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G7 Approves Japan’s Cryptocurrency-Based SWIFT Alternative

The Japanese government is attempting to spearhead the creation of a new, global cryptocurrency payments network that would be similar to SWIFT.

The Japanese government is attempting to spearhead the creation of a new, global cryptocurrency payments network that would be similar to SWIFT.

Replace SWIFT with a global crypto payments network?

Citing an anonymous source, a Reuters report published on July 18 claimed that the country’s push for the network is motivated by a resolve to combat money laundering more effectively.

While plans are being kept firmly under wraps, the source alleged that Tokyo hopes to have the network established within the next few years. 

Plans for the network were reportedly initially proposed by Japan’s Ministry of Finance and its national regulator, the Financial Services Agency (FSA).

The prospective network has been approved for oversight by the Financial Action Task Force — a G7-initiated intergovernmental organization that promotes legal, regulatory and operational measures that aim to fight money laundering on a global scale. 

As Reuters notes, anti-money-laundering (AML) compliance has loomed large in regulators’, central banks’ and governments’ scrutiny of Facebook’s plans to launch its own stablecoin, dubbed Libra.  

Ahead of this week’s meeting of G7 finance ministers in France this week, Japan had set up a national liaison conference — involving the Bank of Japan, the Ministry of Finance and the FSA — tasked with investigating the impact of Libra on monetary policy and financial stability. 

The G7, cryptocurrencies and the fight against money laundering

France had pre-empted Japan in creating a G7 taskforce that will examine how central banks can regulate cryptocurrencies like Libra.

In June, the FATF revealed plans to strengthen control over crypto exchanges to preclude digital currencies from being used in money laundering and related financial crimes.

This spring, the Japanese House of Representatives officially approved a new bill to amend national laws that govern crypto regulation. The revised acts — which include specific AML measures focused on privacy coins — are set to come into force in April 2020.

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FATF to Release New Rules for Global Crypto Sector, Impacting Exchanges, Funds, Custodians

On June 21, the FATF will reportedly publish a note clarifying how participant nations should exercise oversight for the digital assets sector.

On June 21, the Financial Action Task Force (FATF) will reportedly publish a note clarifying how participant nations should exercise oversight for the digital assets sector, according to FATF spokeswoman Alexandra Wijmenga-Daniel. The news was reported by Bloomberg on June 12.

Per Bloomberg, the new rules will apply to a wide gamut of businesses dealing with cryptocurrencies and tokens — including crypto exchanges, custodians and crypto hedge funds.

FATF is an intergovernmental organization established on the initiative of the G7 to promote the implementation of legal, regulatory and operational measures to fight money laundering.

The FATF has developed a series of recommendations recognized as the international standard for combating money laundering and the financing of illicit activities. As Bloomberg notes, these recommendations are used by around 200 countries globally, including the United States.

Bloomberg reports that the FATF rules are expected to require firms ranging from major spot exchanges such as Coinbase to asset managers like Fidelity Investments to gather data on all clients initiating transactions worth over $1,000 or 1,000 euros.

They will also be asked to provide data on the recipients on the funds, and share that data with the recipient’s own service provider together with data on each transaction, Bloomberg claims.

The forthcoming rules will notably be subject to the interpretation of different national regulators.

Some industry participants have reportedly voiced concerns that blockchain technology would have to be fundamentally restructured — or otherwise a complex parallel system constructed between exchanges — in order to satisfy new reporting requirements, while others are concerned about the toll that increased compliance costs will exact on industry businesses.

In a comment, Jeff Horowitz — chief compliance officer at Coinbase — argued that “applying bank regulations to this industry could drive more people to conduct person-to-person transactions, which would result in less transparency for law enforcement.”

Jesse Spiro, from blockchain intelligence firm Chainalysis, has by contrast reportedly argued that the FATF’s forthcoming guidance is necessary for the industry.

As recently reported, the United States Financial Crimes Enforcement Network has recently issued new guidance for any entity whose activities fall under the purview of the country’s Bank Secrecy Act.

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What to Expect at G-20: Money Laundering and Crypto Discussion

On the eve of the G-20 Financial Ministers and Central Governors Meeting.

