Crypto Implicated in Child Porn, Terrorism, French Official Says, Calling for End to Online Anonymity

The head of France’s anti-dirty money unit said the authorities should be able to access information about even small online transfers.

Mar 22, 2022 at 6:16 p.m. UTC
Updated Mar 22, 2022 at 7:51 p.m. UTC

Jack Schickler is a CoinDesk reporter focused on crypto regulations, based in Brussels, Belgium. He doesn’t own any crypto.

Crypto transfers are being used to fund terrorism in Syria and Iraq and child pornography in Southeast Asia, the head of France’s financial intelligence unit said Tuesday.

Guillaume Valette-Valla, director of Tracfin, the country’s anti-money laundering body, told lawmakers at the European Parliament that even those making small online payments should be forced to reveal their identity. Such small anonymous transactions shouldn’t be allowed, he added.

The warning comes as the European Central Bank’s Christine Lagarde warned of cryptocurrencies' role in evading the financial sanctions placed on Russia after its invasion of Ukraine.

“We have observed several times the use of crypto assets from Europe” being used to fund “terrorism, and complicity with terrorism, in the Syria-Iraq region,” Valette-Valla told a joint session of the European Parliament's economic and civil liberties committees Tuesday.

Similar cases relating to child pornography were “sadly recurrent,” he added, saying that last week he had transferred three cases to the public prosecutor in which small transactions had been made to view live cases of child abuse in Southeast Asia.

Valette-Valla’s organization, Tracfin, is part of the French economics ministry and is responsible for gathering intelligence on suspected illicit finance from financial companies and other sources, passing its findings to judicial authorities for potential prosecution.

“Your assembly could give a big plus to our operational activity” by ensuring “deanonymization from the first euro” of a crypto payment, he said, saying that individual transfers linked to criminal activity were sometimes under 10 euros (US$11).

The lawmakers are currently considering plans to extend existing payment transparency rules to the crypto sector in a way that could end online anonymity altogether.

Under these rules, known colloquially as the travel rule, conventional bank transfers need to identify parties involved in any transaction over 1,000 euros, with suspicious transactions passed on to the authorities. But lawmakers are leaning towards abolishing that lower threshold for crypto transactions because large digital payments can easily be broken up into smaller chunks that evade detection, a practice known as smurfing.

Assita Kanko, the Belgian lawmaker responsible for marshaling the European Parliament’s views on the new proposals, seems undeterred by the backlash to those plans from the crypto industry, and might even extend the proposals further into crypto holdings that are held privately rather than via intermediaries.

“I'm convinced that proper regulation of crypto transfers will help, not harm, the growth and innovation in this sector. It will increase trust and help our authorities to push back against abuse,” Kanko said at the hearing. “We are discussing proposals to include transfers involving unhosted wallets while working on guarantees for personal data protection.”

Kanko appeared to gain support from global money laundering standard setters the Financial Action Task Force (FATF).

“The scale of use of unhosted wallets is not to that extent that we are worried currently, but I think we closely have to observe it,” FATF President Marcus Pleyer told lawmakers. “There might come the moment when we have to indeed take them into the scope of the regulation.”

Editor's note: Comments by Valette-Valla in this article have been translated from French.

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Jack Schickler is a CoinDesk reporter focused on crypto regulations, based in Brussels, Belgium. He doesn’t own any crypto.

Jack Schickler is a CoinDesk reporter focused on crypto regulations, based in Brussels, Belgium. He doesn’t own any crypto.

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