De Nederlandsche Bank (DNB), the Central Bank of the Netherlands has announced new Anti Money Laundering (AML) regulations that require all local crypto exchange users to prove ownership of withdrawal addresses linked to their accounts.
In a factsheet released on Nov 11, the bank stated that crypto service owners must now ensure that their clients and all ultimate beneficiary owners (UBO) are not on a Dutch or European sanctions list.
Accordingly, all crypto withdrawals from Dutch exchanges will only be authorized if users provide further information about their transactions and wallets, as well as proof of wallet ownership.
As imposed by the Dutch central bank (@DNB_NL), Bitcoin exchanges in The Netherlands must now ask their customers to "prove" they really control their withdrawal address. No other European country requires this.— Aaron van Wirdum (@AaronvanW) November 17, 2020
Via @Bitonic: https://t.co/UEtVJD3e5z. pic.twitter.com/Nbsa9usSWF
New Crypto Regulations Explained
The factsheet quotes four Dutch and EU laws, namely the Sanctions Act 1977, Anti-Money Laundering and Anti-Terrorist Financing Act, the Implementation Act amending the fourth Dutch anti-money laundering directive, and the Regulation Supervision Sanctions Act.
It mandates crypto exchanges to check all incoming and outgoing transfers for links to individuals who are under financial sanctions.
To do this, all exchange customers are now required to provide pictorial or cryptographic evidence that they own the addresses linked to their exchange account. They also need to specify the reason for the transaction and the type of wallet in use.
Dutch exchange Bitonic explained how this would work in practice:
“From now on, we are required to ask additional details such as the purpose with which you intend to purchase Bitcoins and what kind of wallet you use. Furthermore, we are obligated to verify that you are the legitimate owner of the given bitcoin address by requesting you to upload a screenshot from your wallet, or by signing a message.”
Implications for Dutch Trading
The reaction to the announcement has been largely negative, typified by Bitonic’s own response in its blog post. There it stresses that it considers the new rules to be “ineffective and disproportionate.”
Some have pointed out that the required proof of ownership does not necessarily prove anything.
How can regulators be this stupid?— 6102 (@6102bitcoin) November 17, 2020
1. Screenshots can be trivially altered.
2. Actual recipient could cryptographically sign whatever arbitrary message the regulator requires. https://t.co/YvkuMGoQHz
On Oct 26, BeInCrypto reported that authorities had seized over $29 million in bitcoin from a Dutch couple in Hilversum, North-Holland, who had laundered the crypto via dark web markets.
The couple carried out illicit exchanges using person-to-person transfers for cash while meeting the criminals at public locations like busy restaurants.
It’s unclear how the new regulations will avoid the potential falsification pitfalls. Bitonic has revealed that it plans to submit a complaint about the regulatory decision and invited users to submit comments.