Virtual Currencies

Businesses dealing in virtual currencies can register with FINTRAC in advance of June 1, 2020 

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act and associated Regulations were amended in June 2019 to cover businesses that deal in virtual currencies. To deal in virtual currencies means to provide virtual currency exchange services or to provide virtual currency transfer services. The regulations aim to cover entities such as virtual currency exchanges, not individuals or businesses that use virtual currency for buying and selling goods and services.

On June 1, 2020, businesses offering the previously mentioned services will need to be registered with FINTRAC; and Money Services Businesses currently registered with FINTRAC that also deal in virtual currencies will need to modify their registration to include the activity “dealing in virtual currency” to their profile by that date.

FINTRAC is giving businesses dealing in virtual currencies the opportunity tovoluntarily register in advance of June 1, 2020. Instructions on how to do so can be found on FINTRAC’s website.

Please note that registered virtual currency businesses’ information will be made public on FINTRAC’s MSB registry on June 1, 2020.

FINTRAC is committed to working with businesses to increase their awareness and understanding of their compliance obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

New rules for virtual currency and fiat currency exchange providers as well as virtual wallet providers.

Pr. January 10, 2020, everyone must be registered with the Danish Financial Supervisory Authority in accordance with the Money Laundering Act.

You can already submit your application to the Danish Financial Supervisory Authority. 

You can read more about this on the Danish FSA’s website, where you also find a review form:

https://www.finanstilsynet.dk/Ansoeg-og-Indberet/Indberetning-for-finansielle-virksomheder/Andre/Anmeldelsesskema-hvidvask

In the section entitled “The purpose of the company”, write that you exchange virtual currencies with fiat currencies or provide virtual wallets. 

Providers of exchanges between virtual currencies and fiat currencies as well as providers of virtual wallets are not mentioned directly in the table yet. This is because these companies are only covered by the Money Laundering Act on January 10, 2020.

This also means that you will not receive your registration until January 10, 2020. However, the Danish FSA will begin processing your review by January 10.

You will not be able to do business with the exchange of virtual currencies and fiat currencies and the provision of virtual wallets from January 10, 2020, if you have not registered with the Danish Financial Supervisory Authority.

Once you have registered, you will be subject to the requirements of the Money Laundering Act. This means, among other things, that you must 

  • make a risk assessment in relation to money laundering and terrorist financing for your business

  • have policies, business procedures and controls to prevent money laundering and terrorist financing

  • conduct customer awareness procedures in relation to all your customers, including any sharpened knowledge management procedures

  • continuously monitor your business relationships

  • conduct investigations of all complex and unusually large transactions, as well as all transaction patterns and activities that do not have a clear economic or demonstrable legal purpose, to determine whether there is reasonable cause to suspect that they are or have been linked to money laundering or terrorist financing 

  • notify the Money Laundering Secretariat of the State Prosecutor for Special Economic and International Crime (SEIC) if you are aware of, suspect or have reason to suspect that a transaction, funds or activity has or has been linked to money laundering or terrorist financing.

You can read much more in the Money Laundering Act and in the Danish FSA’s guide to the Money Laundering Act, which you can find here:

https://www.retsinformation.dk/Forms/R0710.aspx?id=209981

https://www.retsinformation.dk/Forms/R0710.aspx?id=203495

Link:

Finanstilsynet notice

Leaders of CFTC, FinCEN, and SEC Issue Joint Statement on Activities Involving Digital Assets

October 11, 2019

Washington, DC – The leaders of the U.S. Commodity Futures Trading Commission, the Financial Crimes Enforcement Network, and the U.S. Securities and Exchange Commission (the “Agencies”) today issued the following joint statement to remind persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA).

AML/CFT obligations apply to entities that the BSA defines as “financial institutions,” such as futures commission merchants and introducing brokers obligated to register with the CFTC, money services businesses (MSBs) as defined by FinCEN, and broker-dealers and mutual funds obligated to register with the SEC. Among those AML/CFT obligations are the requirement to establish and implement an effective anti-money laundering program (AML Program) and recordkeeping and reporting requirements, including suspicious activity reporting (SAR) requirements.

For the purpose of this joint statement, “digital assets” include instruments that may qualify under applicable U.S. laws as securities, commodities, and security-or commodity-based instruments such as futures or swaps. We are aware that market participants refer to digital assets using many different labels. The label or terminology used to describe a digital asset or a person engaging in or providing financial activities or services involving a digital asset, however, may not necessarily align with how that asset, activity or service is defined under the BSA, or under the laws and rules administered by the CFTC and the SEC. For example, something referred to as an “exchange” in a market for digital assets may or may not also qualify as an “exchange” as that term is used under the federal securities laws. As such, regardless of the label or terminology that market participants may use, or the level or type of technology employed, it is the facts and circumstances underlying an asset, activity or service, including its economic reality and use (whether intended or organically developed or repurposed), that determines the general categorization of an asset, the specific regulatory treatment of the activity involving the asset, and whether the persons involved are “financial institutions” for purposes of the BSA.

