Ri-nova 2019: more than a gift

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Ri-nova 2019: article

A Legislator’s (Hyper)Activity

The EU and the case of money laundering

Mirjam Steinfeld

“Do you fear to trust the word of a man, whose honesty you have seen in business?”[1]

The answer, for lawmakers at least, when it comes to money laundering is clearly: no.

The most recent legislative activity in the European Union on the matter of money laundering has made the idea of “transparency” the new gold standard[2]. Off course, we are well used to the concept of transparency as it is regularly applied towards bodies or systems that we genuinely mistrust. The idea behind this concept is that where you have all the information there is simply no room for trust. Trust can only exist where there is no knowledge.[3]

This time, however, it is us whom the legislators seem to mistrust.

But let’s start at the beginning. ___STEADY_PAYWALL___

A. Basics for Beginners: A washing lesson

Before we set out on a journey through time with our focus on money laundering, we should ask ourselves first what we are actually talking about.

To put it into simple words: money laundering happens when “bad” people do “bad” things and get “black money” for their deeds which they then channel into the “clean” industry so that they can live a “clean” life. Now the “clean” industry doesn’t like that because they have to follow the complicated rules while the “bad” people just do what they want and are therefore much more “cost-efficient”. So the “clean” people try to shut the “black money” out of their system.

To put it in a more complicated setting: all the proceeds from illicit or criminal activities used to be trapped in an enclosed system that could be referred to as the black market[4]. Within this market these proceeds could be used to acquire a multitude of “goods” typically available in a black market such as drugs, weapons, sexual services, child pornography and many more[5]. However, when the beneficiaries of these proceeds aimed to acquire goods from the legal financial system (i.e. real estate, cars, legal financial products, shares) they had to find a way “in”.[6] In real estate (in Germany) for example, the purchase will have to take place via bank transfer, making it necessary to have the funds on a bank account.[7] The bank on the other hand will give a report to the Financial Investigation Unit (thereafter FIU) should it detect a suspicious activity.[8] At the same time the bank is obliged to perform a due diligence assessment once the threshold of EUR 15,000[9] has been crossed by a single (occasional) transaction. Equally, large purchases of goods through cash payments have also been on the radar should they cross the threshold of EUR 10,000.[10] Of course, this has never stopped money laundering, but it has made it exceedingly expensive. When introducing funds from the black market into the legal financial system a loss between 20 and 50% of these funds (due to “costs”) could probably be considered as average.[11]

It is clear, therefore, that there has been a great interest to find a more cost-effective way to launder money. Such a novel way may have been found in the vehicle of cryptocurrencies. Particularly since cryptocurrencies so far have been dodging under regulation when- and wherever possible.

Additionally cryptocurrencies allegedly grant anonymity.[12] Certainly, when cryptocurrencies are used to buy goods or certain services a verification of the purchaser is inevitable,[13] however, this did not always lead to an identification of the purchaser.[14]

So why is everybody talking about cryptocurrencies now? Well, as long as cryptocurrencies themselves constituted  a – more or less – enclosed system, this hardly mattered. However, the more and more cryptocurrencies were accepted for regular transaction within the legal financial system (i.e. for simple things as ordering pizza[15] or even a new pricy watch[16]) this problem has become more apparent:

Because of the cryptocurrencies there is not only a “single tunnel” leading into the legal financial system but a rather wide area of direct purchases that can also be made with illicit money through cryptocurrencies into the legal financial system. Ergo, new strategies had to be found.

This aspect seems only logic when looking at our diagram above. If black market money is not only entering through clearly defined or definable tunnels into the respective legal financial system but potentially through any transaction with any private actor than one might say that the legal financial system should be prevented from “getting in touch” with the black market (see below).

Off course, legislators could also try and address the black-market participants and try to convince them not to mingle their funds with the legal system. However, the expressed thought alone shows the absurdity of this alternative.

So, legislators had to find a different way to address these problems. We shall see how.

B. How the times are getting much “cleaner” than before…

Now that we’ve understood how money-laundering used to work and how it is working today, we should take a look how legislators have reacted to this threat and its changes. For fear of producing a tome instead of an article I will limit myself to those changes with relevance for cryptocurrencies. [17]

I. A History of Anti-Money-Laundering is a history of the “war on drugs”

In order to understand the schematic of Anti-Money-Laundering Legislation one has to go back in time. But don’t get bored too hastily, it will be a surprisingly short ride in the time machine: The idea of AML was only first established in 1988 by the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances[18] adopted on 11th November 1988 (thereafter: Convention). Before then most legislations had an idea of AML but offences were usually prosecuted on the grounds of tax evasion (see Al Capone)[19] or the handling of stolen goods. For example, the relatively old German Code of Criminal Law (StGB) dating back to 1871[20] firstly introduced AML only in 1992.

