A few years ago, Cryptocurrency made itself known in our lives. Not only that, but it also made the financial market all over the world feel its presence.
It is quite unfortunate that the promotion of the crypto exchange by businesses and individuals made it a target for financial crimes.
Since it is still a recent venture, its AML (anti-money laundering) regulations still have numerous gaps.
As a result, criminals utilize this vulnerability in the system to launder money, commit fraud, bribery, and sponsor terrorist groups.
To stop this evil in society, regulations are imposed globally to assist companies within the industry to fight financial crimes.
Thus; various countries now apply or tighten up the existing cryptocurrency regulations.
Even though country-specified regulations generally are based on FATF recommendations, every country still has its specifics.
In this article, we will outline the latest AML regulations in certain countries. Before we go into details, let’s check out the;
Highlights:
- What is AML?
- Are cryptocurrency regulations observed worldwide?
- KYC (know your customer) in crypto
- Cryptocurrency Transactions Surveillance
- FATF Proposal for VASPs
- Worldwide Cryptocurrency Regulations
- Frequently asked questions
What is AML?
Anti-money laundering (AML) speaks about the policies, regulations, and laws that are established to stop lawbreakers from converting their illegally acquired cryptos into cash.
These regulations are particularly set up to prevent potential financial crimes and money laundering. Anti-money laundering laws need financial institutions to help them observe customer dealings.
That is the best way to notice any suspicious transaction that may hint at money laundering or financial crimes.
The financial institutions will also report these suspicious dealings on time. Moreover, the institutions are needed to confirm the customer’s identification through KYC (know your customers) process.
Are cryptocurrency regulations observed worldwide?
Presently, crypto laws are observed in various jurisdictions. Also, it goes on to spread out all over the world.
For instance; there is the FATF (Financial Action Task Force), which operates at the international level. They have to monitor terrorist financing and worldwide money laundering.
In addition, the Financial Action Task Force delivers worldwide measures to limit the exploitation of virtual assets. These measures are then applied in one way or the other in the national law.
FATF amended Recommendation 15 in 2019 to suit the specific VASPs (Virtual Assets Service Providers) which needed similar regulations to financial institutions.
Recommendation 15 comprises licensing or registration of Virtual Assets Service Providers for the province where they are set for.
Also, it complies with anti-money laundering regulations like; sanctions screening, transactions monitoring, Know Your Customer, Customer Due Diligence, and other injunctions.
However, Virtual Assets Service Providers do not have any global regulations for licensing or registration.
Know Your Customer (KYC) in crypto
KYC inspections are relative to Customer Due Diligence (CDD) which is compulsory for cryptocurrency transactions in most provinces.
The KYC inspections aim to pinpoint and verify customers before initiating business relations, allowing deals, and other transactions required by law.
The least information needed at the time of the customer onboarding exercise is based on the particular country’s regulations. Ordinarily, what you will see is;
- Date of birth
- Customer’s full name
- Residential address
This information will then be compared to the government-provided documents which the applicant submitted. The KYC inspection during the onboarding process comprises;
Identification
They use the identification process to secure the customer’s personal information.
Liveness Check
A Liveness check is used to find out if the customer is real or automated.
Verification
This process is utilized to compare the client’s bio-data to the documents provided by the government.
Address Verification
This check is used to know whether the customer came from the exact region he/she claimed.
Cryptocurrency Transactions Surveillance
Cryptocurrency transaction surveillance is one of the anti-money laundering requirements for Virtual Assets Service Providers. VASPS needs to monitor the client’s activities and deals continuously. That is the best way to decide and disclose the following to the authorities;
- Any suspicious terrorist financing or money laundering
- Any unusually big or complex dealings
- Any dealings that have an abnormal nature
- Any transaction that does not have a clear legal or economic purpose
In addition, the Financial Action Task Force (FATF) raises a red flag anytime they notice any of the following;
- Unidentified Dealings: The FATF is bound to raise an alarm if they notice any usage of personal coins, trades of unlawful exchanges, or via proxies. Also, anonymous usage of a particular IP address to work on many crypto wallets will receive a red flag.
