The Downsides of Digital Currency and the Limits of its Normative

Regulation

TATIANA HAJDÚKOVÁ

Department of Informatics and Management

Academy of the Police Force in Bratislava

Sklabinská 1, 835 17 Bratislava 35

SLOVAK REPUBLIC

SAMUEL MARR

Department of Criminal Law, Criminology and Criminalistics

Faculty of Law

Comenius University in Bratislava

Šafárikovo nám. 6, P. O. BOX 313, 810 00 Bratislava

SLOVAK REPUBLIC

Abstract: The paper reflects on the consequences of the bankruptcy of the FTX exchange in the context of

cryptocurrency volatility, as for the legal anchoring of cryptocurrencies in terms of de lege lata and de lege

ferenda, especially in the context of the need for agile proactive state response to criminal activities connected

to the use of cryptocurrencies. The nature of cryptocurrencies predisposes the commission of criminal activities

related to crypto predominantly in the online space, resonating with the necessity to increase transparency and

control of cryptocurrency transactions. The anonymity of coins and the limited ability to track them gives them

a clear technological advantage over the efforts of law enforcement bodies to map them or check them by

regulatory authorities. The subject of the empirical part of the paper is the analysis of a case study of a

regulatory offense committed by a selected service provider in the field of performing exchange activities in the

Slovak Republic.

Keywords: Cryptocurrency, Volatility, CyberSecurity, Money Laundering, normative regulation of virtual

currencies

Received: March 27, 2023. Revised: February 9, 2024. Accepted: March 12, 2024. Published: April 16, 2024.

1. Introduction

The cryptocurrency market is becoming more and

more successful in the financial sector. This is even

though past results and investor behavior are in no

way a guarantee of future results. The investor

behavior is generally highly unpredictable, similar

to the volatile market value of cryptocurrencies.

The reasons for the increasing demand for

cryptocurrencies could be perceived through their

transparency, decentralization, censorship

resistance, and, last but not least, decentralization.

These are attributes that centralized banking

institutions do not provide. The website of coin

market cap gives the list of cryptocurrencies traded

with their name, symbol, market cap, price,

circulating supply, and volume [17]. The initial

caution of investors is decreasing more and more,

and companies have begun to buy crypto-

currencies as reserve assets, which should allow

them to avoid inflationary pressures better [7].

Bitcoin (hereinafter BTC) is the best-known and

most popular virtual currency. One of the reasons

for this fact is that in the longer-term horizon of

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E-ISSN: 2945-1140

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recent years, the bitcoin policy of regular BTC

purchases achieved unrealized gains, despite

periods when its price fluctuated sharply. Trust is

rising not only among individuals, businessmen,

and private companies but also in public

administration. In December 2023, the city of

Lugano, Switzerland, officially announced that the

local government has launched the option of

Bitcoin and Tether (USDT) cryptocurrency

payments for taxes and all other community fees.

The city chose the Swiss cryptocurrency platform

Bitcoin Suisse as a partner in providing new

services. The goal of cryptocurrency adoption in

this city is to use Bitcoin technology as the basis

for the transformation of the municipal financial

system. It can be exchanged through reputable

intermediaries or exchanges, and this is done non-

cash, with a certain time delay [14]. Another

variant is special Bitcoin ATMs, which quite often

offer only purchases. As for Germany, Switzerland,

and Slovenia, the conditions for the use of virtual

currencies have been significantly opened by the

introduction of zero tax. The Slovak Republic is not

that progressive in this regard, however, since

January 1, 2024, the so-called time test has been

introduced, which means that after holding the

cryptocurrency for more than 1 year, converting it

to fiat currency or stablecoin is taxed at a rate of

only 7% (for comparison, in the Czech Republic

the profit tax is 15% regardless of the investment

time). There is no common taxonomy of crypto-

assets in use by

international standard-setting bodies. [12] The

adoption of cryptocurrencies has a growing

tendency in the population as well. It can be

noticed that the legislative activity of particular

member states, resulting from political, social,

economic, and

environmental conditions, leads nowadays to

reharmonization tendencies, which have not been

analyzed in the literature on this subject so far [10].

