EU Agrees to Expanded Due Diligence Rules for Crypto Firms

The European Council and Parliament struck a provisional deal on parts of its anti-money laundering package, which will "for the first time" harmonize AML rules throughout the EU and close loopholes used by criminals to evade sanctions and finance terrorism, the council said this week.

The effort will expand AML rules to now cover "most" of the crypto sector, the EU said, requiring digital asset providers to undertake specific due diligence measures on their customers. It will also allow each member state's financial intelligence unit to more easily obtain financial information, customs records and law enforcement details, including details on funds frozen by sanctions, which will help them prevent, report and stop terrorist financing.

Under the new rules, crypto-asset service providers will need to carry out expanded due diligence on customers and report "suspicious activity" for transactions over $1,086, the council said. Luxury goods traders and professional soccer teams and agents will also be subject to the requirements.

Credit and financial institutions will also be required to do greater due diligence with their "very wealthy" clients, the council said, noting that failing to conduct this diligence "will be considered an aggravating factor in the sanctioning regime."

The deal also clarifies the definition for beneficial ownership to specify that it's based on ownership and control, and "both need to be analysed to identify all the beneficial owners of that legal entity or across types of entities, including non-EU entities" doing business within the bloc. The agreement sets the beneficial threshold at 25%.

Certain entities will also be required to conduct "enhanced" due diligence on "occasional" transactions involving high-risk third countries with "shortcomings" in their national anti-money laundering and counter-terrorism regimes, the council said. It said the European Commission "will make an assessment" on that risk based on listings maintained by the multilateral Financial Action Task Force.