One of the main themes to be discussed at the G-20 Financial Ministers and Central Governors Meeting this weekend has to do with money laundering and cryptocurrency. What kind of agreement would be a surprise? Even for the purpose of introducing Anti-Money Laundering (AML), should we allow our financial privacy to be compromised? Alexander Zaidelson, the CEO of Beam, shared his views with Cointelegraph.

A new agreement on crypto and AML?

Jiji Press, a major Japanese publication, recently reported that there will be “a new kind of agreement as to cryptocurrency and AML/CFT.“ But for blockchain analysis firm Chainalysis, which has “engaged directly with global regulators,”  it is surprising if they agree on something new. Jesse Spiro, head of policy at Chainalysis, expects Financial Action Task Force (FATF) guidance, which will be published later this month, to reflect the draft guidance that they issued in March this year.

“It would surprise us if FATF substantially modified the pre-existing draft in any major substantive way.”

He summarized the FATF draft as an agreement in the industry that “certain standards, including proper Know Your Customer (KYC), enhanced due diligence (EDD), transaction monitoring, and suspicious activity reporting are necessary to combat money laundering”

The Financial Action Task Force (FATF) is an intergovernmental body formed to fight money laundering and combat the financing of terrorism. In a previous G-20 meeting, the G-20 said that they would “commit to implement the FATF standards as they apply to crypto-assets.”

An official self-regulatory organization in the host country watches the G-20 closely

The Japan Virtual Currency Exchange Association (JVCEA) refrained from predicting the outcome of the G-20 summit but told Cointelegraph that it would be ready for compliance:

“We are watching global movements as to AML/CFT very closely. We supervise our members, Japanese crypto exchanges to make sure that they comply with them.”

According to Alexander Zaidelson, the CEO of a privacy coin-centered Beam, the governments “may eventually strengthen the regulatory scrutiny to on- and off-ramps, i.e. places where cryptocurrency can be converted into Fiat currency, mostly exchanges” He also added that there also may be an “attack” on unregulated exchanges.

Beam is known as a privacy coin that adopts a protocol called MimbleWimble, which seeks to improve both privacy and scalability at the same time. When asked if he is concerned that the G-20 might somehow ban anonymous coins, Zaidelson answered:

“I don’t think it is possible to ban anonymous coins, and the regulators understand it.”

He continued:

“I think that a balance should be found between privacy and compliance, where people can choose the level of compliance that works for them. It is similar to how cash works today – private people do not need to report cash transactions, but businesses do.”

Although it is possible that the regulators could make it difficult to convert fully anonymous coins to fiat, Zaidelson argues that privacy coins’ opt-in compliance can deal with that case.

Money laundering, Privacy, and Public Interest

“I think that privacy is a basic human right,” according to Zaidelson, which he thinks is something to keep in mind when talking about money laundering. For him, it is not acceptable if the regulators have all financial transactions available for review at any given moment:

“It is not possible to check every PC and every mobile phone for the presence of a crypto wallet. It is not possible to block the Internet. Instead of engaging in a futile fight against anonymous cryptocurrency, the regulators should work together with the developers and find ways to make them a part of the existing ecosystem.”

Spiro of Chainalysis thinks of the balance between money laundering and privacy in terms of “public interest and safety.” He went on to say:

“For example, the European GDPR laws, which were enacted to protect privacy, have clear rules that outline when the transmission of personal data warranted, including if it is ‘in the public interest,’ or necessary to protect the public.”

Spiro thinks a similar criterion should be applied to cryptocurrency. He sees the merits of “cryptocurrency compliance best practices like KYC and blockchain analysis” in “detecting and preventing illicit activities such as child exploitation, human trafficking, narcotics trafficking, and terrorism.”

At the same time, he makes sure that Chainalysis does not collect any personally identifiable information from exchanges. What they can do instead is know “a particular address belongs to a customer at that exchange, not who the customer is”

It might be worthwhile checking what the G-20 agreement this weekend might imply for the balance between privacy and money laundering.

Read more about the previous G20: G-20 Summit Results: Crypto Is Important for Global Economy, Needs to Be Regulated and Taxed