The nature of the digital asset-related activities a person engages in is a key factor in determining whether and how that person must register with the CFTC, FinCEN, or the SEC. For example, certain “commodity”-related activities may trigger registration and other obligations under the Commodity Exchange Act (CEA), while certain activities involving a “security” may trigger registration and other obligations under the federal securities laws. If a person falls under the definition of a “financial institution,” its AML/CFT activities will be overseen for BSA purposes by one or more of the Agencies (and potentially others). For example, the AML/CFT activities of a futures commission merchant will be overseen by the CFTC, FinCEN, and the National Futures Association (NFA); those of an MSB will be overseen by FinCEN; and those of a broker-dealer in securities will be overseen by the SEC, FinCEN and a self-regulatory organization, primarily the Financial Industry Regulatory Authority (FINRA).

Certain BSA obligations that apply to a broker-dealer in securities, mutual fund, futures commission merchant, or introducing broker, such as developing an AML Program or reporting suspicious activity, apply very broadly and without regard to whether the particular transaction at issue involves a “security” or a “commodity” as those terms are defined under the federal securities laws or the CEA.

Additional Comments by the U.S. Commodity Futures Trading Commission Chairman

The mission of the CFTC is to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation. In advancing that mission, the CFTC regulates key participants in the derivatives markets, including boards of trade, futures commission merchants, introducing brokers, swaps dealers, major swap participants, retail foreign exchange dealers, commodity pool operators, and commodity trading advisors pursuant to the CEA. An “introducing broker” or “futures commission merchant” is defined in BSA regulations as a person that is registered or required to register as an introducing broker or futures commission merchant under the CEA. Introducing brokers and futures commission merchants are required to report suspicious activity and implement reasonably-designed AML Programs. These requirements are not limited in their application to activities in which digital assets qualify as commodities or are used as derivatives. The rules would also apply to activities that are not subject to regulation under the CEA.

****

Additional Comments by the Financial Crimes Enforcement Network Director

As a bureau of the Department of the Treasury, FinCEN is the administrator of and lead regulator under the BSA — the nation’s first and most comprehensive AML/ CFT statute. FinCEN’s mission is to protect our financial system from illicit use, ensure our national security, and protect our people from harm. FinCEN has supervisory and enforcement authority over U.S. financial institutions to ensure the effectiveness of the AML/CFT regime. As such FinCEN mandates certain controls, reporting, and recordkeeping obligations for U.S. financial institutions. The BSA and its implementing regulations set forth the regulatory obligations that generally apply to financial institutions, including AML Program, recordkeeping, and reporting requirements.

FinCEN regulates, among other persons, money transmitters and other MSBs. FinCEN’s BSA regulations define a “money transmitter” as a person engaged in the business of providing money transmission services or any other person engaged as a business in the transfer of funds. The term “money transmission services” means “the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.”

In May 2019, FinCEN issued interpretive guidance (2019 CVC Guidance) to remind persons subject to the BSA how FinCEN regulations relating to MSBs apply to certain business models involving money transmission denominated in value that substitutes for currency, specifically, convertible virtual currencies. The 2019 CVC Guidance consolidated current FinCEN regulations, and related administrative rulings and guidance issued since 2011, and applied these rules and interpretations to other common business models involving CVC engaging in the same underlying patterns of activity. Covered persons and institutions are strongly encouraged to review the 2019 CVC Guidance.

As set forth in the 2019 CVC Guidance, a number of digital asset-related activities qualify a person as an MSB that would be regulated by FinCEN. FinCEN’s BSA regulations also provide that any person “registered with, and functionally regulated or examined by, the SEC or the CFTC,” would not be subject to the BSA obligations applicable to MSBs, but instead would be subject to the BSA obligations of such a type of regulated entity. Accordingly, even if an introducing broker, futures commission merchant, broker-dealer or mutual fund acts as an exchanger of digital assets and provides money transmission services for the purposes of the BSA, it would not qualify as a money transmitter or any other category of MSB and would not be subject to BSA requirements that are applicable only to MSBs. Instead, these persons would be subject to FinCEN’s regulations applicable to introducing brokers, futures commission merchants, broker-dealers and mutual funds, respectively. These obligations include the development of an AML program and suspicious activity reporting requirements, as well as requirements under applicable CFTC or SEC rules. Furthermore, regardless of federal functional regulator, all financial institutions dealing in digital assets meeting the definition of “securities” under federal law must comply with federal securities law.

