Mandatory identity check when buying or selling bitcoins

As a result of the new European anti-money laundering directive AMLD5, stricter rules will soon apply to buying and selling bitcoins. Companies that offer bitcoin wallets or exchange services will have to register with De Nederlandsche Bank (DNB) in 2020 (the exact date is still unknown). Part of the new regulations is a stricter identity check of customers and users.

At the beginning of November, the House of Representatives will discuss a bill to implement the European Anti-Money Laundering Directive AMLD5 in the Netherlands in the Money Laundering and Terrorist Financing Prevention Act (Wwft).

According to the bill, companies offering bitcoin wallets or exchange services will have to register and likely fall under the supervision of De Nederlandsche Bank. Companies must then comply with the provisions of the Wwft and the Sanctions Act 1977 with regard to customer due diligence and identity checks.

What changes for you?

  • Mandatory identity verification for all customers and from any amount
  • Any additional questions about income, origin and destination of money and bitcoins
  • Mandatory transaction monitoring of customers

Mandatory identity check when buying or selling bitcoins

That means that from January 10, the threshold to buy or sell bitcoins will probably be a bit higher. From then on, consumers who want to buy or sell bitcoins will have to identify themselves on the basis of identity documents. In addition, additional questions can be asked about income, origin of money and bitcoins and about the destination.

Bitcoin service providers are also obliged to monitor customer transactions during the relationship and to check whether they match the risk profile. Suspicious transactions must be reported. In addition, requirements are set for the suitability and reliability of the directors of bitcoin service providers.

The Wwft regulations are normally applied in certain sectors when large amounts are involved. For example, the same rules also apply to jewelery or real estate trade when the value is higher than ???????10,000. However, in the case of virtual currencies such as bitcoin, the rules will also apply at low amounts.

At the moment, the House of Representatives is still considering the precise interpretation of the Wwft, so not all details are final yet, but it is expected that identity verification will almost certainly take place. According to the current schedule, the new rules would come into effect on January 10, 2020.

Concerns about privacy

Bitcoin is a monetary (censorship resistant) money system based on mathematics: an open network and can be used by anyone without permission. Financial sovereignty and privacy play an essential role for many Bitcoiners. The far-reaching identity checks and monitoring of transactions are of course at odds with this.

As Bitonic, we have mixed feelings about the bill. On the one hand, we are pleased that there is clarity, for example, this can benefit our banking relationships. However, the proposed law is disproportionate and we are very concerned about the privacy of citizens. The right to privacy is always put in second place by rules of anti-money laundering and terrorist financing and that is how you ultimately create a police state. We are of course bound by Dutch law and will comply with it, but we are concerned about the far-reaching effects in the short and long term. The new rules and mandatory transaction monitoring apply to all customers and all amounts, which limits the financial freedom of citizens.

This is also confirmed by the Dutch Data Protection Authority (AP). AP pointed out the possible privacy violation to the Minister as a result of the new rules. They argue that the rules have the character of unwanted mass surveillance , which is contrary to rulings by the European Court of Justice. The regulator therefore advised the Ministry of Finance to have a fundamental discussion about this in Europe when evaluating the directive.

United Bitcoin Companies Netherlands (VBNL)

In the Netherlands, most large bitcoin companies are affiliated with the United Bitcoin Companies of the Netherlands (VBNL). Since 2014, this association has been committed to combating fraud through self-regulation and to upholding the integrity of participants. In this context, many bitcoin companies have been using stricter control policies for some time and do not allow bitcoins to be bought or sold for cash.

The VBNL has already explained at an earlier stage that clear laws and regulations are essential for further growth and more maturity of the market. This should not be at the expense of the possibilities that this technology entails. According to the United Bitcoin Companies Netherlands, there is still cause for concern. The VBNL points out that even now, shortly before the intended introduction of the law, important questions about the details of registration, supervision and the costs thereof have not yet been answered.

Read the letter and appendix from the VBNL to the House of Representatives here. Read the legal analysis of ‘t Hart Advocaten

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