- Transactional Behavior: Any dubious crypto transaction style like fast withdrawals and deposits of funds in a newly created account or high-level transaction frequency within a short time will be red-flagged.
- Inadequate Customer Due Diligence (CDD): FATF also reports any crypto dealings that have to do with accounts that avoided or refused to provide adequate identification information.
- Money-Mules: Any transaction concerning senior citizens or those customers that are financially vulnerable and who are manipulated as mules to launder money for launders will be red-flagged.
FATF Proposal for Virtual Asset Service Providers (VASPs)
The Financial Action Task Force (FATF) proposal needs VASPs and other financial institutions involved in VA (virtual asset) transfer to adhere to their travel rule.
The travel rule involves the collection and sharing of personal information of the senders and recipients of a transaction. In addition, the Financial Action Task Force offered a threshold amount of 1000$/ € for VA transfers.
On the other hand, if the transaction amount is lesser than the threshold, VASPs will also have the benefit of lesser stringent requirements. For instance; the information required from them will be less.
However, Recommendation 16 states that countries have the right to forgo or establish their thresholds, and this is known as the Travel Rule. Already, FATF-style regional bodies and FATF members have adopted the Travel Rule in their respective AML laws.
Worldwide Cryptocurrency Regulations
Let’s check out these outlines of crypto regulations around the world.
- United States of America
Key Regulator: The key regulators of the USA crypto laws are the FinCEN (Financial Crimes Enforcement Network), SEC (Securities and Exchange Commission), and the CFTC (Commodity Futures Trading Commission).
Key Regulation: The United States BSA (Bank Secrecy Act) and its amendments supplied by FinCEN Implementing Act, AMLA; Patriot Act.
Affected Persons: Anti-Money laundering/CFT in the United States affects persons which the BSA refers to as “financial institutions”.
They are those that futures commission merchants, MSBs (Money Services Businesses) as explained by FinCEN, introduce brokers mandated to list with CFTC, mutual funds, and broker-dealers mandated to list with the Securities and Exchange Commission.
After the AMLA 2021 amendment of the BSA, the definitions of financial institutions were expanded to include;
- Organizations “engaged in the exchange of funds, currency, or values that substitute for funds or currency”.
- An individual that “engages as an organization to transmit funds, currency or any value that substitutes for currency. Also, an individual who engages as a corporation in an unofficial money transfer structure or any network of persons that engages as a corporation to facilitate the international or domestic money transfers outside the standard financial institution’s structure”.
Travel Rule: The United States of America implements the Travel Rule
- Estonia
Key Regulator: The main people that regulate the AML crypto regulations are the Estonian Financial Intelligence Unit.
Key Regulation: The main regulation is the Estonian Money Laundering and Terrorist Financing Prevention Act.
Affected Persons:
- The virtual currency (VC) wallet service
- VC exchange services
- VC transfer services
- Businesses in the name or working for an issuer of VC of a targeted or public sale or offering connected to the supply of such currency, or the delivery of other connected financial services.
Travel Rule: The Travel Rule is implemented in Estonia
- Turkey
Key Regulator: The main regulator of the AML in Turkey are the MASAK (Financial Crimes Investigation Board) and the CBRT (Central Bank of the Republic of Turkey).
Key Regulation: The major regulation here is on the Financing of terrorism, Measures Regarding the Prevention of Laundering Proceeds of Crime, and the misuse of Cryptocurrency Assets in Payments.
Affected Persons: The Anti-Money Laundering Regulation did not offer any clarification to the definition. However, the MASAK Guidance states that the providers of cryptocurrency asset services negotiate the selling and buying of cryptocurrency assets via E-trading platforms.
Travel Rule: The Travel Rule status in Turkey is still unclear.
- France
Key Regulator: The key regulator is the AMF (Financial Markets Authority).
Key Regulation: The major regulation is the PACTE law and the Monetary and Financial Code.
Affected Persons: A layman can become a DASP (Digital Asset Service Provider) if he/she can provide 1 of the following digital assets services stated by Article L. 54-10-2 of the Monetary and Financial Code:
- Custody services in the place of 3rd parties of digital assets or to gain access to digital assets where you can apply it in the structure of personal cryptographic keys to hold, store, and transfer digital assets.