So why is the AML so special compared to other offences? Well, arguably because money laundering, when done to a “considerable“ extent, will always be done by crossing borders. If you wish to truly hide the traces of your illicit financial activities in large orders, sooner or later you will come to a point where – like a game crossing a river – funds will try to shed their traces by crossing borders[21].

This phenomenon was nothing new to the then law-makers all across the globe. But it took the combined efforts of the UN and its Member States on the „war on drugs“[22] to finally convert this truth into national legislation.

1. A new dawn: the UN Convention of 1988

In a way surprisingly, and yet not surprisingly at all, the definition „money laundering“ was firstly introduced by the UN efforts on the “war on drugs“[23]. In the preamble of the Convention[24] the Member States acknowledged that, in order to fight organised crime, a co-operational approach is necessary.

Although this phrasing seems afar from wording such as “war on drugs“, it nevertheless states exactly the same by highlighting the threat of organised crime on the “stability, security and sovereignty of States“ in other word the existence of States in itself. It is through this existential threat that profound and unconventional measures[25] have been and are justified until today.

But the convention doesn’t simply stop by recognising this threat. Having established the financial interest in illicit traffic as one of the root causes of the problem at hand the Convention next realises that there is only one way to successfully battle organised crime: international co-operation.[26]

Looking at these principles from today’s perspective they may seem obvious if not even superflux, but in 1988 the establishment of such principles was rather radical. It meant that all the signing Member States agreed to amend their domestic criminal law while simultaneously agreeing to co-operate on a multi-national level[27] hereby giving up a certain amount of sovereignty for the greater good.

In its Article 3 the Convention enumerates all actions that shall be established as offenses under national law. The remarkable part – and interest to our discussion – is paragraph 1 lit. b where it states that such offenses should also be

“(i)   The conversion or transfer of property, knowing that such property is derived from any offence or offences established in accordance with subparagraph (a) of this paragraph, or from an act of participation in such offence or offences, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an offence or offences to evade the legal consequences of his actions.“

(ii) The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from an offence or offences established in accordance with subparagraph (a) of this paragraph or from an act of participation in such an offence or offences;“

This afore mentioned Article 3 paragraph 1 lit. b constitutes the first legal definition of „money laundering“ which, in its essence, still exists today[28]. Hence, Article 3 of the Convention can be rightly named the founding pillar of today’s AML legal framework.

Nonetheless the Convention would be somewhat of a toothless tiger if it were only to “condemn“ financial involvement in illicit trafficking. In its Article 5 the Convention therefore provides that proceeds from any of the afore mentioned offenses may be confiscated, including those proceeds which have been transformed, converted or intermingled (Article 5 paragraph 6). Thereby establishing that the “only cure“ against organised crime is to make it unprofitable.[29] Organised crime has always had the hallmark of personal independence, meaning that even if actors were arrested the system could seamlessly continue. The idea being that when the funds going through the system are drained the system will fall apart.[30]

The Convention introduced another new aspect to criminal law: it contains the idea of taking private actors (as opposed to state actors – here commercial carriers) to take appropriate measures in order to prevent drug trafficking (Article 15 paragraph 1). This small provision has a great impact in many ways:

Firstly, it was uncommon to criminal law to oblige private actors to take preventive measures and – consequentially – penalising the lack of such measures. Secondly, this provision could be considered one of the first legal obligations[31] for private actors to establish a compliance management system[32] in order to fulfil and prove the fulfilment of the afore mentioned obligations.

2. Prometheus bringing the light of AML to the European Union

i. First EU Directive on AML in 1992 – a single market but not for drug-money, please!

Following the UN Convention in 1988, which was only adapted in 1992 by most Member States, the EU ground into action by introducing the first Directive “on prevention of the use of the financial system for the purpose of money laundering“[33] on 10 June 1991 (thereafter: First Directive).

