Virtual currencies such as bitcoin are rarely used by criminal organizations to fund their activities, the European Commission (EC) has stated in a new report.

According to CoinDesk, the report was sent last month from the European Commission to the bloc's legislature and its body of national leaders. On the basis of an assessment of the terrorist financing threat relating to virtual currencies, the authors pointed out that terrorist groups may have some interest in using them to finance terrorist activities. They added that a “limited but increasing” number of cases related to terrorism financing using digital currencies have been reported.

However, the report said:

“The technology is quite recent and in any case requires some knowledge and technical expertise which has a dissuasive effect on terrorist groups. The reliance on virtual currencies to fund terrorist activities has some costs and is not necessarily attractive.”

Citing similar reasons, the report said that cases on money laundering via virtual currencies are also quite rare. It added:

“Few investigations have been conducted on virtual currencies which seem to be rarely used by criminal organisations. While they may have a high intent to use due to VCs characteristics (anonymity in particular), the level of capability is lower due to high technology required. Consequently, the level of ML threat related to virtual currencies is considered as moderately significant (level 2).”

The assessment of money laundering and terrorist financing vulnerabilities highlighted a number of factors including the lack of regulations on virtual currencies in the EU and high risk exposure due to certain characteristics including anonymity, cross-border and internet-based transactions. Moreover, the sector is currently not organised well enough to receive guidance or relevant information on AML/CFT requirements, the report said.

“The Commission would issue a report to be accompanied, if necessary, by proposals, including, where appropriate, with respect to virtual currencies, empowerments to set-up and maintain a central database registering users' identities and wallet addresses accessible to FIUs, as well as self-declaration forms for the use of virtual currency users," it added.

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