****

Additional Comments by the U.S. Securities and Exchange Commission Chairman

The statutory mission of the SEC is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. In general, the SEC has jurisdiction over securities and securities-related conduct. Persons engaged in activities involving digital assets that are securities have registration or other statutory or regulatory obligations under the federal securities laws.

The SEC oversees the key participants in the securities markets, some of which may engage in digital asset activities. Key participants in the securities markets include but are not limited to national securities exchanges, securities brokers and dealers, investment advisers, and investment companies. Market participants receiving payments or engaging in other transactions in digital assets should consider such transactions to present similar or additional risks, including AML/ CFT risks, as are presented by transactions in cash and cash equivalents. With regard to SEC regulated entities, broker-dealers and mutual funds are defined as “financial institutions” in rules implementing the BSA. A “broker-dealer” is defined in rules implementing the BSA as a person that is registered or required to register as a broker or dealer under the Securities Exchange Act, while a “mutual fund” is defined as an investment company that is an “open-end company” and that is registered or required to register under the Investment Company Act of 1940.

Broker-dealers and mutual funds are required to implement reasonably-designed AML Programs and report suspicious activity. These rules are not limited in their application to activities involving digital assets that are “securities” under the federal securities laws.21

Link:

Multiagency statement

FINMA publishes ‘stable coin’ guidelines 

The Swiss Financial Market Supervisory Authority FINMA today publishes a supplement to its ICO guidelines outlining how it treats so-called ‘stable coins’ under Swiss supervisory law. FINMA has seen a steady increase in the number of ‘stable coin’ projects since 2018. In this context, FINMA confirms that it has received a request from the Geneva-based Libra Association for an assessment of its Libra project under Swiss supervisory law. FINMA gives here an initial indication of how it would apply the relevant Swiss regulation.

Among projects based on blockchain technology, FINMA has observed an increase in the number of projects to create so-called ‘stable coins’ since mid-2018. The aim of such projects is mostly to minimise the fluctuations in value typical of payment tokens such as Bitcoin by backing the tokens with assets such as fiat currencies, commodities, real estate or securities. In the supplement to its Guidelines on Initial Coin Offerings (ICOs), FINMA is today publishing information indicating how it will assess such ‘stable coins’ within its supervisory remit under Swiss supervisory law.

Classification of ‘stable coins’ under Swiss law


Swiss financial markets regulation is principle-based and technology-neutral. FINMA’s treatment of ‘stable coins’ under supervisory law follows the existing approach taken to blockchain-based tokens: the focus is on the economic function and the purpose of a token (‘substance over form’). In ruling on concrete projects, FINMA will follow the proven principle of ‘same risks, same rules’ as well as the specific features of each case. 

 

‘Stable coins’ can vary greatly. The requirements under supervisory law may differ depending on which assets (e.g. currencies, commodities, real estate or securities) the ‘stable coin’ is backed by and the legal rights of its holders (see the overview provided in the supplement to the ICO guidelines, appendix 2). Money laundering, securities trading, banking, fund management and financial infrastructure regulation can all be of relevance. 

FINMA confirms receipt of enquiry from Libra Association

The Libra Association asked FINMA for an assessment of how the supervisory authority would classify the planned Libra project including the issuance of a ‘stable coin’ under Swiss supervisory law. FINMA confirms receipt of this request. Such requests for a legal assessment or ruling are standard practice, particularly for innovative projects. One of FINMA’s roles is to inform potential market participants about how it applies Swiss supervisory law.

 

Below, FINMA provides an indicative classification of this project under Swiss supervisory law on the basis of the information available so far. The classification may change as the project progresses.

  • In Switzerland, such a project would fall under financial market infrastructure regulation. The project as it is presently envisaged would require a payment system licence from FINMA, on the basis of the Financial Market Infrastructure Act (FMIA).

  • Regulatory requirements for payment systems in Switzerland are based on the prevailing international standards, particularly the Principles for Financial Market Infrastructures (PFMI). These requirements also apply to the management of cyber risks.

  • A Swiss payment system is automatically subject to the Anti-Money Laundering Act. The highest international anti-money laundering standards would need to be ensured throughout the entire ecosystem of the project. Such an ecosystem must be immune against elevated money laundering risks. 

  • Under the FMIA, all additional services that increase the risks of a payment system must be subject to corresponding additional requirements. This means that all the potential risks of a Swiss payment system, including bank-like risks, can be addressed by imposing appropriate requirements in line with the maxim ‘same risks, same rules’. Due to the issuance of Libra payment tokens, the services planned by the Libra project would clearly go beyond those of a pure payment system and therefore be subject to such additional requirements. 

