Week of Monday, November 8, 2021 | Issue 49
Sara Kulic and Ciro Mazzola, Illicit Finance and Economic Threats Team
This week, the European Commission called for an agreement on crypto-assets regulation
Date: November 8, 2021
Location: United Arab Emirates (UAE)
Parties involved: UAE
The event: The UAE, one of the biggest bullion trade hubs, will impose the Good Delivery standard on all gold refineries, obliging them to investigate their suppliers and prove their investigation to external auditors through mandatory annual audits. More information about the implementation of the standard will be announced at a precious metals industry conference in Dubai later this month. This standard aims to tackle the illicit gold trade, since the UAE was identified as the main smuggling hub for gold coming from Africa. According to the UAE Minister of State for Foreign Trade, the standard will also positively affect the anti-money laundering and combating financing of terrorism (AML/CFT) framework. Industry experts warn the standard is likely to shift the flow of illicit gold to other countries where the number of gold refineries is growing, such as in Africa.
By introducing the Good Delivery standard, the UAE demonstrates its proactive approach towards tackling illicit financial flows. Lax regulation of the gold sector very likely increases the risk for gold from conflict-affected countries circulating the global market. The UAE decision will likely motivate other gold bullion hubs to recognize the importance of effective regulation and oversight of the gold trade.
Mandatory annual audits are very likely to act as a deterrent for actors involved in the illicit gold trade, influencing them to not accept gold from questionable sources. The decision also requires effective oversight over gold refineries’ investigations, as lack of oversight has very likely facilitated the continued illicit gold trade. As external auditors are not yet defined, difficulties in oversight regulation are likely to be expected, particularly during initial implementation. If an independent body responsible for overseeing the refineries’ auditing process is formed, it is likely that the beginning of this process and compliance to the standard will be delayed.
Date: November 9, 2021
Location: London, England
Parties involved: The Bank of England; HM Treasury (United Kingdom’s finance ministry)
The event: The Bank of England and HM Treasury announced they will hold an official consultation in 2022 to decide whether to proceed with the creation of a central bank digital currency. The move intends to address the competition central banks are facing as the public is increasingly adopting private currencies. According to the Bank of England, it would represent a major national infrastructure project and could only occur at the earliest in the second half of the decade.
The Bank of England and HM Treasury are likely to decide to move forward with the adoption of a digital currency. Private currencies are being progressively used worldwide, indicating the potential for a gradual loss of the monopoly financial institutions currently hold over payment systems. This will likely further threaten central banks’ control of funds, a vital instrument for their management of the economy, and likely force central banks worldwide to rush their adoption of digital currencies.
With the introduction of private currencies, it is very likely illicit activities like terrorism financing and money laundering have gained new methods to evade the law. The implementation of digital currencies by central banks would be unlikely to entirely solve this issue, but it would likely help authorities in the detection of illegal financial transactions. If these currencies are adopted, attempts to breach sensitive digital information would very likely increase. It is likely the security of digital currencies would need to be substantial to protect the public and financial institutions from cyber-attacks, and minimize the risk of potential data leaks.
Date: November 11, 2021
Location: Virtual Conference
Parties involved: The European Commission; EU; The European Parliament
The event: The European Commission called its member States to agree on the Commission's proposed Markets in Crypto Assets (MiCA) framework this autumn. MiCA introduces a regulatory regime for crypto assets, including stablecoins, aiming to ensure harmonized regulation across the EU, making it easier for crypto companies to expand across the EU member States. The European Parliament, while making it clear it does not want to ban crypto-related businesses, still needs to define its position regarding MiCA. The Commission also aims to finalize its regulatory sandbox for financial products based on distributed ledger technology (DLT) by the end of the year. This pilot project would run for five years, ensuring regulation for market players issuing, trading, and settling securities using blockchain technology.
The European Commission's proposal is likely to ensure that legislation and regulatory regimes, on the EU level, develop simultaneously with the technical development. One of the major vulnerabilities of the increasing use of cryptocurrencies has likely been a lack of regulation, which very likely increases the chances of exploitation by malicious actors. Without regulation of cryptocurrencies, illicit activities such as money laundering and terrorist financing are likely to increase, as chances of detection and disruption are reduced. MiCA will likely be capable of minimizing this risk.
Harmonization of the regulatory framework concerning cryptocurrencies and DLT is likely to boost the use of such technology among EU-based companies. It is likely to attract foreign companies to the EU, as it will ease cross-border expansion and business. If foreign companies would adhere to the same regulation on the EU level, it is likely they would not face regulatory hardships when expanding on the EU market. Harmonization of such regulation is also likely to strengthen regulatory oversight over the new framework, as the same regulation will apply to all EU member States, and lack of compliance will likely be easier to identify.
The Counterterrorism Group (CTG) is the leading intelligence, security, and investigations company in the world. We are resourceful, innovative problem-solvers that are always on your side against terrorists, or other people intending to do harm to your situations that require something different. Our team of professionals has over 20-years of experience analyzing intelligence data gathering information on terrorists where others have failed. We also use our know-how for anticipating developments in terrorist attacks by using human asset reports to collect vital intel before it happens so you don't get caught without a plan. To find out more about our products and services visit us at counterterrorismgroup.com.
 Exclusive: UAE to audit all gold refineries in crackdown on illicit trade, Reuters, November 2021, https://www.reuters.com/world/middle-east/exclusive-uae-audit-all-gold-refineries-crackdown-illicit-trade-2021-11-08/
 UK to consult on possible central bank digital currency, Reuters, November 2021, https://www.reuters.com/world/uk/uk-consult-possible-central-bank-digital-currency-2021-11-09/
 European Commission Urges Members to Agree on Crypto Regulations, CoinDesk, November 2021, https://www.coindesk.com/policy/2021/11/11/european-commission-urges-member-states-to-agree-on-crypto-regulations/