The article does not aim to question the future of

digital currencies, which, thanks to the high

development dynamics and rapid adaptability,

certainly have a promising future. Cryptocurrencies

are still in their infancy, and it's difficult to state

whether they're going to ever find a true

mainstream presence in world markets [19]. The

indisputable advantage of cryptocurrencies is the

"transnationality" of cryptocurrencies and their

flexibility to respond to any regulations. The

greatest advantages from the perspective of a

cryptocurrency owner are at the same time the

greatest threats from the perspective of regulatory

authorities. The benefit of this paper is pointing out

the real ways of conducting unusual business

transactions, which suggests the need to

significantly increase transparency and control over

entities engaging in business transactions with

cryptocurrencies. The paper aims to, based on

empirical data, highlight regulatory offenses

committed in the provision of services in the field

of performing exchange activities in the Slovak

Republic.

2. Literature Review on

Cryptocurrencies

According to [23], virtual currency means a digital

medium of exchange that is not issued or

guaranteed by a central bank or a public authority,

is not necessarily tied to legal tender, and does not

have the legal status of currency or money.

However, it is accepted by some individuals or

legal entities as a means of exchange that can be

electronically transferred, stored, or electronically

traded. In the context of the above, cryptocurrency

is computer data with an objective economic value

[5] with a significant potential to influence (both

positively and negatively) the global financial

system. To measure the worldwide recognition of

cryptocurrencies correctly and to determine

whether cryptocurrencies can provide a better

concept of international fund transfers, it is

necessary to deeply analyze different features of

these virtual assets based on volatility, speed of

transaction, transfer-related costs, security and

privacy [6]. That is reflected in the proactive

initiatives of central banks implementing the

"Central Bank Digital Currency" into their product

portfolio, which is a virtual currency issued by the

entities in question. In addition to the fact that the

aforementioned underlines the power of

cryptocurrencies, it cumulatively depicts the

difference between a virtual currency issued by a

state authority, which is quite well normatively

anchored, and standard virtual currencies, on the

normative regulation of which opinions diverge.

Extensive studies should be performed on the

economic effects of Bitcoin on long-standing fiat

currency performance and compare the results to

countries that are starting to adopt state-sponsored

cryptocurrencies [4], [1]. The apparent societal

interest in creating more favorable conditions for

trading with cryptocurrencies cannot be denied [8].

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In April 2023, the European Parliament approved

the Markets in Crypto-Assets (MiCA) Regulation,

which regulates and unifies the rules for investing

in cryptocurrencies in European countries.

Different legal environments in European countries

have limited several business activities with

cryptocurrencies [20], [21], which should be

changed by the new regulation. With the entry into

force of MiCA Regulation, a unified regulatory

framework should be provided for entities trading

with virtual currency. The most important

regulations will mainly concern entities that issue

and trade crypto-assets (including asset-referenced

tokens and electronic money tokens). The entities

will be obliged to comply with increased

transparency, publish authorization documents, or

supervise transactions. They will have to publish all

important information about risks, costs, and fees

associated with their operation more clearly and

transparently. Cryptocurrencies, considering the

underlying Blockchain Technology, have the

property of immutably storing the registration of all

transactions. Blockchain Technology has brought

an innovative way to exchange information [3].

Criminal activities using crypto tokens, cyber-

attacks on electronic wallet providers, and money

laundering are some examples [9].