  • These additional requirements would relate in particular to capital allocation (for credit, market and operational risks), risk concentration and liquidity as well as the management of the Libra reserve. 

  • The additional requirements would be based on recognised standards for similar activities in the financial markets and would need to reflect the dimension of the project. For bank-like risks, for example, bank-like regulatory requirements would apply. A Swiss payment system licence would thereby permit a combination of the strengths of banking and infrastructure regulation.

 

A necessary condition for being granted a licence as a payment system would be that the returns and risks associated with the management of the reserve were borne entirely by the Libra Association and not – as in the case of a fund provider – by the ‘stable coin’ holders.

 

The planned international scope of the project requires an internationally coordinated approach. In particular, the definition of requirements for managing the reserve, and the governance around it, as well as for combating money laundering should be developed in international coordination.

Questions going beyond supervisory law


A possible licensing procedure under Swiss supervisory law would only commence once a specific licensing application were received by FINMA. In accordance with its practice, FINMA would neither provide public information on the status of any ongoing licensing procedure nor speculate on when it may be complete.

 

Other questions raised in the context of the Libra project, such as those relating to tax law, competition law or data protection law, go beyond the scope of supervisory law and are therefore outside FINMA’s remit.

Link:

FINMA Press Release

ICO guidelines supplement

Outcomes FATF Plenary, 16-21 June 2019

Orlando, 21 June 2019 – FATF President Marshall Billingslea of the United States, chaired the third and last Plenary meeting under the U.S. Presidency in Orlando on 19-21 June 2019.

During this Plenary, delegates celebrated the 30th Anniversary of the FATF. In recent years, the international community is following the FATF’s work increasingly closely.  Recent G20 statements and the United Nations Security Council resolutions recognise the FATF’s important role in protecting the integrity of the financial system. Last month’s FATF Ministerial meeting resulted in a new, open-ended mandate, and greater Ministerial involvement in the work of the FATF, recognising the substantial achievement of the FATF over three decades.  This Plenary meeting was the first under the FATF’s new mandate.    

U.S. Secretary of the Treasury Steven T. Mnuchin delivered the closing remarks to the Plenary, highlighting the critical role of the FATF, the importance of the new global standards agreed by FATF this week to protect virtual assets from abuse by money launderers, terrorist financiers, and other illicit actors; action on Iran; and agreement to strengthen the standards to counter the financing of the proliferation of WMD.

During three days of meetings, delegates discussed the following issues, including FATF initiatives under the U.S. Presidency of the FATF:

1. Major Strategic Initiatives

  • Mitigating risks from virtual asset activities, including a public statement and a risk-approach guidance on virtual assets and virtual asset service providers.

  • Launching a Strategic Review to analyse the progress made on effective implementation of AML/CFT measures, review the FATF/FSRB assessment processes, and identify drivers of positive change.

  • FATF’s current action to combat terrorist financing, including a statement on FATF Actions to identify ISIL, Al-Qaeda and Affiliates Financing and the adoption of guidance for jurisdictions on assessing terrorist financing risk.

  • FATF’s efforts to strengthen its standards on Countering the Financing of Proliferation

2. Mutual Evaluations and Follow-Up Reviews, and Compliance

  • Discussion of the mutual evaluation reports of Greece and Hong Kong, China

  • Discussion of follow-up reports for the mutual evaluation of Iceland, in which the country achieved technical compliance re-ratings

  • Issuing a statement on Brazil’s progress in addressing the deficiencies identified in its mutual evaluation report

  • Identifying jurisdictions with strategic anti-money laundering and countering the financing of terrorism (AML/CFT) deficiencies:

    • Jurisdiction no longer subject to monitoring: Serbia

    • New jurisdiction subject to monitoring: Panama

    • Monitoring Iran’s actions to address deficiencies in its AML/CFT system

3. Other Initiatives

  • Adoption of a report to the G20 Leaders

  • Approval of three Risk-Based Approach Guidance papers:

    • Lawyers

    • Accountants

    • Trust and Company Service Providers (TCSPs)

4. Welcoming the Kingdom of Saudi Arabia as a new member to the FATF

5. Discussion of the FATF priorities under the Chinese Presidency

1. Major Strategic Initiatives

Mitigating the money laundering and terrorist financing risks of virtual assets.

