France Warns of Blocking EU Crypto Passporting Rights Over AML Risks

France has issued a stark warning that it may move to block the passporting rights of crypto firms across the European Union unless stronger safeguards are introduced to counter money laundering. Such a step would strike at the foundations of the EU’s single market, but officials in Paris insist that the risks posed by inconsistent supervision under the Markets in Crypto-Assets (MiCA) regulation are too significant to overlook. Without a uniform approach to enforcement, authorities warn that criminals could exploit weaknesses in national licensing regimes, using jurisdictions with lighter oversight as gateways for illicit finance that then flows freely across Europe.

The concern is not merely theoretical. MiCA was originally designed to harmonize rules across the 27-member bloc, yet its initial application has revealed uneven licensing practices. In this fragmented landscape, crypto firms can effectively “jurisdiction shop,” selecting member states where regulation is more relaxed, and then use those licences to passport operations across the EU. This vulnerability is profound: once a firm is authorized in one country, it can operate throughout the single market. If the licensing process is flawed at the entry point, the risks reverberate across the entire bloc. For money launderers, that gap represents a lucrative opportunity.

The risks tied to MiCA range from weak customer due diligence and ineffective transaction monitoring to inadequate suspicious activity reporting. Criminal networks can take advantage of exchanges that lack strong controls, moving funds through multiple accounts before reintegrating them as legitimate capital. Without standardized enforcement, some jurisdictions may apply only minimal requirements, offering illicit actors exactly the kind of cover they seek. France’s warning is therefore not only about protecting financial integrity but also about asserting regulatory leadership in Europe.

The divergence in licensing practices is already apparent. Luxembourg has granted approval to Coinbase, while Malta has licensed Gemini, yet France, Italy, and Austria are pushing for far stricter scrutiny before authorization is given. This divergence has serious implications, since once a crypto firm secures a licence in a more lenient jurisdiction, it gains full access to the European market. That dynamic creates the conditions for regulatory arbitrage, where companies deliberately seek out member states with weaker anti-money laundering (AML) checks. In practice, this can mean platforms with minimal beneficial ownership verification, loose onboarding standards, or deficient suspicious activity reporting are nonetheless able to operate across the EU. Criminals, in turn, can exploit these gaps by layering transactions through multiple platforms, obscuring the origin of illicit funds and eventually reintegrating them into the traditional financial system.

France and its allies argue that such disparities create an uneven playing field and expose the bloc to systemic financial crime risks. The loophole also undermines the EU’s own Anti-Money Laundering Directives, which emphasize consistency and cross-border coordination. MiCA’s uneven implementation threatens that principle and may, unless corrected, provide a blueprint for laundering by allowing bad actors to exploit the very differences the regulation was meant to eliminate. Calls for the European Securities and Markets Authority (ESMA) to take on direct supervisory responsibilities reflect the demand for centralized enforcement. With stronger powers, ESMA could impose uniform due diligence standards, transaction monitoring, and suspicious activity reporting requirements, closing off the vulnerabilities created by uneven national licensing. Without such authority, the EU risks remaining a patchwork where criminals can simply choose their point of entry based on regulatory laxity.

The push from France, Italy, and Austria goes beyond licensing disputes. They are advocating for an overall strengthening of MiCA, with explicit attention to AML safeguards. One priority is placing tighter restrictions on non-EU activities. Many crypto platforms operate globally, and their EU licence is often leveraged as a seal of credibility in other jurisdictions with far weaker controls. Limiting this spillover effect would prevent EU authorizations from indirectly legitimizing riskier operations abroad. Another area of focus is cybersecurity. Weak cyber defenses are not merely a technical issue but a direct AML vulnerability, since hacks and breaches can allow criminals to manipulate transaction data, launder stolen assets, or conceal illicit flows under the cover of digital disruption. By imposing stronger cybersecurity requirements, regulators hope to close yet another route for laundering. Token issuance is also high on the agenda. New token offerings can serve as ideal vehicles for layering and integration, two key stages in the laundering process. Criminals can use tokens to convert illicit funds, channel them through exchanges, and eventually cash out into fiat currencies, leaving behind a trail that is notoriously difficult to trace. Without tighter controls, token issuance risks becoming a laundering tool masked as financial innovation.

For regulators such as France’s Autorité des Marchés Financiers, these measures are critical to maintaining the credibility of the European financial system. As Paris argues, allowing one jurisdiction to set a lower standard effectively drags down standards across the EU. Its threat to block licences granted by other states is therefore not an idle gesture, but a reflection of the seriousness with which it views the laundering risk. The stakes, French officials insist, involve nothing less than the credibility of the EU’s financial oversight, investor protection, and compliance with global AML obligations.

At its core, the debate around MiCA is about much more than digital assets. It is a question of whether Europe can preserve the integrity of its single market while defending itself from financial crime. The possibility of laundering through passported licences not only erodes trust in the system but also creates openings for organized crime groups, terrorist financiers, and corrupt actors seeking safe channels for illicit funds. France’s stance underscores the tension between integration and security. Blocking recognition of licences from other member states would undermine the unity of the single market, but inaction risks turning the EU into a hub for laundering cloaked as regulatory compliance. The choice is therefore not merely administrative but existential: will MiCA reinforce Europe’s AML framework, or will it open new vulnerabilities that criminals can exploit at scale?

For now, the future of MiCA remains uncertain. ESMA has signaled a willingness to expand its oversight role, but several member states resist ceding national authority. Meanwhile, as more crypto firms apply for licences, the risk of laundering through uneven regulatory regimes grows. Without alignment across the bloc, the EU could soon find its credibility in the global fight against financial crime severely compromised. The ultimate test, as France warns, will be whether Europe prioritizes convenience for the crypto industry or resilience against money laundering—a choice that will determine not only the legacy of MiCA but also the reputation of the EU’s financial system and its place in the international struggle against illicit finance.

By fLEXI tEAM