3. Misuse of Cryptocurrency for

Socially Undesirable or Criminal

Activities

The nature of cryptocurrencies predisposes the

commission of criminal activities related to crypto

predominantly in the online space. The potential of

cryptocurrencies in the plane of non lege artis is

undeniable and the delay in reflecting the

competent authorities as well as the legislator on

the above-mentioned issue can therefore be

undeniably considered as a shortcoming. [11] As an

example, we will mention the insufficient

regulation of the cryptocurrency exchange, which

does not protect investors at a level comparable to

securities law. Kraken crypto exchange belongs to

the TOP 5 crypto exchanges in the world. In

November 2023, it was accused of insufficient

internal control and insufficient record-keeping,

which was partly reflected in mixing customer

money with its funds and paying operating

expenses directly from customer funds [16]. A

significant event in the context of the abstract of the

anticipated content focus of this paper is the year

2022 and the November bankruptcy of the FTXT

cryptocurrency exchange the collapse made it more

insecure for people to hold their savings in a crypto

bank leaving many customers and investors in a

loss of billions of dollars,[15]. From both an

economic and legal perspective, it is significant that

this bank conducted a broad portfolio of operations

(including those of a risky nature). Special mention

should be made of investment operations through

sophisticated structures in projects, the value of

which significantly decreased in a certain time

chain from the investment, as a result of which the

clients' financial resources were at risk. The

reasonable response to the above was the launch of

a massive sale of cryptocurrencies issued by the

FTX exchange through the exchange giant Binance.

This signal determined numerous withdrawals of

funds by FTX clients. FTX, like any financial

house, only had a certain limited amount of funds

that could be paid out immediately. As for massive

withdrawals, the aforementioned logically exceeds

the immediate capabilities of the financial entity.

The depicted events in fine led to the bankruptcy of

FTX and the related negative impact in the sphere

of crypto volatility, causing a significant decline in

its price [25]. We highlight the declines in the value

of Bitcoin; centralized crypto tokens with an

embodied subjective element of human decision-

making were particularly affected.

However, the question arises here from the

perspective of de lege ferenda to adopt adequate

legislative measures to prevent the above-

mentioned cases. In our opinion, the tightening of

regulatory activities towards cryptocurrency

exchanges and the conditions for their

establishment and operation is particularly

necessary. In our opinion, these are insufficiently

transparent. Here, as an example, we highlight the

"healing" renaissance in the banking sector after

2008, which is currently at a significantly higher

level. The undesirable reputational impacts on

cryptocurrencies (hereby echoing the need for

stricter normative regulation for crypto) stemmed

from violations of the capital markets law and

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fraudulent actions by Ton Kwan from South Korea.

He is accused of the token collapse of terraUSD

and Luna in May 2022 amounting to 40 billion

dollars. Due to his evasion, Interpol issued an

international arrest warrant for him in September of

that year. This significantly highlights the

importance of the stablecoin Terra as well as its

sister token Luna.

4. Unusual Business Transactions

The rights and obligations of legal entities and

individuals in preventing and detecting money

laundering and the financing of terrorism (AML)

and financing of proliferation (FP) are regulated by

special laws in countries, specifically in the Slovak

Republic by the so-called Anti-Money Laundering

Law (AML). This provides an exhaustive legal

definition in Section 2(1)a)-d), to which we refer

for a more detailed understanding of the glossed

issue. It is not our goal to cite legal standards in

legal language, and therefore, about the issue of

money laundering, we provide an inherently

practical approach and state that illegal income

(based on [22]) should be understood as a benefit in

the economic sphere determined by committed or

ongoing criminal activity, with the essential

component of income being ownership in the form

of property (including things). In money

laundering, the perpetrator's effort to conceal the

existence of income, mask its origin, and do so

through various actions, is a significant

characteristic. In simple terms, it can be said that it

involves more or less sophisticated camouflage of

the origin of the income, to make it appear lawful

outwardly. Demonstratively, we can mention the

concealment and hiding of items used in criminal

activities, including their possible frustration in

responding to requests for their surrender for

criminal proceedings, as well as confiscation and/or

forfeiture. The factual elements of the offense of

Money Laundering in most European countries use

legal features such as deposit, conceal, possess,

store, consume, move, transport, import, lend, etc.

