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FATF Issues Preliminary Guidelines on Digital Assets to Combat Money Laundering

The Financial Action Task Force has updates its guidelines on digital assets to combat money laundering and terrorism financing.

The Financial Action Task Force (FATF), an intergovernmental organization that develops policies against money laundering, has published preliminary guidelines for cryptocurrencies on its website on Thursday, Feb. 28.

The FATF held a meeting on preliminary crypto requirements on Feb. 22. According to the organization, the new text of the Interpretive Note to Recommendation 15 — which contains  requirements for regulating and supervising digital asset services providers — has been finalized.

However, the FATF expects to benefit from private sector consultations that are scheduled for May, asking entrepreneurs to send their comments to the organization by Apr. 8. Once the recommendation is finalized, it can be formally adopted by the FATF. The final meeting is scheduled for June 2019.

Firstly, the task force urges countries to follow guidelines to prevent money laundering and terrorism financing with cryptocurrencies — an amendment from a previous edition signed in 2018.

Moreover, digital asset providers are obliged to be licensed or registered in the jurisdictions they were created, and their owners have to provide identity information to relevant authorities. The FATF also adds that crypto products must sometimes be certified, should the host country requires it.

The guidelines also compel governments to form adequate regulation and supervision over digital assets. The FATF emphasizes that monitoring must be conducted by a competent authority instead of a self-regulatory body in order to successfully prevent money laundering and terrorism financing. The country that applies the guidelines must also establish criminal, civil or administrative sanctions for violating the rules.

Finally, the FATF obliges digital asset providers to obtain and keep records of senders and beneficiaries of crypto transfers, and to provide the data to appropriate state or international authorities should they require it. If a transaction is suspected to be illicit, the country has to take measures to freeze the action or prohibit the transfer.

The FATF currently has over 30 member countries. European countries make up a large percentage of the member states, including the United Kingdom, Switzerland, Germany, France and others. While the organization first issued a “risk-based-approach” guideline for cryptocurrencies in 2015, the organization amended and updated it in late 2018 following the pop of the initial coin offerings (ICO) bubble that began in 2017.

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Money-Laundering Task Force Wants Binding Rules for Crypto Exchanges

The Financial Action Task Force (FATF), an intergovernmental organization that develops policies to tackle money laundering, is planning to develop binding rules for the world’s cryptocurrency exchanges, a report indicates.

According to a Reuters report on Tuesday, an unnamed Japanese government official said that the group aims to hold talks around the subject starting on June 24.

The move was apparently initiated by calls for a globally coordinated policy on cryptocurrencies from the world’s economic leaders at the G20 meeting in March.

While current non-binding guidelines suggest some money-laundering controls for the industry – including that exchanges should be registered, suspicious activity reported and customers verified – it is currently at different nations’ discretion as to whether and how they are implemented.

The FATF talks, according to the report, will also look at the effectiveness of the rules, their application to new exchanges and how any new system would work with nations that have banned crypto trading.

Japan – which passed a law in April 2017 recognizing cryptocurrencies as a legal method of payment and also set up a registration system for cryptocurrency exchanges – will take over leadership of the G20 in 2020. Reuters cites the official as saying the country’s government intends to push for binding rules for crypto exchanges by 2019 or earlier if possible.

At the G20 meeting in March, member nations present agreed that issues with cryptocurrencies need to be examined, but that more information was required before any regulations could be proposed. As a result a deadline was set in July for recommendations on what data is required.

Further, in a report to the G20 the same month, another intergovernmental body, the Organization for Economic Co-operation and Development (OECD), called for cooperation on studying the tax consequences of cryptocurrencies.

Bitcoin and fiat currencies image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Canada Releases Official Draft of New Crypto Regulations Focused on KYC/AML

The Canadian government has released an official draft of new regulations on crypto exchanges and payment processors, Canada Gazette reports June 9.

According to the draft, the new regulations seek to address a “number of deficiencies” that the Financial Action Task Force (FATF) outlined after their evaluation in 2015-16, namely in strengthening Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime (AML/ATF).

The new regulations will treat crypto exchanges and payment processors as money service businesses (MSB), which requires them to report large transactions — those over $10,000 Canadian dollars ($7700 USD) — and a new Know Your Customer (KYC) threshold set at transactions of $1000 CAD ($770 USD).

The draft also contains a cost-benefit analysis, which reveals the regulations would cost about $61 CAD mln ($47 mln USD) over the next 10 years.

Francis Pouliot, co-founder of Montreal-based blockchain consulting firm Catallaxy, tweeted his response to the draft:

“New requirement: “Large Virtual Currency Transaction Record” means businesses required to ask for and keep details of every transaction over $10,000, like large-cash transaction reports. That’s going to be extremely difficult and invasive to implement. I will object to this.”

