The EU's Anti-Money Laundering Authority (AMLA) is breathing down the necks of crypto firms, and while the intention to curb illicit finance is laudable, the execution feels like trying to plug a dam with cotton candy. Bruna Szego’s call to be vigilant against AML dangers should still be echoing in the ears of VASPs. The question is: are we actually solving the problem, or just creating new, more complex ones?

Anonymous Wallets' False Sense Security

The complete ban on anonymous wallets and privacy coins feels like using a sledgehammer to crack a nut. Now, of course, these tools can be misused for nefarious purposes. But think about it: banning them doesn't eliminate illicit activity, it just pushes it further underground. It's like Prohibition all over again. Did banning alcohol stop people from drinking? No, it simply drove the demand for alcohol into a black market controlled by violent gangsters.

Here's the unexpected connection: remember the Clipper chip fiasco of the '90s? The US federal government has long desired a backdoor into encryption, asserting that it was needed to keep Americans safe. The tech community was right to have a furious negative reaction at this, claiming it would broadly undermine security for all. This AMLA ban feels eerily similar. Forcing crypto firms to ditch privacy-enhancing technologies punishes all users and specifically criminalizes anyone who values privacy. In reality, this step endangers the financial privacy of all Americans. How do you protect whistleblowers, activists in authoritarian regimes, or just people who want to maintain their financial independence? Are we truly ready to give up such bright line rights on the altar of AML compliance?

Data Access: A Honey Pot for Hackers

The requirement for VASPs to provide "direct, immediate, and unfiltered access" to crypto-asset account data is downright terrifying. It’s for all intents and purposes designing a giant honeypot for hackers. If a government agency has the resources to safely access this data, so does a well-resourced and focused attacker.

Consider this: the Equifax data breach exposed the sensitive information of over 147 million people. Now picture a similar breach where sensitive crypto data is exposed. The consequences could be catastrophic. Financial identities compromised, entire wallets emptied, and a creeping loss of faith in the whole crypto-sphere. Is AMLA truly up to the task of taking on this much authority? What plans are in place to address the liability if (and it’s more of an when) this data gets hacked?

We’re discussing putting deeply sensitive data well within reach of state and local government agencies, but hackers and other malicious actors. This is more than bad policy – it’s downright reckless. This is akin to leaving the keys to Fort Knox out on the table for all to grab.

Diverging Rules, Fragmented Compliance

As Bruna Szego herself warned, the danger is of a diverging and discriminatory application of rules across national authorities. This is a massive problem. The EU’s flagship objective has always been to be a single market. As soon as every member state starts to interpret and enforce AML regulations in their own way, we’ll have a real compliance nightmare for VASPs.

Now picture a crypto company doing business across all these EU member states. And they will need to do it while navigating a patchwork of inconsistent rules, reporting requirements and enforcement actions. This unnecessary complexity will suffocate innovation, drive up compliance costs, and eventually cripple the ability of legitimate businesses to compete. Most importantly, this will disproportionately harm smaller firms, providing larger, more established players an unfair advantage.

The inconsistency Szego points out isn’t merely an implementation nuisance—it’s a core defect in the AMLA’s strategy. It cuts against the whole point of having a unified regulatory framework and opens the door to regulatory arbitrage. Think about the financial crisis of 2008. The patchwork of regulation around the world meant that banks were able to take advantage of loopholes and participate in riskier behavior. Or are we fated to continually make the same mistakes?

The AMLA must fix these loopholes before these new regulations are phased in completely by 2027. If not, they face the prospect of building a system that is indeed both ineffective and harmful. They need to create the technical standards to be more transparent. They should be spending on data security infrastructure and taking a more risk-based approach to regulation. Because honest to god, right now it feels like they’re just constructing a house of cards on a house of cards foundation.

To not do so will not only drown compliance – it risks to drown the whole of the European crypto industry.

  • Establish a Centralized EU Crypto Data Security Agency: Dedicated to protecting crypto data.
  • Create a Standardized AML Reporting System: Eliminate inconsistencies across EU member states.
  • Develop a "Privacy-First" Regulatory Framework: That protects user privacy while combating illicit finance.

Failure to do so won't just sink compliance; it could sink the entire European crypto industry.