The goal of this First Directive was to introduce a harmonised level of AML-measures as well as ensuring that these measures would not contradict the principle of the Single Market[34] while fulfilling the duties set by the Convention.[35] It therefore only adds to the definition that the Member States should extend its applicability onto other criminal activities aside from drug trafficking itself,[36] hence referring in its Article 1 third indent to “criminal activity” as a qualified prior offence. This being a fairly broad definition a further reference can be found in the same paragraph.[37]

Quite obviously, this was the opposite of a harmonised legal framework for AML as it was left to each and every member state to define – by themselves – under which circumstances money laundering was punishable by law.[38]

Given this very ambiguous framework, private actors were left in a fairly undesirable position as the first Directive also addressed credit and financial institutions to play their part, by conducting Know-your-Customer (thereafter KYC) and risk assessments.[39] Due to this imprecise or vague framework, a “proper” risk assessment was not easily conducted.

Nevertheless, the First Directive laid out one of the governing principles of any AML-battle: The involvement and reporting duties of private actors.[40] Already in the preamble the first Directive establishes the principle that private actors have the duty to act as informants for the state and face severe consequences should they fail to do so[41].

Addressees of all these duties are “credit and financial institutions“. These addressees can be defined after a veritable scavenger hunt through EU-legislation[42] leading to the conclusion that the EU-Legislators only had the classical banking institutions in mind.

ii. Second EU Directive – it keeps on growing!

The Second EU Directive (Directive 2001/97/EC dating on 4 December 2001) left the First Directive mainly untouched. Its main goal was to extend the scope in terms of the crimes covered as well as the range of addressees.

While the First Directive solely addressed financial institutions the Second Directive now also included investment firms,[43] a number of professions[44] and a list of serious crimes[45] that would ensue money laundering in the sense of the Directive.

iii.  Third EU-Directive – finally turning away from the drugs…

The Third Directive (2005/60/EC) of the European Parliament and of the Council dating on the 26 October 2005 repealed[46] the First Directive, due to the general changes that were made.

Again, the main line of attack was to tackle the increasing threat posed by terrorism.[47] Thereby fully leaving the war on drugs behind and instead focusing on the war on terror. In an equivalent to a general mobilisation[48] the AML legislator sought to activate every last man and women (natural persons) to fight for their cause.

Hence their solution was to broaden the scope of the addressees of AML-legislation.[49] Hoping to better exclude illicit proceeds from the legal financial system or making it even more expensive (and therefore more unprofitable) to find a way in. Another novelty was to monitor and prevent legal funds to leave the legal financial system for the purpose of terrorism[50]. To this end the Third Directive introduced new measures and obligations for the addressees to inquire about the “beneficial owner” behind the transaction[51].

The Third Directive also provided that the Member States should install “effective, proportionate and dissuasive penalties in national law for failure to respect the national provisions adopted pursuant to this Directive. Provision should be made for penalties in respect of natural and legal persons.[…].”[52] Thereby making it clear, that noncompliance could not only be costly but that natural (and in some jurisdictions: legal) persons may fear prosecution[53]. These persons being almost anyone as the Third Directive finally left the concept of solely concentrating on the financial sector behind but rather including all institutions and profession[54] that move funds on a regular basis.[55]

While the Third Directive did not mention cryptocurrencies explicitly, it stated nonetheless that all the activities by the addresses, be it on- or offline, shall be covered[56]. What the Third Directive does mention for the first time is “electronic money” and “electronic money institution”[57]. Through a cascade of references these terms are defined as following:

electronic money institution’ shall mean an undertaking or any other legal person, other than a credit institution […] which issues means of payment in the form of electronic money;[58]

electronic money’ shall mean monetary value as represented by a claim on the issuer which is:

(i) stored on an electronic device;

(ii) issued on receipt of funds of an amount not less in value than the monetary value issued;

(iii) accepted as means of payment by undertakings other than the issuer.”[59]

The first thought that comes to mind is that this, clearly, must be the introduction of cryptocurrencies into EU-Legislation. However, this very same Directive[60] states too that:

Member States shall prohibit persons or undertakings that are not credit institutions, […]  from carrying on the business of issuing electronic money.

Both, the idea of an “electronic money institution” and the idea of “business of issuing electronic money” sheds a great doubt on EU-lawmakers truly having cryptocurrencies with their very different opus moderandi on their mind. It seems much more that they were still adhering to the idea that only a centralised institution could “issue” electronic money. Furthermore, the second condition (“issued on receipt of funds”) does not correspond with (some) cryptocurrencies as they are not issued by a centralised institution but where the “money” may also be generated within the network itself.

Still, this is the first time, in EU-Legislation, that the explicit connection between electronic money and money laundering has been made.

iv. Fourth Directive – catching up to today?