By commenting on Section 2 of the AML Act, we

state that money laundering means actions

involving a change like assets, knowing that the

property comes from criminal activity or

participation in it, motivated by its concealment

and/or masking, including its illegal origin,

including the possibility of assisting a person

jointly committing a criminal offense to avoid

potential criminal consequences. Concealing and/or

masking the origin of assets knowing that it is

illegal, or acquiring or using it with such

knowledge, cannot be omitted either. Any of the

above-described actions committed in the form of

conspiracy, incitement, inducement, aiding, as well

as in the attempt stage should also be considered

money laundering. Another significant aspect is the

financing of terrorism, which is dealt with in

Section 3 of the AML Act. About the provision in

question, we state that gathering and/or providing

of items, finances, and/or any other means to

perpetrators of terrorism, such a group, and/or a

member of a terrorist group, or to commit any of

the 'package' of terrorist offenses, is a criminal

offense. to the interpretation of the relevant

conceptual elements, we define 'provision' (direct)

as the direct provision of items, finances, and/or

other means directly into the hands of the

perpetrator of any terrorist offenses. Indirect

provision, on the other hand, means carrying out

the above-described activities indirectly, for

example, through the use of foundations, thus

masking the real purpose. As the legislator

specifies means other than finances and items,

these mean, for example, the provision of food aid,

accommodation, etc. In fine, for a more detailed

understanding of the issue of terrorism, we refer,

among other things, especially to the Additional

Protocol to the Council of Europe Convention on

the Prevention of Terrorism of 22 October 2015,

also known as CETS 217, and the Directive (EU)

2017/541 of the European Parliament and of the

Council of 15 March 2017 on combating terrorism

and replacing Council Framework Decision

2002/475/JHA and amending Council Decision

2005/671/JHA (OJ L 88, 31/03/2017) by Act

297/2008. For the paper, it is necessary to clarify

the content of the concept of an unusual business

transaction (UBT), which, by the AML Act, means

an act that suggests that its execution may lead to

money laundering or the financing of terrorism.

Given the diverse possibilities of execution, the

characteristics of a UBT cannot be clearly defined,

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and therefore, they are descriptively specified in the

law. For example, transactions with an unusually

high volume of financial resources that deviate

from the usual framework or nature of a certain

type of trade, or have no apparent economic

purpose or clear legal purpose, are assumed.

Another characteristic of a UBT is the refusal

the client to identify themselves or provide the

information required for due diligence exercised by

the obliged entity. Similarly, the refusal to provide

information about a planned transaction or the

attempt to provide as little information as possible

or information that the obliged entity can verify

only with great difficulty or at high costs is

evaluated negatively. The prevention and detection

of money laundering (ML), financing of terrorism

(FT), and financing of proliferation (FP) are in the

interest of the state and are carried out at its level.

For this purpose, the Financial Intelligence Unit

(FIU) has been established. The FIU, as the central

national unit, represents an independent authority

responsible for receiving and analyzing information

about unusual transactions and other information

relevant to AML/FT/FP. The obligation to report to

the FIU also applies to suspicions of predictive

offenses, which the FIU forwards to law

enforcement authorities based on the subject matter

jurisdiction. The main tasks of the FIU include

receiving and process reports on UBT from a wide

range of obliged entities specified in the AML Act

and supervising obliged entities in complying with

obligations under the AML Act. In the context of

this paper, the term "obliged entity" refers to a legal

entity or an individual authorized to carry out

exchange activities. Cryptocurrency exchanges are

nodes through which cryptocurrencies are

distributed and serve to deposit cash into the

system, withdraw cash from the system, or transfer

between currencies [18]. Furthermore, the obliged

entity is required to prepare and update in writing a

program for their activities aimed at preventing

money laundering and the financing of terrorism,

taking into account their organizational structure

and the subject of their activities. During the year

For the purposes of the paper, a client means the final

user of benefits, i.e. any natural person for whose benefit

the exchange performs a transaction.

2022, the FIU received a total of 2,185 reports on

UBT from obliged entities, with the overall value

of transactions amounting to more than EUR 1,160

million, of which 60 were related to the provision

of services in the field of virtual activities [26].

