Germany To Implement EU Anti-Money Laundering Directive With Cryptocurrency Licensing Requirements

Author:Mr Martin Schulz, Michael R. Fischer and Nick Wittek
Profession:Jones Day
 
FREE EXCERPT

In Short

The Situation: The G20, a forum for governments and central bank governors from 19 countries and the European Union, had made the decision to combat money laundering and terrorism financing activities tied to the use of cryptoassets.

The Action: The German Federal Ministry of Finance has published guidance on its Draft Act implementing the 5th EU Anti-Money Laundering Directive ("AMLD5").

Looking Ahead: When the Draft Act enters into force on January 1, 2020, wallet providers and cryptocurrency exchanges will be considered to be providing financial services related to cryptoassets, must comply with anti-money laundering rules ("AML"), and obtain a license. On May 20, 2019, the German Federal Ministry of Finance published guidance on its Draft Act implementing the AMLD5. Once the Draft Act becomes effective, wallet providers and cryptocurrency exchanges will be considered to be providing financial services related to cryptoassets, must comply with AML rules, and obtain a license.

Next Steps

The Draft Act will be submitted to Parliament and will enter into force on January 1, 2020.

Background

The Draft Act reflects the G20 decision to combat money laundering and terrorism financing through the use of cryptoassets. This will be achieved by extending the scope of AML duties to those cryptoasset service providers that are currently outside the scope of the Money Laundering Act (Geldwäschegesetz—GwG). The legislation also aims to strengthen the credibility of virtual assets by mitigating the risk of criminal use.

Which Cryptoassets Qualify as Financial Instruments?

In addition to changes to the GwG, the Draft Act provides amendments to the Banking Act (Kreditwesengesetz—KWG), qualifying cryptoassets (Kryptowerte) as financial instruments, and crypto custody businesses (Kryptoverwahrgeschäft) as banking services.

By extending the scope of financial instruments under the KWG, the Draft Act implements the definition provided in the AMLD5, stating that "a cryptoasset is a digital representation of value that is not issued or guaranteed by a central bank or a public authority 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." The definition captures not only cryptocurrencies but also investment and security tokens that may qualify either as securities or debt instruments (Schuldtitel), asset investment...

To continue reading

REQUEST YOUR TRIAL