The Fourth Directive[61] concentrated greatly on electronic money, due to the fact that “the use of electronic money products is increasingly considered to be a substitute for bank accounts”.[62] Consequently, it now redefines property as “assets of any kind, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and legal documents or instruments in any form including electronic or digital, evidencing title to or an interest in such assets”.[63] While recurring to the new definition on “electronic money”[64] the Fourth Directive still centres on the idea of an “electronic money institution”[65] and thereby seemingly not opening to the workings of cryptocurrencies (as we know them today).

This may be surprising as this Fourth Directive aimed at the broadest possible scope by including this new definition with a specific aim:

That definition should be wide enough to avoid hampering technological innovation and to cover not only all the electronic money products available today in the market but also those products which could be developed in the future.[66]

It seems that this aim was not met through the concrete wording and framework within the new legislation.

v. Cryptocurrencies under the first four Directives

While it is fair to say that Cryptocurrencies were neither included nor on the horizon[67] of the lawmakers when introducing the first two Directives, such a statement becomes much more difficult with the Third and Fourth Directive.

It is worthwhile, therefore, to take a look at the “financial institutions” and their principal activities. While it may be argued that some of the listed activities may actually be carried out with or through cryptocurrencies, this understanding would oversee an essential step: Who or what is the „institution“ or the “undertaking” behind the cryptocurrency? The technology behind these currencies is a specific version of the distributed ledger technology (thereafter: DLT[68]). Already the name gives away that a centralised organisation is not necessary. In some cases one may exist[69] but the greater part of the existing prominent cryptocurrencies (Bitcoin, XRP, etc.[70]) strive to function without one. More specifically, most of the networks do not seek to be “granted authorisation” as their whole idea of being is to be free of a centralised unit who gives or takes trust. By delving a bit deeper it becomes clear that “electronic money” is only aimed at the (already) regulated existing market that is simply making use of new technologies as opposed to the “new” cryptocurrencies themselves that were of a very limited significance particularly with respect to the market capitalisation[71].

II. The Fifth Directive: Welcome to today’s world!

The Fifth Directive[72] was introduced on 30 May 2018[73] and has a transposition deadline by the member states until 10 January 2020[74]. We shall wait and see how national legislators will translate these new “ground rules” into their domestic legal regimes.

The given reason for this latest legislation is – again – the fear that “[…] terrorist groups may be able to transfer money into the Union financial system or within virtual currency networks by concealing transfers or by benefiting from a certain degree of anonymity on those platforms.”[75] Though seemingly quite logical the EU-lawmakers do not offer us any further proof or figures to back up this conclusion. Apparently, the simple referral[76] to the UN Security Council and their understanding of the situation[77] is enough.

The Fifth Directive therefore sets new ground rules in two dimensions: breadth and approach.

1. Finally, the inclusion!

This latest legislation broadens the applicability by now including “virtual currencies” defining them as

a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically[78]

This definition of virtual currencies (thereafter: VC) originates from the European Banking Authority (thereafter: EBA) that was given in a report on “virtual currencies” back in 2014.[79] The report also pointed out that the phenomenon of VCs in themselves is anything but new,[80] however, the idea of a VC outside an (online) community that is exchangeable into fiat currency is.

Furthermore, to the EBA it is clear that cryptocurrencies are just a “decentralised variant”[81] of VCs, leaving no further thought on the matter. And thus, by now introducing the term virtual currencies, ending the discussion on whether or not “electronic money” could or should have included cryptocurrencies:                                                          it did not.

It therefore follows logically, that all cryptocurrencies – and affiliates – are still not subject to legislation until the end of the transposition deadline on the 10 January 2020.

2. Why only approach the “guilty” ones?

The Fifth Directive pushes the general movement in legislation even further: “[…] This Directive aims not only to detect and investigate money laundering, but also to prevent it from occurring.”[82] Although this may sound “harmless” it actually means a shift from establishing a legal framework for reactive and partially repressive (meaning penal) measures to introducing legal grounds for preventive measures. All the while having private actors as the main addressees or obliged parties.

Then again, the question remains: what should we expect from EU-lawmakers on the preventive side? And what do they expect from all of us? Are we heading towards a point where every single transaction is now deemed to be illicit until proven otherwise? Will everybody run the danger of being guilty of accessory to money-laundering should they not do profound checks on their transaction partners? Will we be monitoring all because of the wrongdoing of some? Will we be giving up the dividing line between preventive and repressive? Will we be giving up the human rights principle of innocent until proven guilty[83]?

And so the Fifth Directive is well in line with its predecessors by applying the rules of war.