This Plenary, the FATF delivered on its commitment to member governments and the G20, as well as the private sector, to develop and clarify the FATF’s requirement with respect to virtual asset activities and virtual asset service providers. In October 2018, in response to the increasing use of virtual assets for money laundering and terrorist financing, the FATF amended Recommendation 15 and the glossary to clarify to which businesses and activities the FATF requirements apply in the case of virtual assets. Following a public consultation on the measures applicable to virtual asset transfers, the FATF has now finalised the Interpretive Note to Recommendation 15 which sets out in detail the application of the FATF Standards and binding measures for the regulation and supervision of virtual asset activities and service providers. The FATF also finalised guidance to further assist countries and providers in complying with their AML/CFT obligations and guidance for operational authorities to support the effective investigation and confiscation of virtual assets misused for money laundering or terrorist financing.

Risk-based Approach Guidance on Virtual Assets and Virtual Asset Service Providers

The FATF adopted updated guidance that clarifies the application of the risk-based approach to implementing the FATF Recommendations in the context of virtual assets. The guidance benefitted from dialogue with the private sector, including the sector itself. It includes examples of national approaches to regulating and supervising virtual asset activities and service providers to prevent their misuse for money laundering and terrorist financing. 

The FATF is now working on revising its methodology to assess how countries have implemented the FATF’s new requirement for the October 2019 Plenary. During the next 12 months, the FATF will closely monitor the actions that countries are taking and will continue to engage the private sector on its efforts to enhance compliance with the FATF standards.

Strategic Review

With a new, open-ended, mandate, the FATF moves into a new phase.  As the FATF continues to lead global action against money laundering, the financing of terrorism and proliferation, it must ensure that its work is timely, targeted and effective.  With the support from the G20, the FATF Plenary agreed to launch a strategic review of its own processes.  This review will analyse the progress made on effective implementation of AML/CFT measures, review the FATF/FSRB assessment processes, and identify drivers of positive change. 

FATF’s current action to combat terrorist financing

Combatting the financing of terrorism has remained a priority for the FATF under the U.S. Presidency. Acts of terrorism, whether perpetrated by groups such as ISIL and Al Qaeda, or terrorist groups with other extremist views, continue to pose a threat to our society. Since the February 2019 Plenary there have been a number of serious terrorist attacks. The United Nations recognised the FATF as the global standard-setter to combat terrorist financing when it adopted UN Security Council Resolution 2462(2019). This resolution, focused solely on countering terrorist financing, has embedded the need to implement the FATF Standards for combatting terrorist financing into international law. 

During this Plenary meeting, delegates heard an updated assessment of the financing methods employed by ISIL, Al Qaeda and affiliates, and released a public statement on FATF members’ actions to identify and disrupt their financing.  Despite ISIL’s loss of territory, it still has access to significant reserves of funds, while its extremist ideology continues to inspire acts of terror. 

The investigation and prosecution of terrorist financing is central to global efforts to counter terrorism. However, FATF and FSRBs’ assessments reveal that many countries still face challenges in investigating terrorist financing activity. A global workshop, hosted by the Israeli government in Tel Aviv in March 2019, building on the targeted outreach to judges and prosecutors initiated under the Argentinean Presidency of the FATF, sought to explore common challenges and best practices experienced by jurisdictions when prosecuting terrorist financing. The Plenary decided that the FATF should develop guidance to help countries effectively investigate and prosecute terrorist financing. 

Guidance on Terrorist Financing Risk Assessment

The FATF requires each country to identify, assess and understand the terrorist financing risks it faces in order to mitigate them and effectively dismantle and disrupt terrorist networks.  Assessing terrorist financing risks can be challenging due to the cross-border nature of terrorist financing, and the low value and routine nature of funds and transactions often involved.  The FATF finalised a Guidance which will assist countries, in particular low capacity countries with limited terrorist financing expertise, in assessing their risk context. Recognising that there is no one-size-fits-all approach when assessing terrorist financing risk, the Guidance provides relevant information sources and considerations for different country contexts. This report builds on the FATFs 2013 Guidance on National Money Laundering and Terrorist Financing Risk Assessments and draws on national experiences and lessons learnt in assessing terrorist financing risk from across the FATF Global Network.

Countering the Financing of Proliferation

Under the U.S. Presidency, in June 2019, the FATF agreed to pursue further work to strengthen the FATF Standards on countering the financing of proliferation by requiring jurisdictions and private sector entities to understand and mitigate their proliferation financing risks, as well as by enhancing requirements for domestic cooperation and coordination on proliferation financing.  FATF has conducted extensive analysis on a range of proposals, but has agreed to prioritize this work moving forward. Other options considered included new requirements to use criminal justice measures and financial intelligence, expanded targeted financial sanctions tools, and more effective mechanisms to ensure international information sharing on proliferation financing activity. The FATF agreed to potentially consider these other options at a later date.

