactions identified as presenting an increased risk of illicit financing.”
The latter is not necessarily a bad thing, and has been practiced in the Netherlands for years. Especially, the elderly are used by scammers as a money mules to launder their money via crypto. Many of these illegal practices are stopped by keeping an eye on suspicious transactions and proactively contacting new customers who want to send a large amount of money to a wallet.
The decision was made based on feedback the Treasury received from its consultations with regulators, the crypto industry, academia, civil society, and government agencies on updating money laundering regulations.
The Treasury had previously indicated that crypto transactions would fall under the oversight of the Financial Action Task Force (FATF), which means that both the originator and the recipient of the funds transferred by crypto companies must be identified. So it is basically the same as it is in the Netherlands, but instead of the FATF, our crypto companies fall under the supervision of the Dutch Central Bank.
The measure was withdrawn due to concerns about privacy, feasibility, and costs in the short and long term. Some of those consulted suggested using Zero-Knowledge Proof technology to “demonstrate that due-diligence checks have been carried out” to avoid sharing personal information.
The Treasury recommendations will be adopted if approved by parliament in September.