EU-Funded Report Calls for Crypto ID Checks, Police Training to Combat Darknet Markets

Featured SpeakerChristy Goldsmith Romero

CommissionerU.S. Commodity Futures Trading Commission

A European Commission-funded report has called for tougher identity checks on crypto exchange users as regulators seeks to combat the rising use of darknet marketplaces to buy illegal substances.

The report, commissioned by the European Monitoring Centre for Drugs and Drug Addiction, an agency of the European Union, comes as lawmakers in the bloc push for tougher anti-money laundering checks on transactions made using cryptocurrency – and it cautions that better police training could prove more effective than outright bans.

“It is critical that countries around the world implement the recommendations from the Financial Action Task Force,” ensuring the users of exchanges, brokers and ATMs can be identified when they cash out illicit gains, it added.

The report, authored by Kim Grauer and Eric Jardine of Chainalysis, cites the use of darknet marketplaces as persistent and rising in spite of enforcement efforts. Chainalysis is a blockchain research platform that provides blockchain analytics solutions to regulators, and has millions of dollars of contracts with U.S. government agencies.

Forbidding the use of cryptocurrency entirely does little to curb darknet activity, and police-led closures such as that of Hydra in 2022 tend to have only short-lived impacts, as other alternatives spring up to replace it, the report said – but investigators can also improve their ability to respond.

Law enforcement “require training on the technologies that are being employed and the new investigative techniques necessary for conducting these sorts of investigations,” the report said, citing skills such as using encrypted platforms, and how to trace and seize crypto.

EU lawmakers are due to vote next week on landmark new licensing rules for the crypto sector, which would include identity checks on users transferring funds. The European Parliament has also pushed to impose upper limits on anonymous crypto transactions as part of a wider money-laundering overhaul.

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