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Cryptocurrencies and Financial Crime Compliance: opportunities for new regulatory paradigms?’

  • Full or part time
  • Application Deadline
    Tuesday, April 30, 2019
  • Funded PhD Project (Students Worldwide)
    Funded PhD Project (Students Worldwide)

Project Description

Cryptocurrencies like Bitcoin have now been in existence for over a decade and have prompted a significant movement in technological innovation and investment, and exploration into potential uses of Distributed Ledger Technology. As a market, the global capitalisation for cryptocurrencies reached almost a trillion US dollars at its peak in 2017, and has attracted a range of users such as retail and institutional investors, speculators and entrepreneurs, but also, quite understandably, criminals. Europol estimated in 2018 that criminals in Europe laundered over $5.5 billion through cryptocurrencies, and that the figure was growing.

The response to this threat by states and international organisations has been slow, but has gathered pace in the last couple of years. The EU, through its latest Anti-Money Laundering Directive 2018, (AMLD5), has sought to mitigate the risks of money laundering and terrorist financing by bringing cryptocurrency custodian wallet services and cryptocurrency exchange services within the scope of the anti-money laundering regime. This has been supported by the EBA, and the FATF, who have recently (October 2018) suggested even further widening the applicability of the AML regime to other entities involved in cryptocurrencies and related services. This regulatory turn assumes that the movement of cryptocurrencies can be policed and regulated in the same way as movements of traditional fiat currency. This may well be a flawed starting point for addressing the threats posed by cryptocurrencies in criminal markets and financial crime. Already, the AML regime is in crisis: it involves policing a massive number of databases which can be jurisdictionally complex; it is administratively burdensome and hugely costly for regulated entities; and, ultimately, it is widely regarded as wholly ineffective in identifying and stemming flows of illicit activities. Cryptocurrencies add a whole other layer of complexity for investigators, as high degrees of privacy and untraceability can be built into specific ‘coins’ (e.g. ZEC and Monero) or protocols (e.g. Zether), and where decentralised exchanges and peer-to-peer marketplaces are growing, and increasingly beyond the reach of criminal enforcement and regulation.

On the other hand, the technology behind cryptocurrencies could potentially be harnessed to offer different regulatory approaches, and a novel shift from ex-ante to ex-post compliance obligations. Cryptocurrency transactions on a publicly accessible global ledger, offer a pseudonymous system of value transfer, but could also provide high degrees of traceability and facilitate the seizure of suspicious transactions, if this was built into the underlying protocols. Rather than the current ex-ante AML paradigm, pseudonymous transactions would be tolerated but within a regime which would allow for the global search and analysis of specific regulated databases, where investigating authorities could compel actions by coin issuers in relation to dubious transactions and wallet addresses.

The purpose of this project would therefore be to explore: 1) the nature of cryptocurrencies in property, monetary, and criminal law theory 2) the suitability of the extant AML regulatory regime for this novel technological development 3) whether the underlying blockchain architectures could offer alternative regulatory approaches for policing and preventing criminality involving cryptocurrencies 4) the potential value and benefits of such alternative approaches for law enforcement, and the costs and compromises that would inhere in such a system 5) whether such an alternative approach could carry lessons and utility for the broader AML regime.

Funding Notes

The scholarship is open to +3 (3 years PhD only) commencing in October 2019 and will provide:
• A stipend indexed to the RCUK rate
• 100% Tuition Fee Waiver at the standard Home/EU or International rate
• Research Training Support Grant of up to £2,250 over 3 years

At least a 2:1 degree in Law or a Master's qualification in Law or equivalent is required.
Preference will be accorded to applicants who demonstrate proficiency in criminal law and/or financial crime compliance law and theory, and have a basic technical understanding of blockchain and distributed ledger technologies.

Related Subjects

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