Where does the right to financial privacy end?
Privacy-oriented cryptocurrencies like Monero (XMR) do not conflict with Anti-Money Laundering laws, according to a major global law firm.
Perkins Coie, a Seattle-based international law firm, published a report devoted to the AML regulation of privacy coins on Sept. 15. In the report, Perkins Coie aims to dispel the purported misconception that privacy coins like XMR are fundamentally incompatible with AML compliance, arguing that regulated entities are capable of complying with AML obligations while supporting privacy coins.
According to Perkins Coie, privacy coins ultimately present “no incremental challenges or requirements” to Virtual Asset Service Providers, or VASPs, other than the need to collect, retain and transmit certain customer and transaction information to the recipient. The firm emphasized that these requirements are not unique to VASPs, adding that they should remain subject to the same standards as traditional financial institutions.
The report goes on to say that if VASPs serve as custodians of the private keys of their users, they will be able to see the number of privacy coins and report on suspicious activity in compliance with AML measures. For example, Monero — the world’s largest privacy-focused cryptocurrency — essentially enables users and VASPs to disclose certain transaction details associated with a given account to a third party, the report noted.
Perkins Coie’s experts emphasized that these features are part of the key functionality built into the Monero protocol, stating:
“This enables users and VASPs to disclose certain transaction details associated with a given account to a third party without publicly disclosing that user’s transactional information. In addition, VASPs can require up-front disclosures as part of their registration process and on an ongoing basis to meet their obligations.”
Apart from arguing for privacy coins’ compatibility with AML, the report outlines the crucial role of financial privacy in general.
“Businesses rely on and expect financial privacy. Without maintaining confidentiality, commercial transactions would be visible for competitors and nefarious actors to analyze, predict, front-run, and exploit. This radically transparent type of environment would likely result in market manipulation by participants, a hindrance to innovation, and an unfair advantage for competitors and counterparties alike,” it states.
Perkins Coie’s report comes shortly after the United States Internal Revenue Service announced a bounty of up to $625,000 to anyone who can crack Monero’s privacy.
Major cryptocurrency intelligence firm CipherTrace reportedly claimed that their crypto tracking tool is capable of tracing Monero transactions. A number of industry players subsequently expressed skepticism regarding the matter.