III.   The Sixth Directive: It’s not over yet!

There is a reason, why one could assume a legislator’s hyperactivity in this field: not even half a year after the Fifth Directive was passed, lawmakers introduced the Sixth Directive[84] on 23 October 2018 with a transposition deadline on 3 December 2020.[85]

However, this time the focus was not on the addresses of the previous directives but rather on standardising the applicability[86] and the procedures[87] through the means of criminal law[88]. While keeping a particularly close watch on virtual currencies.[89]

For a start the directive established what “criminal activities”, in the sense of predicate offenses of the AML-legislation, actually are: All crimes punishable by deprivation of liberty with a maximum sentencing frame of at least one year or a minimum sentencing frame of at least six months.[90] Regardless of the national sentencing frame the Directive enumerates quite a long list[91] of predicate offenses including, for example, tax crimes as punishable by national law. It should be noted that the Directive does not intend to harmonise tax crimes in the national laws.[92] Therefore creating, again, a fairly big patchwork area by including these crimes.

The Directive also provides that Member States will have to establish (within their national criminal law) a maximum term of imprisonment for money laundering offenses of at least four years[93] with regards to natural persons. But there are also new provisions for legal persons: The Sixth Directive establishes clear guidelines as to when a legal person may be held liable for money laundering (acts committed by any person with a leading position within the entity[94] or in case of a lack of control/supervision[95]).

But there are two more, truly profound, changes within this Directive:

Member States are asked to allow a conviction for money laundering without there being a conviction for the predicate offense. [96] This means, in effect, that the alleged money launderer may now face charges without the criminal activity, that generated the illicit proceeds, being “solved”. This could, and most likely will, make defending against such charges even harder: How can you “prove”[97] that you did not partake in money laundering if you don’t even know who the author of the initial crime is? The Directive does demand that the court will have to “establish that the property was derived from a criminal activity” but it will not have to “establish all the factual elements” with regards to the criminal activity. We shall see what the courts will make of this.

Furthermore, the Member States are asked to make it punishable by law “where the offender suspected or ought to have known that the property was derived from criminal activity”.[98] Now this may not seem like a revolution at first glance, but you should bear in mind that it has been standard practice by almost all AML-Officers to send a notice to the FIU in case of a suspicious transaction. Now at least in Germany, for example, the FIU had roughly 36,000 outstanding notices in May 2019[99] thereby not responding in good time. At the same time addressees of the AML-legislation are simultaneously contractual partners to either the author or recipient of the transaction and therefore contractually liable should they fail to fulfil their services. This leaves the AML-Officers two undesirable options: Either allow the transaction after the legitimate waiting time to pass and risk criminal liability (because of their notice they are now in bad faith) or freeze the transaction until notice from the FIU (which could take weeks or months) and risk contractual liabilities.

IV. Clean ≠ good?

So let’s concentrate on two issues that will, nevertheless, highlight the main flaws within and behind the new legislation:

Firstly, as pointed out above, the Fifth Directive now not only targets money laundering as an existing phenomenon but as something that needs to be prevented from happening. All the while binding more and more private actors to observe a myriad of obligations and sanctioning them for not observing these obligations.[100] As it was – hopefully – shown throughout this article, the AML-legislation has continually shifted from obliging private actors to keep an eye open, their common sense alert and to report “clearly” suspicious transaction to actually obliging more or less each and every private actor to turn spy on every client, business-partner etc.[101] for fear of being punished themselves. The latter could now fear prosecution for not x-raying his client with absolute scrutiny, should hindsight reveal that illicit proceeds were involved. Arguably, the (criminal) act that would be committed here would be the failure to take the AML-measures when there was no apparent reason for them to be taken. The point of punishment would therefore be the non-compliance with yet another law, in a time when business people already find themselves flooded with an uncountable, ever-changing number of laws.

It remains to be seen how national lawmakers will translate this order into domestic law. We should bear in mind therefore, that this kind of pre-emptive penalisation is/was uncommon to criminal law. It is the objective of criminal law to sanction actions of the past. Not to penalise criminal behaviour that might or might not occur. This sort of legislation is usually only portrayed in dystopian fiction[102]. Then again, the threshold of criminal behaviour has – historically – always been moved to the fine line between thought and action in one circumstance: war.

Perhaps this is the reason why AML has – and still does – recurred to a war on drugs, terror and now cyber criminality?