2. Mutual Evaluations and Follow-Up Reviews, and Compliance

Discussion of the mutual evaluation reports of Greece and Hong Kong, China

The Plenary discussed the mutual evaluation reports of Greece and Hong Kong, China and the level of effectiveness of each jurisdiction’s AML/CFT system and their level of compliance with the FATF Recommendations.

The Plenary concluded that Greece has a sound legal framework to support effective action against money laundering and terrorist financing, but that the country needs to improve its prosecution of these crimes, the supervision of its designated non-financial professions and businesses and NPO sector, and the confiscation of proceeds of crime.   

The Plenary discussed the joint APG-FATF assessment of Hong Kong, China and concluded that the jurisdiction has a strong legal foundation to underpin its AML/CFT regime.  Hong Kong, China understands its risks, has effective measures to combat terrorist financing and to confiscate the proceeds of crime, and actively cooperates with international partners. However, it needs to prioritise efforts to prosecute ML linked to foreign predicates, increase risk understanding and AML/CFT implementation by smaller institutions, and strengthen supervisory measures for some sectors.

The reports were prepared on the basis of the FATF Methodology for assessments which requires countries to take into account the effectiveness with which AML/CFT measures are implemented, as well as technical compliance for each of the FATF Recommendations.

The Plenary discussed the key findings, priority actions and recommendations regarding each jurisdiction’s AML/CFT regime. The mutual evaluation reports are expected to be published by September 2019 after the quality and consistency review, in accordance with procedures.

Discussion of the follow-up report for the mutual evaluation of Iceland in which the country achieved technical compliance re-ratings

The Plenary discussed the progress that Iceland has made since its mutual evaluation report was adopted last year. The FATF Plenary agreed to re-rate Iceland a number of FATF Recommendations to reflect the country’s current level of technical compliance. After a quality and consistency review, the FATF will publish the follow-up report which sets out the actions that Iceland has taken to strengthen the effectiveness of its measures to combat money laundering and the financing of terrorism and proliferation.

Brazil’s progress in addressing the deficiencies identified in its mutual evaluation report

In February 2019, the FATF decided that it would review the Brazil’s recently adopted legislation for compliance with FATF Standards at its June Plenary and determine the next steps at that time.  The Plenary has issued a statement with regard Brazil.

Identifying jurisdictions with strategic anti-money laundering and countering the financing of terrorism (AML/CFT) deficiencies

The FATF maintains its February 2019 public documents which identify jurisdictions that may pose a risk to the international financial system, with the amendments set out below:

Jurisdiction no longer subject to monitoring: Serbia 

The FATF congratulated Serbia for the significant progress made in addressing the strategic AML/CFT deficiencies identified earlier by the FATF and included in its action plan.

Serbia will no longer be subject to the FATF’s monitoring under its on-going global AML/CFT compliance process, and will work with its FATF-Style Regional Bodies MONEYVAL as it continues to further strengthen its AML/CFT regime.

New jurisdiction subject to monitoring: Panama

FATF has identified Panama as a jurisdiction with strategic AML/CFT deficiencies. The country has developed an action plan with the FATF to address the most serious deficiencies. The FATF welcomed the high-level political commitment of Panama to this action plan.

Monitoring Iran’s actions to address deficiencies in its AML/CFT system

In June 2016, the FATF welcomed Iran’s high-level political commitment to address its strategic AML/CFT deficiencies, and its decision to seek technical assistance in the implementation of the Action Plan. Given that Iran provided that political commitment and the relevant steps it has taken, the FATF decided in February 2019 to continue the suspension of counter-measures.

In November 2017, Iran established a cash declaration regime. In August 2018, Iran has enacted amendments to its Counter-Terrorist Financing Act and in January 2019, Iran has also enacted amendments to its Anti-Money Laundering Act. The FATF recognises the progress of these legislative efforts. The bills to ratify the Palermo and Terrorist Financing Conventions have passed Parliament, but are not yet in force. As with any country, the FATF can only consider fully enacted legislation. Once the remaining legislation comes fully into force, the FATF will review this alongside the enacted legislation to determine whether the measures contained therein address Iran’s Action Plan, in line with the FATF standards.

Iran’s action plan expired in January 2018. In June 2019, the FATF noted that there are still items not completed and Iran should fully address: (1) adequately criminalising terrorist financing, including by removing the exemption for designated groups “attempting to end foreign occupation, colonialism and racism”; (2) identifying and freezing terrorist assets in line with the relevant United Nations Security Council resolutions; (3) ensuring an adequate and enforceable customer due diligence regime; (4) clarifying that the submission of STRs for attempted TF-related transactions are covered under Iran’s legal framework; (5) demonstrating how authorities are identifying and sanctioning unlicensed money/value transfer service providers; (6) ratifying and implementing the Palermo and TF Conventions and clarifying the capability to provide mutual legal assistance; and (7) ensuring that financial institutions verify that wire transfers contain complete originator and beneficiary information.