The FATF is an intergovernmental organization that develops policies to combat money laundering. These policies are not legally binding, but according to the draft, Canada believes that implementing these regulations will have a positive impact on the country’s international reputation.

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Bithumb Exchange Bans Trading Activities in 11 Different Countries

Bithumb, the biggest South Korean exchange, has banned trading activities in 11 different countries around the world. Among the affected nations we find North Korea, Iran and Iraq. The main intention behind the ban is to comply with global anti-money laundering norms.

Bithumb Blocks Trading in 11 Countries

The most important crypto exchange South Korea will be working so as to comply with international regulations and anti-money laundering rules. The exchange will block transactions from residents that are part of the Non-Cooperative Countries and Territories (NCCT) blacklist.

These countries are seen as nations that did not comply with international money laundering, terrorist financing and other norms. The international organism in charge of the list is the Financial Action Task Force – also known as FATF.

The remaining countries in the list are Bosnia and Herzegovina, Ethiopia, Syria, Iran, Iraq, Sri Lanka, Trinidad and Tobago, Tunisia, Vanuatu and Yemen. With this measure, new users from these countries will not be accepted in the platform and old accounts will be disabled on June the 21st.

According to data from CoinMarketCap, Bithumb is the fifth cryptocurrency exchange by trading volume in the market handling $477 million dollars in the last 24 hours. The most important trading pairs are EOS/KRW, TRX/KRW and BTC/KRW and they account for 75% of the total trading volume on the platform.

FATF Rules

This is a very important decision because during the last G-20 financial meeting, the participating countries decided to implement the Financial Action Task Force on Money Laundering standards. In a document released by the G-20 group they explain that they will be committed to implement these rules on virtual currencies.

The document said:

“We commit to implement the FATF standards as they apply to crypto-assets, look forward to the FATF review of those standards, and call on the FATF to advance global implementation. We call on international standard-setting bodies (SSBs) to continue their monitoring of crypto-assets and their risks, according to the mandates, and assess multilateral responses as needed.”

The world is moving towards the implementation of these standards, which will allow the cryptocurrency market to gain legitimacy and receive more investors. The FATF will be reporting to the G-20 on how countries are moving into this direction. Additionally, what Bithumb is doing, is part of these efforts to be internationally compliant.

“We ask the FSB, in consultation with other SSBs including CPMI and IOSCO, and FATF to report in July 2018 on their work on crypto-assets,” reads the document released by the G-20 members.

All over the world, different countries are implementing regulations on the cryptocurrency market and crypto-related activities. The main intention is to provide a clear legal framework for enterprises, individuals and institutions to operate.

Other countries like China or South Korea, have decided to take stricter measures on the market. China has totally banned cryptocurrency trading activities and Initial Coin Offerings. At the same time, South Korea has imposed severe rules for virtual currency exchanges and investors that want to participate in the crypto market.

The post Bithumb Exchange Bans Trading Activities in 11 Different Countries appeared first on Ethereum World News.

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A G20 Crypto Policy? Let's Hope It's a Pipe Dream

Marc Hochstein is the managing editor of CoinDesk. 

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.

“Let’s form a committee to explore the formation of an exploratory committee!”

OK, that’s not quite a fair summation of the recommendations on cryptocurrency that came out of the G20 meeting of finance ministers last week. But it’s safe to say the globally unified policy that the world’s economic leaders are now seeking could be a long time coming, if it comes at all.

And whether such coordination would be a positive for the crypto community is also questionable.

For those who were too transfixed on bitcoin’s price gyrations to pay attention to the bureaucrats gathering in Buenos Aires (I don’t blame you a bit), here’s a quick recap.

The member nations present agreed that cryptocurrencies needed to be examined, but that more information was required before any regulations could be proposed, according to the press briefing by Argentina’s central bank chief, Frederico Sturzenegger.

While that sounds like punting, the members did set a firm deadline in July for recommendations on what data is needed, Sturzenegger told reporters.

Once you’ve digested that, here’s one more spoonful of alphabet soup: In its report to the G20, another intergovernmental body, the Organization for Economic Co-operation and Development (OECD), called for cooperation on studying the tax consequences of cryptocurrencies.

In addition to moving slowly (much slower than the rapidly evolving cryptocurrency markets), the G20 faces other limitations. It can only make recommendations, not set policy, for sovereign nations, and you don’t have to be Steve Bannon to be thankful for that.

And while the G20 includes some big countries, absent are some of the most vocally blockchain-friendly jurisdictions, such as Switzerland, Singapore, Gibraltar and Bermuda, a fact which may further limit the impact of any cooperation among the members.

Successful models

So, is a globally coordinated policy even possible in the best of times for international cooperation, much less the age of Trump and Brexit?