Secondly, this tendency is truly alarming! Because it is most uncertain if and if so for how long cryptocurrencies will be around[103]. Quite apart from the fact that they are all based on a new technology that is far from thoroughly tested over time. Even today it is acknowledged by some cryptocurrency platforms, that their technology is far from perfect.[104] So there is quite the probable risk that the algorithm will be solved[105], particularly because many have been a great deal of their attention to that matter[106], which would bring the entire cryptocurrency world tumbling down. There is also the problem that dozens of cryptocurrencies exist, all of whom (obviously) lack the qualities that fiat money possesses. Thereby making it quite possible that all those who currently put their faith into these currencies will withdraw it sooner or later.[107] And quite possibly even sooner than later should they find it harder and harder to spend their cryptocurrencies because of strict new AML-legislation.

So what will remain then? The burden on all the business people to scrutinise and report on their clients, etc. For whenever have legal bodies withdrawn power they had claimed just because the need for it fell away?

V. What do we take from this?

A revision of the “old” AML-legislation was definitely due and cryptocurrencies were rightly included. Whether or not the aim of the latest Directive can be achieved with (only) EU-legislation on cryptocurrencies remains to be seen.

However, the general shift that has become even more apparent with the latest legislation towards obliging (more or less) all private actors.

What will be most interesting to observe now is how the recent trend of spawning ICOs/STOs[108] (a great number of which take place within the EU[109]) will handle these new obligations. Here we might be able to witness soon a most profound cleansing effect, once the new legislation will be in force. We shall have another look at this matter then. But I think we can be sure that this new legislation will come!



[1]  Publius Terentius Afer, Phormio, I, 2, 10.

[2]  Preamble paragraph 4, Directive (EU) 2018/843.

[3]  Trust: firm belief in the integrity, ability, effectiveness, or genuineness of someone or something; belief = faith: firm belief in something for which there is no proof – Merriam Webster.

[4]  “illegal trading of goods that are not allowed to be bought and sold, or that there are not enough of for everyone who wants them” – Cambridge Dictionary.

[5]  Instead of many: UN World Drug Report 2017, pp.9, pp. 21 (https://www.unodc.org/wdr2017/field/Booklet_5_NEXUS.pdf (last visited on 21st April 2019).

[6]  https://www.pbs.org/wgbh/pages/frontline/shows/drugs/special/blackpeso.html (last visited on 21st April 2019) or Frontline: Black Money by PBS by Oriana Zill de Granados Lowell Bergman (video documentary); https://www.independent.co.uk/news/business/analysis-and-features/criminals-target-property-university-towns-money-laundering-eatate-agents-a8537931.html (last visited on 21 April 2019).

[7]  Article 2 1. (3) (b) (i) of Directive (EU) 2015/849 obliges notaries, who are necessary to purchase real estate in Germany, who therefore will not accept cash payments so as to prove compliance with AML-Legislation.

[8]  Article 33 of Directive (EU) 2015/849.

[9]  Article 11 lit. a no.1 of Directive (EU) 2015/849.

[10]  See Article 2 1. (3) (e) of Directive (EU) 2015/849.

[11]  https://www.pbs.org/wgbh/pages/frontline/shows/drugs/special/blackpeso.html (last visited on 21 April 2019) or Frontline: Black Money by PBS by Oriana Zill de Granados Lowell Bergman (video documentary) and https://www.ft.com/content/73de228c-e098-11e8-8e70-5e22a430c1ad (last visited on 21 April 2019) – a great deal will depend on the level of organisation and the total sum that is being laundered .

[12]  Birnbach, Ri 2017, 77 (78).

[13]  Otto, Ri 2017, 86 (88).

[14]  Otto, Ri 2017, 86 (89).

[15]  https://www.businessinsider.de/bitcoin-pizza-10000-100-million-2017-11?r=UK&IR=T (last visited on 9 October 2018).

[16]  https://www.reeds.com/bitcoin.html (last visited on 9 October 2018).

[17]  For further reference see here “Pecunia Non Olet?” – Birnbach, Ri 2017,  77; or here: EBA/Op/2014/08, “EBA Opinion on ‘virtual currencies’“, 4 July 2014; or here: BaFin Journal, 2/2016,p.30.

[18]  https://treaties.un.org/doc/Treaties/1990/11/19901111%2008-29%20AM/Ch_VI_19p.pdf (last visited on 9 October 2018).

[19]  https://www.fbi.gov/history/famous-cases/al-capone  (last visited on 9 October 2018).

[20]  https://www.gesetze-im-internet.de/stgb/BJNR001270871.html#BJNR001270871BJNG000102307 (last visited on 9 October 2018).

[21]  Council Directive 91/308/EEC p. 166/78; Directive 2005/60/EC preamble paragraph 5, p. 309/15.