The FATF decided at its meeting this week to continue the suspension of counter-measures, with the exception of the FATF calling upon members and urging all jurisdictions to require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran, in line with the February 2019 Public Statement.

While acknowledging the progress that Iran made including with the passage of the Anti-Money Laundering Act, the FATF expresses its disappointment that the Action Plan remains outstanding.  The FATF expects Iran to proceed swiftly in the reform path to ensure that it addresses all of the remaining items by completing and implementing the necessary AML/CFT reforms.

If by October 2019, Iran does not enact the Palermo and Terrorist Financing Conventions in line with the FATF Standards, then the FATF will require introducing enhanced relevant reporting mechanisms or systematic reporting of financial transactions; and increased external audit requirements for financial groups with respect to any of their branches and subsidiaries located in Iran. The FATF also expects Iran to continue to progress with enabling regulations and other amendments.

Iran will remain on the FATF Public Statement until the full Action Plan has been completed. Until Iran implements the measures required to address the deficiencies identified with respect to countering terrorism financing in the Action Plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system. The FATF, therefore, calls on its members and urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence with respect to business relationships and transactions with natural and legal persons from Iran, consistent with FATF Recommendation 19, including: (1) obtaining information on the reasons for intended transactions; and (2) conducting enhanced monitoring of business relationships, by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination.

3. Other Strategic Initiatives

Adoption of a report to the G20 Finance Ministers and Central Bank Governors

The Plenary discussed the FATF’s report to the G20 Leaders which highlights FATF’s recent work on the regulation of virtual assets. It also sets out other recent developments, including strengthening FATF’s institutional basis, governance and capacity of FATF, countering the financing of terrorism and proliferation of weapons of mass destruction terrorist financing, improving transparency and beneficial ownership, de-risking and work on FinTech/RegTech in relation to digital ID.

Publication of three Risk-Based Approach Guidance papers

The risk-based approach is at the core of the FATF Recommendations. It ensures that countries identify and understand the unique risks they are exposed to, allowing them to prioritise resources on areas where risks are highest. Informed by a public consultation in March 2019, the FATF updated three risk-based approach guidance documents that aim to support the implementation of the risk-based approach, taking into account national ML/TF risk assessments and AML/CFT legal and regulatory frameworks:

  • Lawyers

  • Accountants

  • Trust and Company Service Providers (TCSPs)

4. Welcoming the Kingdom of Saudi Arabia as a member to the FATF

The FATF granted full membership to Saudi Arabia. In 2018, the country underwent a mutual evaluation. Since then, Saudi Arabia has worked according to an action plan to address the key effectiveness issues identified during the evaluation. Based on the country’s commitment to complete the items on its action plan and the continuing progress to improve its AML/CFT, the Plenary agreed to grant membership.

5. Discussion of the FATF priorities under the Chinese Presidency

The FATF Plenary discussed and approved the priorities of the FATF under the Presidency of Xiangmin Liu which will commence on 1 July 2019. The main priority is the Strategic Review, but among other priorities, the FATF agreed to continue its important work to mitigate the money laundering and terrorist financing risks of new technologies and at the same time exploit the opportunities to more effectively fight these risks. Under the Chinese Presidency, the FATF will also prioritise work to promote and enable more effective supervision by national authorities.

Link:

FATF Notice

New FinCEN Guidance Affirms Its Longstanding Regulatory Framework for Virtual Currencies and a New FinCEN Advisory Warns of Threats Posed by Virtual Currency Misuse

Contact
Public Affairs, 703-905-3770
Immediate Release

WASHINGTON—To provide regulatory certainty for businesses and individuals engaged in expanding fields of financial activity, the Financial Crimes Enforcement Network (FinCEN) today issued the following guidance, Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies (CVC). The guidance is in response to questions raised by financial institutions, law enforcement, and regulators concerning the regulatory treatment of multiple variations of businesses dealing in CVCs.

FinCEN today also issued an Advisory on Illicit Activity Involving Convertible Virtual Currency to assist financial institutions in identifying and reporting suspicious activity related to criminal exploitation of CVCs for money laundering, sanctions evasion, and other illicit financing purposes. The advisory highlights prominent typologies, associated “red flags,” and identifies information that would be most valuable to law enforcement if contained in suspicious activity reports.