John Collins, the president of consulting firm Red Flag USA and former head of policy for crypto exchange Coinbase, thinks so.

While there will always be outlier jurisdictions, “to the extent you want to play in the biggest markets in the world, those tend to be the supporters of these international standards,” he said.

As for resurgent nationalism’s threat to global coordination, Collins noted that in this case, cryptocurrency – a technology that knows no borders – “is inherently inconsistent with most nationalist tendencies – which is usually based in sovereign control.”

One successful example of international cooperation Collins cites is the Financial Action Task Force (FATF), an intergovernmental body dedicated to fighting money laundering and terrorism financing.

Countries that don’t follow FATF’s extensive standards (somewhat euphemistically called “recommendations”) for anti-money-laundering (AML) and counter-terrorist financing (CTF) policies get put on a blacklist of “non-cooperative” countries. Aside from losing face, that means residents of a country may have a harder time opening foreign bank accounts or sending money abroad, and may even pay higher interest rates for financing.

Indeed, in Buenos Aires the G20 pledged to implement the FATF standards “as they apply to crypto-assets.”

Now, note the awkward phrasing there. “As they apply to.” The current FATF standards do not address cryptocurrencies. While the FATF has issued guidance on the matter, that’s not the same thing. Only the standards have teeth.

By applying general standards written for the traditional financial system to the brave new world of crypto, the G20 is “taking a circular approach to mitigating AML and CTF around digital currencies and isn’t really addressing digital currencies at all,” said Christine Duhaime, an AML lawyer in Canada who advises digital currency companies.

Nevertheless, the power of the blacklist shows that these transnational bodies can have a strong influence. Another example cited by Collins is the Basel Committee standards for bank capital.

“It’s certainly not easy and the Basel process is particularly deliberative, but it’s certainly not impossible,” Collins said. “And it’s important to remember that, in the case of Basel for example, particular countries who tend to object or slow down these processes, often have deep-rooted and massive industries that they are attempting to protect.”

Yet cryptocurrency, for all the progress it’s made, is neither massive nor deep-rooted, so the industry might not be able to lobby against governments adopting international standards as successfully as, say, small banks in the U.S. fought adoption of the Basel II standard in the early 2000s.

Consistency vs. control

All right, so a global policy on crypto is theoretically possible – but should the community welcome it? According to Collins, who is also a former Senate staffer, it depends on your business model.

In countries such as the U.S. and Japan “that instituted regulatory clarity around exchanges – those businesses centered in those countries have done exceedingly well,” he said. “It gives confidence to users and investors, which is good for the industry.”

But Collins acknowledged that this isn’t just any industry, but one “whose core [goal] is decentralizing power structures.” Hence, “industry compliance and coordination is even more difficult than it is in other competitive industries.”

As someone who appreciates that guiding philosophy of decentralization, I felt a bit of a chill when Collins described a possible future scenario.

“The question will be at what point the policy levers move from the entry and exit points to the financial system [i.e. exchanges where crypto is traded for fiat] to the underlying protocols themselves,” he said. “If that ever happens, that will be a different paradigm that crypto businesses, whatever their model, will likely need to address head on.”

Regulating the protocols? Say what you will about Bannon, thoughts like that make me think it’s good to have such a firebrand in crypto’s corner.

Pipe image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Global AML Watchdog to Step Up Crypto Money Laundering Scrutiny

The Financial Action Task Force (FATF), a global inter-governmental body that aims to tackle financial crime, has said it will step up its efforts in monitoring the use of cryptocurrencies in money laundering.

According to a memo published last Friday of its latest meeting, the task force said it has taken on board the findings of a recent report regarding the risks of cryptocurrency money laundering and the regulatory measures being adopted in different countries.

As a result, the FAFT has decided to implement additional initiatives to address the risks of cryptocurrency in money laundering.

Founded in 1989, the task force consists of ministers from its member jurisdictions who help determine standards and execute legal, regulatory and operational measures to fight money laundering, terrorist financing and other cross-border financial crimes.

Although the agency has yet to put out a concrete policy for implementation, the meeting nonetheless signals growing attention from worldwide regulators over illicit uses of cryptocurrency that could undermine the global financial system.

In fact, according to South Korea news agency Yonhap, the country’s financial regulator, the Financial Service Commission, was required to brief other 36 member states on its work bringing in anti-money laundering compliance rules for domestic cryptocurrency exchanges.

As reported previously by CoinDesk, South Korea had long been allowing exchanges in the country to offer trading services for investors via anonymous accounts, which, according to the South Korean customs agency, helped facilitate unregistered mvement of over $600 million in capital.

South Korea subsequently banned anonymous trading accounts and is now requiring exchange platforms to put in place real name verification of accounts before resuming operations.

Meeting image courtesy of the FATF

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