[22]  “Initiated“ in 1971 by US-President Nixon, resulting in the Anti-Drug Abuse Act of 1988 (Public Law 100-690-Nov. 18, 1988).

[23]  See above.

[24]  See above.

[25]  The UN Convention in itself is an unconventional measure as all the members states rallied und the flagship of the war on drugs, much as the Allies rallied when it came to fighting in WWII.

[26]  Preamble of the Convention, p. 2.

[27]  Art. 5 paragraph 4 lit. g.

[28]  See I.B.3..

[29]  https://www.bloomberg.com/graphics/2019-dirty-money/ (last visited on 21 April 2019).

[30]  https://www.europol.europa.eu/publications-documents/threat-assessment-italian-organised-crime (p. 18 – last visited on 21 April 2019.

[31]  The famous Sarbanes-Oxley-Act was only passed in 2002..

[32]  Articles 2-9 AML-Code (Geldwäschegesetz – GWG) dated 25th October 1993

[33]  Council Directive 91/308/EEC.

[34]  See preamble of Council Directive 91/308/EEC p. 166/77.

[35]  See preamble of Council Directive 91/308/EEC p. 166/77.

[36]  See preamble of Council Directive 91/308/EEC p. 166/78.

[37]  United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, adopted on 19 December 1988 in Vienna.

[38]  I.e. Germany introduced an article on money laundering on 22 September 1992 in the Criminal Code (article 261 StGB) naming “any crime committed by another”, offences according to article 29 paragraph 1 no. 1 Code on illicit substances (Betäubungsmittelgesetz) and offences committed by a member of a criminal organisation (according to article 129 StGB). It should be pointed out, that the StGB clearly differentiates between crimes and offences (article 11 StGB).

[39]  See preamble of Council Directive 91/308/EEC p. 166/78.

[40]  See preamble of Council Directive 91/308/EEC p. 166/78.

[41]  I.e. Germany adopted article 17 GWG in 1993 which stated that an infringement of the AML-obligation could result in sanctions up to 200.000 Deutsche Mark.

[42]  Directive 89/646/EEC, Article 1 of Directive 77/780/EEC, Directive 79/267/EEC, by Directive 90/619/EEC.

[43]  Article 1 paragraph 1 lit. A No. 3 of Directive 2001/97/EC.

[44]  Article 2a of Directive 2001/97/EC.

[45]  Article 1 paragraph 1 lit. E of Directive 2001/97/EC.

[46]  Article 44 of Directive 2005/60/EC.

[47]  Preamble paragraph 1 of Directive 2005/60/EC.

[48]  http://www.nationalarchives.gov.uk/pathways/firstworldwar/document_packs/p_knox.htm (last visited on 21 April 2019).

[49]  Preamble paragraph 4 and 15 of Directive 2005/60/EC.

[50]  Preamble paragraph 8 of Directive 2005/60/EC.

[51]  Preamble paragraph 9 and 10 of Directive 2005/60/EC.

[52]  Preamble paragraph 41 of Directive 2005/60/EC.

[53]  https://www.sueddeutsche.de/wirtschaft/n-fake-shops-betrug-geldwaesche-1.4412084 (last visited on 21 April 2019).

[54]  I.e.: auditors, external accountants and tax advisors, notaries and other independent legal professionals, real estate agents, casinos, etc.

[55]  Preamble paragraph 4 and 15 of Directive 2005/60/EC.

[56]  Preamble paragraph 14 of Directive 2005/60/EC.

[57]  Article 11 (5) (d).

[58]  Article 1 (3) (a) of the Directive 2000/46/EC.

[59]  Article 1 (3) (b) of the Directive 2000/46/EC.

[60]  Article 1 paragraph 4 of Directive 2000/46/EC.

[61]  Directive (EU) 2015/849 dated 20th May 2015.

[62]  Preamble Paragraph 7 Directive (EU) 2015/849.

[63]  Article 3 (3) Directive (EU) 2015/849.

[64]  Article 3 (16) Directive (EU) 2015/849.

[65]  Article 2 1. Directive 2009/110/EC.

[66]  Preamble paragraph 8 Directive 2009/110/EC.

[67]  Even though that arguably the first idea of a cryptocurrency was introduced in 1983 by David Chaum (Blind signatures for untraceable payments. Advances in Cryptology Proceedings of Crypto, pp. 199–203) it only gathered widespread attention through Satoshi Nakamoto’s paper in 2009.

[68]  Otto, Ri 2017, 86 (86).