“Treasury is committed to helping financial institutions better detect and prevent bad actors from exploiting convertible virtual currencies for money laundering, sanctions evasion, and other illicit activities.” said Sigal Mandelker, Under Secretary of the Treasury for Terrorism and Financial Intelligence. “The comprehensive advisory FinCEN issued today highlights the risks associated with darknet marketplaces, peer-to-peer exchangers, unregistered money services businesses, and CVC kiosks and identifies typologies and red flags to help the virtual currency industry protect its businesses from exploitation.”

“FinCEN was the first financial regulator to address virtual currency and the first to assign obligations to related businesses to guard against financial crime,” said FinCEN Director Kenneth A. Blanco. “The money transmitter definition we published in 2011 and the guidance we issued in 2013 clarifying how that definition applies to transactions involving virtual currency have proven to be exceptionally durable. Our regulatory approach has been consistent and despite dynamic waves of new financial technologies, products, and services, our original concepts continue to hold true. Simply stated, those who accept and transfer value, by any means, must comply with our regulations and the criminal misuse of any methodology remains our fundamental concern.”

Today’s guidance does not establish any new regulatory expectations. It consolidates current FinCEN regulations, guidance and administrative rulings that relate to money transmission involving virtual currency, and applies the same interpretive criteria to other common business models involving CVC. FinCEN’s rules define certain businesses or individuals involved with CVCs as money transmitters subject to the same registration requirements and a range of anti-money laundering, program, recordkeeping, and reporting responsibilities as other money services businesses.

Links:

FINCEN Press Release

Guidance (Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies)

FinCEN Advisory on Illicit Activity Involving Convertible Virtual Currency

Cybercrime Squad and AUSTRAC remind digital currency exchanges of reporting obligations

This is a joint media release between the NSW Police Force and AUSTRAC.

The NSW Police Force and the Australian Transaction Reports and Analysis Centre (AUSTRAC) are reminding digital currency exchange providers to be aware of their obligations following amendments to Commonwealth legislation last year.

 

In April 2018, amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 were introduced, which included expanding the scope of the Act to include regulation of digital currency exchange providers.

 

These changes included registering with AUSTRAC, verifying customer identity, reporting suspicious matters and over-threshold cash transactions; and complying with record-keeping requirements.

 

AUSTRAC National Manager for Regulatory Operations, Dr Nathan Newman, said AUSTRAC worked closely with digital currency exchange providers to prepare them for these laws, which are in place to protect industry from criminal exploitation and in turn, the Australian community.

 

“Digital currency exchange providers have had adequate time and opportunity to comply with these new laws and AUSTRAC has already refused the registration of two digital currency exchange providers. We continue to actively monitor the sector’s compliance,” Dr Newman said.

 

“It’s important that digital currency exchange providers meet their obligations so we can identify any instances of criminal activity using their services to launder money, fund terrorism or commit other serious crimes.”

 

Cybercrime Squad Commander, Detective Superintendent Matt Craft, said this is a timely reminder to those who deal in digital currencies to ensure they are meeting their obligations.

 

“While cash is still ‘king’, digital currencies are fast becoming the preferred choice for organised criminal networks involved in money laundering, funding terrorism, and cybercrimes,” Det Supt Craft said.

 

“These amendments were implemented to ensure digital currencies were being monitored in the same ways as cash exchanges and transfers.

 

“Any information about illicit activity by digital currency exchange providers that is provided to our squad – whether related to organised crime, terrorism, or technology-enabled crime – will be actively pursued in partnership with AUSTRAC.

 

“Let this be a warning to digital currency exchange providers: if you fail to comply with your obligations, your actions will not go unnoticed.”

 

Det Supt Craft added that an increase in popularity of Dark Net marketplaces will also mean increased targeting by law enforcement.

 

“Given the perceived anonymity of the Dark Net, Australian criminal groups are starting to favour the online environment to conduct illicit business,” Det Supt Craft said.

 

“With police and our partners proactively targeting this space, I’ll assure these networks that their anonymity is no longer guaranteed.”

 

More information about digital currency exchange providers’ obligations under the Act is available at: http://www.austrac.gov.au/digital-currency-exchange-providers.

 

Anyone with information about non-compliant digital currency exchanges or the facilitation of serious and organised crime is urged to contact Crime Stoppers: 1800 333 000 or https://nsw.crimestoppers.com.au. Information is treated in strict confidence. The public is reminded not to report crime via NSW Police Force social media pages.

Contact:

NSW Police Force Media Unit (02) 8263 6100
AUSTRAC Media (02) 9950 0488

Link:

AUSTRAC Notice