Virtual Assets, FATF, and the Travel Rules – A progress update

Let us ready this entire update as a story…

Adding a story tone to a topic like Anti-Money Laundering and Virtual Assets like Cryptos would give a new spin to learning. Isn’t? What do you say?

So, the story goes…

Once upon a time, there was a global organization called FATF (Financial Action Task Force) that wanted to tackle the problem of money laundering in the digital world. They knew that virtual assets and virtual asset service providers (VASPs) were becoming popular, but unfortunately, many countries were not doing enough to regulate them. (Remember – There are many member countries to FAFT, who have to abide by the FATF recommendations on AML and Terrorist Financing)

Four long years had passed since FATF had strengthened its standards to address this issue (of handling virtual digital assets), but the implementation of these measures was disappointingly low. It seemed like some jurisdictions hadn’t even bothered to implement the basic requirements! In fact, more than half of the survey respondents had taken no steps at all to enforce the Travel Rule, which was a crucial FATF requirement to prevent funds from ending up in the hands of sanctioned individuals or entities. (The Travel Rule for crypto states that all crypto companies must screen, record and communicate the information of both sender and recipient for crypto transactions that exceed a certain amount designated by FATF member states. This amount can differ by country).

This lack of regulation created huge loopholes that crafty criminals were quick to exploit. The situation was dire, and it was high time to close these gaps in the global regulation of virtual assets. FATF urgently called on all countries to apply anti-money laundering and counter-terrorist financing (AML/CFT) rules to virtual asset service providers, without any further delay.

To address the urgency, FATF announced that on the 27th of June, 2023, they would release a report urging countries to swiftly implement their Recommendations on virtual assets and VASPs, including the Travel Rule. This report would serve as a wake-up call to nations, emphasizing the importance of closing these loopholes. The report also highlighted emerging risks, such as the illicit virtual asset activities of the Democratic People’s Republic of Korea (DPRK), which they used to finance their weapons of mass destruction program. Additionally, it mentioned the risks associated with decentralized finance and peer-to-peer transactions.

FATF was determined to ensure global compliance. In the first half of 2024, they planned to publish a table showing the progress made by FATF member jurisdictions and other jurisdictions with significant VASP activities in implementing Recommendation 15. This table would serve as a measure of accountability, pushing countries to take the necessary steps to combat money laundering effectively.

And so, the fight against money laundering in the digital world continued, with FATF leading the charge to create a safer and more secure financial landscape for all.

About FATF?

The Financial Action Task Force (FATF) leads global action to tackle money laundering, terrorist, and proliferation financing.

The FATF researches how money is laundered and terrorism is funded, promotes global standards to mitigate the risks, and assesses whether countries are taking effective action.

Visit – https://www.fatf-gafi.org/

Source – FATF

Abhishek R Sharma

Views are personal and based on facts.

Thank you…