Privacy coins aren’t a major money laundering risk a new white paper argues.
Privacy coins including Monero, Dash, Grin, and Zcash pose less of a risk of money laundering than other cryptocurrencies according to a report by a global law firm.
According to a new white paper released by U.S. international law firm Perkins Coie, anti-money laundering (AML) measures taken by regulatory bodies worldwide have been sufficient to address any issues caused by privacy coins, and additional oversight may not be necessary.
The paper cited coins fitting within the current financial regulatory structure used by the U.S. Financial Crimes Enforcement Network (FinCEN), the New York Department of Financial Services (NYDFS), Japan’s Financial Services Agency (FSA), the U.K.’s Financial Conduct Authority (FCA), and the Financial Action Task Force (FATF).
“Privacy coins pose lower inherent AML risk than other cryptocurrencies when considering evidence of illicit use in practice,” the white paper stated.
“Not only do privacy coins provide public benefits that substantially outweigh their risks, existing AML regulations properly and sufficiently cover those risks, providing a proven framework for combating money laundering and related crime.”
The report stated that while most transactions made with cryptocurrencies are legitimate, privacy coins can provide benefits that “substantially outweigh” the risks of using them. More than 90% of addresses used on darknet markets were for Bitcoin (BTC), compared to just 0.3% for Dash (DASH), Monero (XMR), and Zcash (ZEC) combined.
“The critical takeaway here is that privacy coins do not pose an inherent AML risk that is uniquely or unmanageably high.”
One of the ways privacy coins stand out from pre-crypto money laundering methods — i.e. cash, card, paper payments — is that they still provide some form of transfer record. More than 90% of money laundering still goes undetected, because non-crypto forms of payment can cross borders without the benefit of a blockchain transaction record.
“Ultimately, absent evidence that existing AML regulations cannot adequately address the risks posed by privacy coins, there is no reason to impose new and overbroad AML requirements that specifically target privacy coins,” the white paper concluded. “Allowing VASPs to support privacy tokens under current, tested AML regulations strikes the appropriate policy balance between preventing money laundering and allowing beneficial, privacy-preserving technology to develop.”