How do various jurisdictions deal with cryptocurrencies in their anti-money laundering laws? Since Bitcoin was unveiled in 2009, legislators and governments have been looking into cryptocurrencies and assets from all angles, and mindsets. While some are supportive and open to adoption, others are more on the defensive side feeling a threat to the economic theories they have based their policies on. Nonetheless, a common denominator between all prevails: the threat of money laundering.
This series of articles presents an overview of current Anti-Money Laundering (AML) approaches to cryptocurrency in different parts of the world.

Note: this article is for informative purposes only and is based on the author’s research. It is not to be considered as a legal advice.

Part I - European Union

When the European Parliament ratified the Fourth Money Laundering Directive (MLD4) in 2015, it fell short of explicitly addressing cryptocurrency. However, the recently adopted Fifth Money Laundering Directive (MLD5) brings virtual currency exchange platforms and custodial wallet providers within the scope of MLD4. This means providers will have the responsibility to monitor transactions and verify customer's identities. MLD5 entered into force on July 9th, 2018 and member states will thus until January 10th, 2020 to implement its provisions into national law.

These amendments would require EU Member States to subject centralised cryptocurrency exchanges or custodial wallet providers to the same obligations as banks and other financial institutions under MLD4 – including CIP and beneficial ownership identification, Know Your Customer (KYC), transaction monitoring, and suspicious activity reporting – and will subject those providers to supervision by the competent national authorities for these areas

In anticipation of MLD5, some Member States, such as Italy and Germany, have already significantly enforced MLD5-type of regulatory actions and amended national anti-money laundering laws to include cryptocurrency and cryptoassets. Other Member States, such as the UK and the Netherlands, had until recently left cryptocurrency trading largely outside the AML regulatory regime.

Italy

In compliance with MLD4, Italy modified its national anti-money laundering decree in 2017 and took the additional action to include cryptocurrency in these amendments and classified providers of cryptocurrency-to-fiat conversion services as “non-financial intermediaries” regulated under the AML Decree.
These services are therefore subject to Italian AML obligations such as: record keeping, reporting of suspicious transactions, and enhanced due diligence (EDD). Moreover, they are required to register with the Ministry of Economy and Finance as currency exchange professionals and communicate exchange activities carried out within the Italian territory.
In 2015 the Bank of Italy suggested that some cryptocurrency functions could violate criminal provisions of Italian banking law, which reserve certain banking, payment, and investment services exclusively to authorised entities (Banca D’Italia Eurosistem, Avvertenza sull’utilizzo delle cosiddette “valute virtuali”, 30 Jan. 2015 (It.))

Germany

Cryptocurrencies are treated as financial instruments or “units of account” (Rechnungseinheiten) under the German Banking Act (Kreditwesengestz). Businesses dealing with cryptocurrencies exchange, brokering, buying and selling require a credit institution license or financial services institution license and are to be considered as “obliged entity” under the MLD4 requirements of the German Money Laundering Act (Geldwäschegesetz).
However, the German Banking Act excludes the use of cryptocurrency for payment for goods and services and the sale of self-procured (mined) cryptocurrency from AML regulations. It is not yet clear how this provision will be affected by the newly ratified MLD5.

The Netherlands

In 2013, the Dutch Ministry of Finance concluded that cryptocurrencies do not fall under the “electronic money” or “financial product” classification, and in 2014 the court of Overijssel ruled that Bitcoins do not qualify as money. While this has so far kept service providers outside the constraint of the Dutch Act for the Prevention of Money Laundering and Financing of Terrorism (Wet ter voorkoming van witwassen en financiering van terrorisme) many Dutch banks and financial institutions have developed auto-regulations to govern their own dealing with cryptocurrencies. It is expected that by 2019 the Netherlands would amend its laws in compliance with MLD5

The UK

The UK has not formally extended the scope of UK Financial Conduct Authority (FCA) to included cryptocurrencies. While they are commonly dealt with as a commodity, some cryptocurrencies, depending upon how they are structured, might fall within the prospectus regime under the Financial Services and Markets Act 2000 (FSMA) and thus within the scope of the UK Money Laundering Regulations 2017.
Cryptocurrency businesses deemed to fall within the regulation of the FCA require an FCA authorization or otherwise might be subject to prosecution for certain money laundering offences under the Proceeds of Crime Act 2002.
Subject to Brexit, the UK might not amend its laws in accordance with MLD5. However, it is very probable that UK legislators will broaden national AML laws to regulate cryptocurrencies and to align the UK with the EU on these matters.

Upcoming articles

The upcoming articles look into the various AML approaches around the Asia-Pacific region and in the USA. Stay tuned!

Edit:
Article on Asia-Pacific: https://steemit.com/cryptocurrency/@hhim/cryptocurrencies-and-anti-money-laundering-laws-part-ii-asia-pacific