5. Data and Research Methodology

The research methods used in this article are

critical Analysis. Metrics and analysis have been

prepared with the data provided by the FIU. The

subject of the empirical part of the paper is the

analysis of a case study of a regulatory offense

committed by a selected particular service provider

in the field of performing exchange activities in the

Slovak Republic. According to [23], a virtual

currency exchange service provider is a person

who, as part of their business activities, offers or

conducts transactions with virtual currency, the

subject of which is the purchase of virtual currency

for euros or a foreign currency or the sale of virtual

currency for euros or a foreign currency.

Cryptocurrency exchanges are nodes through which

bitcoins are distributed and serve to deposit cash

into the system, withdraw cash from the system, or

transfer. The data used were extracted from the

legally binding decision imposing a sanction by the

FIU against the legal entity providing virtual

currency exchange services

. By the procedure

following the Code of Civil Procedure, it was

convincingly proven and legally decided that a

regulatory offense was committed during the

conversion of funds worth almost 15 million euros

during the audited period from 01/11/2020 to

28/02/2022. It involved repeated violations of

obligations with the duration of the unlawful

conduct lasting approximately 1.5 years. According

to [23], the FIU can impose a fine on an

entrepreneur for non-compliance or violation of

any obligation stipulated by this Act. The fine can

be up to twice the unjust enrichment if it can be

determined, or up to 1,000,000 euros, whichever of

these values is higher. When determining the

amount of the fine, the FIU takes into account the

The subject of the business activity is the purchase of

virtual currency for euros or the sale of virtual currency

for euros.

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severity, duration, and consequences of the

unlawful conduct, if determinable, the level of

cooperation provided by the obliged entity during

the inspection, the size and nature of the business

activities of the obliged entity, and repeated non-

compliance or violation of obligations stipulated by

the Act or based on it.

6. Analysis of Selected Conversions in

the Case Study

The most common regulatory offenses committed

by the monitored obliged entity involved the failure

to exercise due diligence about a client, failure to

ascertain the origin of financial resources, failure to

assess transactions for their unusual nature, failure

to refuse to carry out specific transactions during

the notice period despite suspicions of money

laundering, and failure to report UBT to the FIU

promptly. In one case, it involved a failure to

provide the required cooperation to the FIU during

the inspection. The histogram shows the

frequencies of the particular conversions based on

their amounts expressed in euros.

Graph1 Histogram of the Distribution of the

Converted Amount in Euros

Source: Own processing from FIU data [24]

The intervals of the converted amount on the

horizontal axis are linearly graduated in increments

of 20,000 euros. The most common were individual

conversions with the amount of up to 20,000 euros

and up to 40,000 euros. Transactions with a low

risk of money laundering or financing terrorism,

based on risk assessment, have a designated

maximum threshold amount of 15,000 euros

according to [23]. Despite this limitation, more than

30 cases involved a one-time conversion exceeding

the amount of 200,000 euros. A more detailed

breakdown of conversion types is provided in Table

Table 1 The Share of Individual Types of Conversions

Conversion

Amount

Percent

Among Cryptocurrencies

177640.23

1.19%

Into Cryptocurrency

1065374.57

7.11%

Into Euro

13736314.47

91.70%

Total Amount

14979329.27

100%

Source: Own processing from FIU data [24]

The conversion between different types of

cryptocurrencies was quite rare, at approximately

1%. The exchange of euros for cryptocurrencies

was marginal as well. The most significant, with a

dominant share of over 90%, was the conversion of

cryptocurrencies (BTC, USDT, and USDC) into

euros.

6.1. Temporal Correlation and Origin of the

Converted Amounts by Countries

In addition to the business transaction amounts,

apparent signs of unusual business operations also

include temporal correlations.

