The Australian Government has recently decided to regulate Digital Currency Exchange (DCE) providers, as they have inherent money-laundering and terrorism financing risks stemming from their high degree of anonymity and ease of cross-border transactions. As part of this regulation, DCE providers must provide regular reports to the Australian Transaction Reports and Analysis Centre (AUSTRAC). These reports must include, if known, the social media identifiers, unique device identifiers and digital wallet addresses of the relevant customer.
Many digital currencies operate on public blockchains that contain records of all transactions ever made, which is essential to their transaction validation and anti-tampering features. This public nature enables every client on the blockchain network to verify that any currency used in relation to a transaction actually exists, by looking through the transaction history of a particular digital wallet address. As such, being able to link digital wallet addresses to particular individuals will, over time, give AUSTRAC the power to trace suspicious transactions up the chain back to an individual. It may also be possible for the Australian Taxation Office to use this information in the future to ensure that individuals correctly report any capital gains resulting from the trading of digital currency for taxation purposes.
DCE providers were required to comply with the new anti-money laundering obligations from 3 April 2018 (subject to a short transitional period). They must:
- identify and verify the identities of their customers;
- on an ongoing basis, monitor customer activity and transactions on their services; and
- report suspicious transactions or transactions that involve at least AUD $10,000.
We think that it will be interesting to see if individuals that value the anonymity associated with digital currencies will move to those with enhanced privacy features such as Monero, as a result of this and similar regulation being introduced worldwide.