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FATF updates ‘spotty’ cross-border risk guidelines for cryptocurrencies

The Financial Action Task Force (FATF) has joined the global regulatory initiatives to combat transnational crypto-crimes by updating its Anti-Money Laundering and Countering Financing of Terrorism (CFT) cross-border risk guidelines for cryptocurrencies, initially published in 2015. 

FATF president Marshall Billingslea said current AML standards and regimes for cryptocurrencies are “very much a patchwork quilt or spotty process,” which is “creating significant vulnerabilities for both national and international financial systems.”

FATF’s amended policies -- aimed to help countries develop coordinated regulatory processes to manage the potential cross-border risks associated with cryptocurrencies -- state that exchanges, wallet providers, and providers of financial services for Initial Coin Offerings (ICO) are all subjected to the CFT regulations and the AML protocols.

To comply, FATF says that they need to go through the proper licensing, registration, and monitoring procedures for their country. Billingslea expects the amendments to close “gaps” in global AML standards since cryptocurrencies as an asset class present “a great opportunity.” FATF’s guidelines are non-binding to members. However, the advisory stance that they take on can make the process of regulating cryptocurrencies in a coordinated fashion with other jurisdictions substantially simpler. There should be new governing rules for the industry by June next year, Billingslea said.

Paris-based FATF, also known as Groupe d'action financière, is an intergovernmental organization established in 1989 on the initiative of the G7 to set standards and promote effective implementation of legal, regulatory and operational measures to fight money laundering. The organization has 35 members, including the United States as well as several European countries such as the UK, Turkey, Switzerland, Sweden, Spain, Norway, Netherlands, Luxembourg, Italy, Ireland, Iceland, Greece, Germany, France, Finland, Denmark, Belgium, and Austria.

U.S. authorities played a big role in shedding light on alleged AML activities in several European countries after a string of banking scandals in Estonia, Latvia, and Malta. After the U.S. authorities charged Maltese Pilatus Bank’s Iranian-born owner and former chairman Seyed Ali Sadr Hasheminejad with organizing a scheme to evade U.S. sanctions against Iran by illegally funneling more than $115 million from Venezuela to Iranian-controlled companies, the European Union for the first time used its power to request the European Banking Authority to investigate potential breaches of EU AML by Malta -- which is not a FATF member and is home to one of world’s biggest cryptocurrency exchanges, Binance.

Effective from July 9, 2018, EU’s 5th AML directive subjects crypto currency exchange platforms to the beneficial ownership-reporting requirements.  

On November 8, 2018 Commission Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union, said, “We need to ensure that money laundering and terrorist financing risks in the financial sector are properly assessed and mitigated by our supervisory authorities,” and in an unprecedented move ordered Malta's Financial Intelligence Analysis Unit to:

  • Improve its methodology to assess money laundering and terrorist financing risks
  • Enhance its monitoring and supervisory strategy by aligning resources with the risk of money laundering posed by certain institutions
  • Ensure that the authority is able to react in an appropriate time when a weakness is identified, including by revising its sanctioning procedures
  • Ensure that its decision-making is properly reasoned and documented
  • Adopt systematic and detailed record-keeping processes for offsite inspections

Three days later, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) -- which was the first world regulator to subject a money service business dealing in cryptocurrencies to AML and registration requirements on March 18, 2013 -- issued an advisory to assist U.S. banks and other financial actors such as cryptocurrency exchanges in identifying “potentially illicit transactions related to the Islamic Republic of Iran.”

The advisory includes a lengthy section relating to cryptocurrencies, as well as an estimate that “since 2013, Iran’s use of virtual currency includes at least $3.8 million worth of bitcoin-denominated transactions per year.” 

FinCEN said that “while the use of virtual currency in Iran is comparatively small, virtual currency is an emerging payment system that may provide potential avenues for individuals and entities to evade sanctions.”


Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD. She can be contacted here.

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