[69]  Private DLT.

[70]  www.coinmarketcap.com last viewed on 08.10.2018.

[71]  Less than 4 billion USD in May 2015: https://coinmarketcap.com/charts/ (last visited on 21 April 2019).

[72]  Directive (EU) 2018/843.

[73]  …and therefore one year after the transposition deadline of the Fourth Directive had ended. This latest Directive has entered into force only on 9 July 2018.

[74]  Article 4 (1) Directive (EU) 2018/843.

[75]  Preamble paragraph 8 of Directive (EU) 2018/843.

[76]  Preamble paragraph 3 of Directive (EU) 2018/843.

[77]  As it is also stressed by the UN Security Council Resolutions (UNSCR) 2195 (2014), 2199(2015) and 2253(2015) (and referred hereto by the Fifth Directive), although these Resolutions do not provide any new insight on the links between terrorism and money laundering. Consequently it only repeats its recommendation: “Strongly urges all Member States to implement the comprehensive international standards embodied in the Financial Action Task Force’s (FATF) revised Forty Recommendations on Combating Money Laundering and the Financing of Terrorism and Proliferation […]”.

[78]  Article 1 (1) (d) of Directive (EU) 2018/843.

[79]  Paragraph 2 EBA/Op/2014/08 dating 4 July 2014.

[80]  Paragraph 16 EBA/Op/2014/08 dating 4 July 2014.

[81]  Paragraph 3 EBA/Op/2014/08 dating 4 July 2014.

[82]  Preamble paragraph 4 of Directive (EU) 2018/843.

[83]  Article 48 (1) Charter of fundamental rights of the European Union (2012/C 326/02).

[84]  Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on combating money laundering by criminal law, L 284/22.

[85]  Article 13 paragraph 1 Directive (EU) 2018/1673.

[86]  Preamble paragraph 4 and 5 of Directive (EU) 2018/1673.

[87]  Preamble paragraph 2 and 4 of Directive (EU) 2018/1673.

[88]  Preamble paragraph 1 of Directive (EU) 2018/1673.

[89]  Preamble paragraph 6 of Directive (EU) 2018/1673.

[90]  Article 2 paragraph 1 Directive (EU) 2018/1673.

[91]  Article 2 paragraph 1 lit. a) – v) Directive (EU) 2018/1673.

[92]  Preamble paragraph 8 of Directive (EU) 2018/1673.

[93]  Article 5 paragraph 2 Directive (EU) 2018/1673.

[94]  Article 7 paragraph 1 Directive (EU) 2018/1673.

[95]  Article 7 paragraph 2 Directive (EU) 2018/1673.

[96]  Article 3 paragraph 3 Directive (EU) 2018/1673.

[97]  At least in Germany a regular position in clear opposition to the “innocent until proven guilty” doctrine.

[98]  Article 3 paragraph 2 Directive (EU) 2018/1673.

[99]  https://www.tagesschau.de/investigativ/ndr/geldwaesche-verdachtsmeldungen-101.html (last visited on 20 December 2019).

[100]  It is not the intention of the author to deny the necessity of functioning AML-legislation and the general goal to keep the legal financial system free from illicit proceeds..

[101]  I.e. the “low“ threshold of EUR 10,000.

[102]  See “Minority Report“ (https://www.imdb.com/title/tt0181689/?ref_=nv_sr_2).

[103]  https://blog.bitmex.com/ethereum-holdings-in-the-ico-treasury-accounts/ (last visited on 19 April 2019).

[104]  Otto, Ri 2017, 46 (51).

[105]  Jonathan Jogenfors: “Breaking the Unbreakable – Exploiting Loopholes in Bell’s Theorem to Hack Quantum Cryptography”, Linköping 2017.

[106]  Instead of many: http://altnewscoin.com/crypto/breaking-ecdsa-elliptic-curve-cryptography-rhme2-secure-filesystem-v1-92r1-crypto-150/ (last visited on 19 April 2019); https://andrea.corbellini.name/2015/06/08/elliptic-curve-cryptography-breaking-security-and-a-comparison-with-rsa/ (last visited on 19tApril 2019).

[107]  https://www.ft.com/content/29259448-69b3-11e8-b6eb-4acfcfb08c11 (last visited on 11 October 2018).

[108]  Initial Coin Offering / Security Token Offering.

[109]  https://www.ey.com/Publication/vwLUAssets/ey-research-initial-coin-offerings-icos/$File/ey-research-initial-coin-offerings-icos.pdf (7) (last visited on 11 October 2018).

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