On 22 February 2019, the Financial Action Task Force (FATF) published a Public Statement on mitigating money laundering and terrorist financing risks associated with virtual assets (Public Statement). The FATF is in the course of finalising the text of an Interpretative Note to Recommendation 15, which will clarify how Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) rules apply in the cryptoasset space.
The FATF Recommendations
The FATF Recommendations set out international standards on combating money laundering and the financing of terrorism. Recommendation 15, which deals with new technologies, was amended in October 2018 to also cover virtual assets. In particular, Recommendation 15 provides that Virtual Asset Service Providers (VASPs) should be appropriately licensed or registered and be subject to effective systems for monitoring and ensuring compliance with AML/CTF rules. In June 2019, the FATF is also planning to adopt an Interpretative Note to Recommendation 15, which will provide further guidance. The FATF held a public consultation on paragraph 7(b) of the Interpretative Note, which relates to the implementation of Recommendation 16 on wire transfers in the context of virtual assets.
How will virtual assets be regulated for AML/CTF purposes?
According to the draft text of the Interpretative Note, virtual assets should qualify as “property,” “proceeds,” “funds,” “funds or other assets,” or other “corresponding value” under the FATF Recommendations, as appropriate. Money laundering and terrorist financing risks associated with virtual assets should be properly identified, assessed and understood. VASPs should take appropriate action to mitigate these risks.
VASPs should be licensed or registered at a minimum in the jurisdiction where they are established or, for natural persons, where their place of business is located. They may also be required to register or hold permissions in other countries where they operate or provide their services. According to the draft Interpretative Note, financial institutions already subject to FATF standards that are already licensed or registered in the relevant jurisdictions to perform VASP activities do not need additional permissions.
In addition, VASPs should be subject to effective regulation and supervision to ensure that they take the necessary steps to mitigate AML/CTF risks. Appropriate sanctions should be in place for VASPs as well as their directors and senior management for failing to comply with AML/CTF rules.
VASPs should adopt a number of preventative measures to mitigate money laundering and terrorist financing risks. In particular, they should conduct customer due diligence for occasional transactions above a USD/EUR1,000 threshold. According to paragraph 7(b) of the draft Interpretative Note, which was open for public consultation, originating VASPs should obtain and hold originator information and beneficiary information in relation to virtual asset transfers and share this information with beneficiary VASPs and counterparts as well as competent authorities, as appropriate. Specific requirements under Recommendation 16 relating to wire transfers, such as monitoring the availability of information, taking freezing action and prohibiting transactions with designated persons and entities should also apply to transactions involving virtual assets.
Lastly, the draft Interpretative Note highlights the need for international cooperation and information exchange to prevent and combat money laundering and terrorist financing risks associated with virtual assets.