- The business of buying and selling digital assets as a medium of exchange
- The business of trading digital assets for more digital assets
- The running of a digital assets platform
- The receiving and transmitting of digital assets orders for clients, managing digital assets portfolios, and giving advice to digital assets investors on digital assets.
Travel Rule: The Travel Rule is not implemented.
- South Korea
Key Regulator:
The key regulator here is the FSC (Financial Services Commission)
Key Regulation: Major regulation in South Korea is the Act About Reporting and Use of Specific Financial Transaction Information.
Persons Affected: The affected persons here are business activities involved in;
- Selling or buying of virtual assets
- If you are involved in the exchange of virtual assets with more virtual assets.
- Acts of managing or storage of virtual assets
- “The act of acting as an agent, arranging, or brokering of acts of 1) & 2”
- Other acts are pronounced by a Presidential Decree which has a high possibility of usage in public intimidation sponsoring and money laundering of virtual assets.
Travel Rule: South Korea implements the Travel Rule
- The Netherlands
Key Regulator: The key regulator here is De Nederlandsche Bank
Key Regulation: Main regulation is by Wet ter voorkoming van witwassen en financieren van terrorisme-Wwft (The Money Laundering & Terrorist Financing Prevention Act).
Persons Affected: The affected persons include;
- Legal entities or natural personalities that offer commercial or professional services for the transactions between fiat currency and virtual currency.
- Legal entities or natural persons who provide commercial or professional custodian wallets.
Presently, the entities that provide crypto-crypto transactions are not yet regulated.
Travel Rule: The rule is not yet implemented here
- Singapore
Key Regulator: MAS (Monetary Authority of Singapore)
Key Regulation: The PSA (Payment Service Act)
Persons Affected: The affected persons are as follows;
- Services related to digital payment tokens- that is; selling or buying DPTs in the place of money or more DPTs.
- Any transaction that facilitates the digital payment token exchange- operation or establishment of DPTs (Digital Payment Token) exchange.
Presently, the regulators in Singapore plan to implement amendments to monitor cryptocurrency wallets.
Travel Rule: The Travel Rule is implemented in Singapore
- Belgium
Key Regulator: Belgium’s major regulator is the FSMA (Financial Services and Markets Authority)
Key Regulation: Key regulation adhered to in Belgium is the Law about preventing terrorist financing, restricting cash usage, and money laundering.
Affected Persons: The affected persons are providers of custodian wallets. Also, the Virtual Assets Service Providers (VASPs) are affected. That is; those that carry out services between fiat and virtual currencies.
Travel Rule: Not implemented
- Switzerland
Key Regulator: The key regulator here is the Swiss FINMA (Financial Market Authority.
Key Regulation: Main regulations are Anti-money laundering Ordinance (AMLO-FINMA), AMLO-FINMA7, and AMLA (Anti-Money Laundering Act).
Affected Persons:
Article 2 of the Anti-Money Laundering Act and 4 of the Anti-Money Laundering Ordinance, state that financial intermediaries are affected, persons. It includes;
- Wallets
- VA (virtual assets) exchanges
- Trading platforms
Travel Rule: Travel Rule is adhered to in Switzerland.
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FAQ
What Benefits Do Cryptocurrency Anti-Money Laundering Have?
When you comply with the AML crypto regulations, it can mitigate terrorist financing opportunities and money laundering. Anti-Money Laundering cryptocurrency exchanges provide transparency and trust with their clients. In addition, it reduces the chances of financial crimes as well as assists the stabilization of the cryptocurrency market.
Why is cryptocurrency Anti-Money Laundering Important?
The present anonymity of the crypto exchanges allows cybercriminals to carry out their illegal dealings. Lack of verification and identification monitoring on the destination and source of funds is a great risk that can result in fraud.
How Do Cryptocurrency Exchanges Ensure Anti—Money Laundering Compliance?
The FATF provides guidelines that can help industries with compliance progress. Organizations must adhere to the rules imposed by the FATF to avoid penalties from the government. Companies make use of these services to comply with the AML regulations;
- KYC (Know Your Customer)
- CDD (Customer Due Diligence)
- PEP and Sanctions lists
- Adverse Media Screening
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