EU Report Calls for Crypto ID Checks and Police Training to Combat Darknet Markets

In the Brief:

  • The European Monitoring Centre for Drugs and Drug Addiction recommends stricter identity checks and improved police training to tackle darknet markets
  • Such measures could be more effective than a complete ban on cryptocurrencies in curbing darknet activity
  • Next week, EU lawmakers will vote on new licensing rules including identity checks on fund transfers
  • The report advises that regulating cryptocurrencies exclusively is not a lasting solution
  • The COVID-19 pandemic has boosted the use of digital currencies, heightening the risk of criminal activity on the blockchain.

3 - 5 minute read

The rising use of darknet marketplaces to purchase illegal substances has prompted the European Monitoring Centre for Drugs and Drug Addiction to commission a report on the issue. The European Commission-funded report calls for tougher identity checks on crypto exchange users and better police training to combat the issue. As governments around the world are pushing for stricter anti-money laundering checks, the report cautions that regulating the use of cryptocurrency entirely is far from a long-term solution. Instead, both tougher identity checks and better police training and technology could be more effective.

Made up of over 200 pages, the report suggests that while enforcement efforts to curb darknet activity have been in place for some time, the persistent use of digital assets by criminals is increasing despite the added difficulties of the blockchain, the report cites the use of darknet marketplaces as persistent and rising. The report was carried out by Kim Grauer and Eric Jardine of Chainalysis, a blockchain research platform that provides blockchain analytics solutions to regulators.

Forbidding the use of cryptocurrencies entirely does little to curb darknet activity, and police-led closures of such marketplaces tend to have only short-lived impacts. Other alternatives quickly spring up to replace them, as cited in the report. However, investigators can improve their ability to respond through persistent training and advanced technology.

The report, therefore, encourages EU lawmakers to vote next week on landmark new licensing rules, which would include identity checks on users transferring funds. The EU Parliament has also considered imposing upper limits on anonymous crypto transactions as part of a wider money-laundering overhaul. It is, therefore, critical that countries around the world implement measures that ensure users of exchanges, brokers, and ATMs, who cash out illicit gains, can be identified.

“To disrupt and dismantle criminal activities in the cryptocurrency realm, it is critical that countries around the world implement the recommendations from the Financial Action Task Force” – European Monitoring Centre for Drugs and Drug Addiction.

Furthermore, the COVID-19 pandemic has accelerated the adoption of digital currencies, which increases the potential for criminal activity on the blockchain. Traders and investors alike should, therefore, be vigilant in ensuring that all their activities remain above board. As the use of cryptocurrencies continues to proliferate, regulatory systems need to become more robust in their sophistication, so as to holistically mitigate the ever-evolving methods of illegal crypto activities.

The Bottom Line

The European Commission-funded report’s recommendations point to a more significant need for countries around the world to implement measures preventing criminal activities in the cryptocurrency realm. The report indicates that regulation and proper training for law enforcement could be more effective. While proposed solutions may not fully eradicate the use of cryptocurrencies for illicit activities, better prevention and regulation can create an increased level of transparency, making it more difficult for criminals to engage in these activities. Thus, traders and investors should remain vigilant with their activities while regulatory systems need to become more innovative in the never-ending battle against illegal crypto activities.

Disclaimer: The content in this article is provided for informational purposes only and should not be considered as financial or trading advice. We are not financial advisors, and trading carries high risk. Always consult a professional financial advisor before making any investment decisions.

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