The report by a global law firm also sheds light on the immutability of a transaction recorded on the blockchain and its benefits in AML efforts
A new White Paper released by the American international law firm Perkins Coie has stated that privacy coins like Monero, Dash, Grin, and Zcash are less likely to be involved in money laundering than cryptocurrencies.
Contrary to popular belief, the report claims that Anti Money Laundering (AML) laws determined by regulatory bodies across the world have been sufficient to prevent misuse of privacy coins and any additional oversight may not be necessary.
The current financial regulatory structure of 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) were foundational in choosing the coins cited in the paper, the firm stated.
“Privacy coins pose lower inherent AML risk than other cryptocurrencies when considering evidence of illicit use in practice,” the white paper explained.
“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 added.
More than 90% of addresses used on darknet markets were for Bitcoin, though this might be attributed to its popularity. In contrast, Dash (DASH), Monero (XMR), and Zcash (ZEC) combined accounted for only 0.3% of darknet addresses, the report argued.
It further added that though most transactions made with cryptocurrencies were legitimate, privacy coins provided benefits that “substantially outweigh” the risks of using them. “The critical takeaway here is that privacy coins do not pose an inherent AML risk that is uniquely or unmanageably high,” it said.
Privacy coins, unlike pre-crypto laundering methods like cash or card payments, still provide some form of transfer record. In fact, 90% of all money laundering is impossible to detect 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 undercurrent, tested AML regulations strike the appropriate policy balance between preventing money laundering and allowing beneficial, privacy-preserving technology to develop,” it added.