MiCA: EU Regulation and the Impacts for the Investigations Sphere

One of the key issues for investigators and legal teams in cases surrounding cryptocurrency fraud is identifying the real-world actors behind private and exchange addresses. Obtaining sufficient disclosure from exchanges and other service providers has been a minefield. A lack of regulation has allowed these entities to provide limited information in response to disclosure orders, which in turn continues to exacerbate the obfuscation or real-world identities. Fraudsters can largely act with impunity, off ramping the proceeds of fraud through legitimate exchanges, knowing their personal information is obscured.

The EU’s new regulations have sought to bring the cryptocurrency industry in line with previously issued anti-money laundering rules. In practice, these new requirements should aid both the public and private sectors’ ability to obtain information on bad actors.

MiCA’s regulations include stipulations for crypto-asset providers to comply with the EU’s 2015 4^th Money Laundering Directive in order to be authorised. Notably, this would require entities to conduct enhanced Know Your Customer (‘KYC’) checks and keep accurate and current information on centralised beneficial ownership registers.

The EU’s 5^th EU Anti-Money Laundering Directive, published in 2018, contained provisions for public access to beneficial ownership information, ensuring that parties with legitimate interest could obtain important information on entities. However, a ruling by the Court of Justice of the European Union (‘CJEU’) in November 2022, counteracted the provisions that had ensured public access. This directly led to journalists and civil society organisations encountering difficulties in accessing information on beneficial ownership registers across member states.

Transparency International found that in the year following the ruling, across 13 of the 27 EU member states, journalists and civil society organisations could either not access the information or had to meet complex requirements to prove legitimate interest. Following the 2022 ruling, eight countries suspended public access to their beneficial ownership registers. Notably, Transparency International highlighted that Cyprus, Malta and the Netherlands have denied access in cases where legitimate interest has been demonstrated.

In the context of MiCA, although the regulations specify compliance with 4^th Money Laundering Directive, in practice the public access to registers from certain member states may remain restricted. This in turn would make it harder for investigators to obtain crucial real-world information for civil litigation cases on bad actors who are largely protected by the anonymous nature of cryptocurrency.