Graph 2 Conversion Distribution by Months of the Year

Source: Own processing from FIU data [24]

The horizontal axis on Graph 2 is time-based,

distinguishing the months of the year, while the

vertical axis shows the converted currency

amounts. From the distribution in Graph 2, a

significant temporal unevenness is obvious, with

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

220000

240000

260000

280000

300000

Frequency

Bin

Histogram

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approximately one-third of the conversion amount,

nearly 5 million euros, carried out in November.

Two-thirds of the conversions, totaling

approximately 10 million euros, were carried out in

the fourth quarter of the monitored years. The

significant temporal disproportion of transactions

for calendar months in the year confirms that UBT

was carried out.

Graph 3 Origin Share of the Converted Amounts by

Countries

Source: Own processing from FIU data [24]

The total converted amount in euros is displayed on

the vertical axis of Graph 3, and the horizontal axis

there are the countries in which clients receiving

the service by the obliged entity were identified.

The inspection identified clients from eight

countries. The largest share of the converted

amount was identified among clients from Cyprus,

Hong Kong SAR in China, and Switzerland, the

countries considered tax havens. These countries

are characterized by low taxation, which allows

entrepreneurs and individuals to avoid and/or

optimize tax obligations. In a smaller amount,

almost 2.5 million euros, the conversion was

carried out by persons whose accounts were held in

the United Kingdom of Great Britain and Northern

Ireland, and we will also mention the accounts held

in Bulgaria with a conversion of more than a

million euros.

The intensity of conversions may be related to

inflation, where cash deposits in accounts held

worldwide lose value. A larger supply of funds

from foreign accounts held, for example, in

Switzerland, Cyprus, etc., were subsequently used

to purchase lucrative real estate in the Slovak

Republic. As stated in [26], the origin of financial

funds could not be unequivocally determined, but

some investigations pointed to a possible

connection with economic cases examined by law

enforcement bodies in Slovakia in the past.

6.2. Repeated Conversions by Clients

Interest in the virtual currency exchange services

may be repeated; however, in the case study we

have examined, a one-time transaction occurred

with only three clients, while all other clients

carried out a group of transactions. The graph

below shows the distribution of the converted

amount by clients.

Graph 4 Distribution of Conversions of Each Client

Source: Own processing from FIU data [24]

The horizontal axis of Graph 4 shows the country

where the client's account was held (a total of 23

clients) and the vertical axis shows the converted

amount for each client. The composition of the

columns consists of individual transactions of each

client. The clients on the horizontal axis are

arranged in descending order from left to right

based on the converted amount. The distribution of

clients in Graph 4 draws attention to three clients

with significantly high group transactions.

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

CY CH HK GB BG GB GB GB BG HK BG HK GB BG HK GB IL LT EE HK GB GB GB

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6.3. Details of Client Conversions with the

Highest Transaction Amounts

We will analyze the actions of the two largest

"investors" in more detail. The first client with

cryptocurrency held in Cyprus carried out only four

conversions but with enormous amounts.

Graph 5 The Timeline and Amount of Conversions

of a Client with Conversion from Cyprus

Source: Own processing from FIU data [24]

To highlight the temporal correlations, the

horizontal time axis has intervals of 21 days. The

vertical axis indicates the amount of conversion in

millions of Euros. There is no time regularity in the

monitored transactions. There is an apparent

tactical approach in the client's actions, where the

initial three conversions of cryptocurrency to euro

were carried out to assess the 'reliability' of the

service provider. The first conversions were carried

out with "smaller" amounts worth several hundred

thousand euros with quite short time intervals

lasting a few days. The last fourth transaction was

carried out after a break lasting more than a year

(approx. 13 months) when a huge one-time

conversion of almost three million euros was made

in just one transaction. The transaction was traced

based on the facts even after the period of the

inspection when the decision on administrative

proceedings had not yet been issued, and the

obliged entity continued with its activities. The

client took on enormous risks, but in this particular

case, it was successful. A very similar tactic with a

more cautious execution was implemented by

another client, whose transactions are depicted in

Graph 5. The chosen client converted

cryptocurrency from an account held in

Switzerland.

Graph 6 The Timeline and Amount of Conversions

of a Client with Conversion from Switzerland

Source: Own processing from FIU data [24]

Compared to the case from the account held in

Cyprus, there are several repeated initial trial

irregular conversions with a 'smaller' amount in the

range of tens to hundreds of thousands of euros,

culminating in two huge conversions with the

amounts exceeding half a million euros. Compared

to the first case, the frequency of conversions is

noticeably higher. The unanswered question

remains: what was the reason that halted the

'investor' from continuing the unusual trading

mediated by the monitored entrepreneur engaged in

exchange activities. Greater certainty in

distinguishing legal and illegal conversions and

better anticipation of when and by whom money

laundering/terrorism financing/proliferation

financing occurs would significantly facilitate the

work of regulatory authorities and law enforcement

bodies. Considering the longer-term behavior, that

showed a "willingness" not to prevent UBT. Both

analyzed cases share a very easily recognizable

feature, and that is the repeated conversion of high

to very high amounts of cryptocurrency. As long as

the obligation to report UBT is based on the

honesty of a service provider with the subjective

element of human-based decision-making, the

temptation to 'earn extra' will remain a stronger

motivator than fears of sanctions for a regulatory

offense. Exchanges are a key partner for law

enforcement bodies in collecting digital evidence

related to payments made in cryptocurrencies [18].

With this paper, we illustrated the consequences of

the failure to monitor processes in transactions

involving cryptocurrencies at the level of an

0,5

1,5

2,5

28/9/2021

19/10/2021

9/11/2021

30/11/2021

21/12/2021

11/1/2022

1/2/2022

22/2/2022

15/3/2022

5/4/2022

26/4/2022

17/5/2022

7/6/2022

28/6/2022

19/7/2022

9/8/2022

30/8/2022

20/9/2022

11/10/2022

1/11/2022

0,2

0,4

0,6

0,8

19/10/2021

26/10/2021

2/11/2021

9/11/2021

16/11/2021

23/11/2021

30/11/2021

7/12/2021

14/12/2021

21/12/2021

28/12/2021

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Volume 2, 2024

obliged entity. Virtual currencies enable, despite

clear identification of the asset, the anonymization

of the owner, which, combined with the possibility

of mutual substitution, constitutes an effective

obstacle to tracing the flow of finances. Thanks to

their easy convertibility, cryptocurrencies represent

an ideal means for ML/FT/FP. The limited ability

to track them gives them a clear technological

advantage over the efforts of law enforcement

bodies to map them or check them by regulatory

authorities. Without active participation by all

entities involved in virtual currency operations,

success in the fight against money laundering and

the financing of terrorism remains out of reach.

7 Conclusions

The Internet environment has open characteristics.

[2] The possibility of exchanging virtual currency

on various networks and the development of peer-

to-peer exchanges through decentralized exchanges

present a new, globally uncharted threat to the

financial market. Reflecting on the Markets in

Crypto-Assets Regulation in conjunction with

MiFID II, we state that it is one of the focal tasks of

the European Parliament, the Council, and the

Commission to bring the issue of unified normative

anchoring of cryptocurrency matters in the

European area to the successful end. In our opinion,

the issue of establishing mandatory registration of

fractional non-convertible tokens with the regulator

is imminent, while about ordinary tokens, we

propose that their registration be decided ad hoc by

the relevant national entity of the particular

country. We consider the idea of the Markets in

Crypto-Assets Regulation in the context of global

harmonization of legislation in the anticipated

direction within the common European framework

(especially regarding the regulation of

cryptocurrency issuers and service providers,

including the transparent disclosure of information)

to be positive. In response to the bankruptcy of the

FTX exchange, we turn our attention to the

activities of the International Organization of

Securities Commissions (IOSCO), which

harmonizes rules in the field of securities

concerning G20 countries. The IOSCO advocates

for the need for (more) adequate regulation of the

crypto sector with a particular emphasis on

conglomerate platforms. The IOSCO has already

established certain principles for the regulation of

stablecoins, and therefore, it is reasonable to expect

efforts towards normative regulation of platforms

offering crypto trading, especially exchanges,

shortly. In this context, it is worth noting that the

provision of services in cryptocurrency exchange

activities in the conditions of the Slovak Republic

is conditioned only by obtaining a trade license,

with no influence of legal mechanisms on the part

of the central entity represented, for example, by

the National Bank of Slovakia or another

responsible entity from the financial sector. In this

context, we note that this results in a

disproportionately higher proportion of registered

entities in our territory compared to the neighboring

countries in the European Union (for example, in

France and Germany, there were several dozens of

registered entities by the first half of 2020

compared to hundreds of registered entities in the

Slovak territory). About the 'internal' expansion of

the domestic territory, given the above, it does not

make sense to comment on the same normative

model determining the creation of legal

authorization more deeply. The classification of

these entities as obliged entities according to the

AML Act does not change anything in the above-

mentioned legal status either. In conclusion, we

reiterate that, by the Markets in Crypto – assets

Regulation, it is particularly important for

cryptocurrency companies to possess the necessary

license for the lege artis issuance and sale of digital

currencies in the European Union. We are

convinced of the substantive correctness of

tightening regulations, leading to subsequent

greater protection for investors. [11] We hold the

same opinion about the need to possess a valid

license. Although the criteria for the written

development and updating of the program of the

activities aimed at preventing money laundering

and the financing of terrorism, taking into account

its organizational structure and the subject of its

activities, have been established in the conditions

of the Slovak Republic, we have flagrantly pointed

out their ineffectiveness. A less formal approach to

the development of the program of own activities

aimed at preventing money laundering and the

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financing of terrorism by exchange operators, along

with its more effective inspection, would

undoubtedly better eliminate speculative attempts

by perpetrators at various forms of fraudulent

activities. One of the threats of ML/FT is the

absence of technological solutions in virtual

currency tracing. That does not refer to individual

transactions. Every single activity conducted in the

online environment leaves a trail [13]. The problem

lies in the anonymity of investors and the origin of

funds, which are exploited in various tax and

money laundering schemes.

Based on the analysis of operations related to

cryptocurrencies in the Slovak Republic, it can be

assumed in the field of ML/FT that foreign

'investors' will continue to seek and exploit

individual failures of virtual currency service

providers. Current regulatory and control

mechanisms are not sufficiently effective to stop

the purchase and conversion of virtual currency, the

use of electronic payment gateways, and products

from foreign fintech banks to complicate the

documentation of the flow of funds obtained

through criminal activity. The new possibilities

provided by anonymized tools used for transfers of

virtual currencies, the use of mixers, etc., are trends

defending against which is a significant challenge

in the field of virtual currencies. To increase legal

certainty and operational efficiency, it is necessary

to strengthen the cooperation of relevant domestic

and foreign authorities when exchanging and

verifying financial information and financial

analyses needed for the prevention, detection,

investigation, and prosecution of serious criminal

activities.

The paper was prepared with the support of the

project APVV-19-0102 Effectiveness of

preliminary proceedings – examination, evaluation,

criteria, and the impact of legislative changes.

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Contribution of Individual Authors to the

Creation of a Scientific Article (Ghostwriting

Policy)

The authors equally contributed in the present

research, at all stages from the formulation of the

problem to the final findings and solution.

Sources of Funding for Research Presented in a

Scientific Article or Scientific Article Itself

No funding was received for conducting this study.

Conflict of Interest

The authors have no conflicts of interest to declare

that are relevant to the content of this article.

Creative Commons Attribution License 4.0

(Attribution 4.0 International, CC BY 4.0)

This article is published under the terms of the

Creative Commons Attribution License 4.0

https://creativecommons.org/licenses/by/4.0/deed.en

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Financial Engineering

DOI: 10.37394/232032.2024.2.8

Tatiana Hajdúková, Samuel Marr

E-ISSN: 2945-1140

103

Volume 2, 2024