Autor Cointelegraph By David Attlee

Bank of Israel issues draft guidelines on cryptocurrency AML/CFT

Bank of Israel issues draft guidelines on cryptocurrency AML/CFT

Uverejnil používateľ | mar 11, 2022 |

On Friday, the Bank of Israel published a draft regulation on Anti-Money-Laundering and Combatting the Financing of Terrorism (AML/CFT) risk management for the banks facilitating crypto-to-fiat transactions.The move hints at the Israeli government’s preparations to legalize and regulate the relationship between banks and virtual currency service providers (VASPs). The document cites the customers’ increased involvement with digital assets as the rationale for the new policy:“In view of the increase in customer activity in virtual currencies, and the resulting increase in customer requests to transfer money […] the Banking Supervision Department today published a draft circular dealing with managing AML/CFT risks derived from the provision to customers of payment services related to activity originating in virtual currencies.”The regulator emphasizes the “high potential risk” of digital asset transactions due to the anonymity of digital wallets and stresses the need to establish mechanisms of money identification. For now, this task is divided into two major components: conducting rigorous risk assessments and clarifying “the source of the money used in the purchase of the virtual currency and the path through which the virtual currency passed” between purchase and conversion into fiat.As the release clarifies, banks would only be allowed to deal with the entities holding a license to provide financial asset services issued by the supervisor of the Capital Market, Insurance and Savings Authority. The draft amendment was sent to the Advisory Council on Banking Matters, which is expected to provide additional input that, along with public commentary, will be considered by the Bank of Israel in the process of finalizing the guidelines. In November 2021, the Israeli government obliged VASPs to obtain an operating license from the Israel Securities Authority and the Capital Markets, Insurance and Savings Authority. With the AML/CFT guidelines for banks now on the table, the nation is moving even closer to getting a comprehensive framework for digital asset transactions.

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Consolidation and centralization: How Europe’s new AML regulation will affect crypto

Consolidation and centralization: How Europe’s new AML regulation will affect crypto

Uverejnil používateľ | mar 11, 2022 |

According to recent media reports, six European countries, led by Germany, are working on launching an Anti-Money Laundering (AML) body that will include the cryptocurrency market in its purview. Details remain scarce, but it is known that the initiative involves Germany, Spain, Austria, Italy, Luxembourg and the Netherlands. The group is working on “the remit and design” of a new international AML watchdog force that will have a particular emphasis on crypto, and the European Commission — the key executive institution of the European Union — will be the primary platform for the discussion. How will the move affect the European crypto space?The watchdog’s mandateThe new task force will aim to “cover the riskiest cross-border entities among banks, financial institutions and crypto assets service providers.” At the moment, the initiative still awaits official deliberation. Christian Toms, a partner in law firm Brown Rudnick’s litigation and arbitration practice group in London, noted to Cointelegraph: “Negotiations very much remain ongoing around its remit, and as part of these negotiations — presumably given the growing awareness of the uses of and risks around crypto — there are understood to be specific discussions taking place about making the agency’s role in regulating crypto and related institutions a key part of its mandate, potentially even spelling out such matters in its foundational principles.”This isn’t the first time the media has speculated on the idea of an EU crypto task force. In July 2021, Reuters — citing leaked documents — reported that the European Commission had proposed a new Anti-Money Laundering Authority, which would become the “centerpiece” of the whole European crypto oversight architecture. The mentioned plans also included new requirements for virtual asset service providers in accordance with the EU’s strict data collection standards. Governed by directives A common critique of United States crypto regulation is that it relies on a mishmash of agencies such as the Securities and Exchange Commission, Commodity Futures Trading Commission, Financial Crimes Enforcement Network and many others. Europe, though, also does not have a single authority in charge — there is only a patchwork of various national agencies, many of which expertise in matters of the digital economy. This makes creating a centralized watchdog more of a necessity than a hostile move.The current absence of such a body stems from the fact that the EU’s AML rules are established by directives, which are pieces of legislation that are not automatically mandatory and instead need to be transposed by each member state into their national laws. Thibault Verbiest, head of the fintech and crypto finance department at law firm Metalaw, explained to Cointelegraph: “Although the 5th Anti-Money Laundering Directive, which entered into force on January 10, 2020 and since has been fully transposed by almost all member states, includes within its scope crypto service providers (notably, exchanges and custodian wallet providers) as obliged entities, […] the absence of a pan-EU authority imposes to rely on each national regulator to enforce AML rules.”The current state of European AML enforcement came under harsh criticism several years ago when separate national-level investigations proved that over 200 billion euros (about $227 billion at the time) of non-resident money flowed through the Estonian branch of Denmark’s largest bank between 2007 and 2015. Changes to the regulatory landscapeWith the arrival of the new enforcement power, we might witness a rapid centralization (and clarification) of the EU crypto framework. That could downplay the competitive advantage of certain conspicuously friendly jurisdictions, as, in Verbiest’s opinion, the differences in rules transposition, interpretation and enforcement will be ironed out. It will be more difficult, if not impossible, for an EU member state to have a stance different from the others:“The monitoring activities and Anti-Money Laundering/Counter-Terrorist Financing rules across the EU will be uniformized up and consolidated. […] With stricter reporting requirements to come and better cooperation between member states on AML/CFT subjects, regulators wish to establish the best possible mapping of crypto transactions so as to identify transactions that pertain to illicit activities as well as limit the erosion of the taxable base.”The major trend of rapid regulatory consolidation is here to stay as the money laundering issue (not necessarily related to crypto) remains highly relevant. According to Toms, AML rules and regulations are already being tightened up in general with each new iteration of EU regulations as the battle against dirty money intensifies: “The current conflict in Ukraine and the sanctions against Russia may prove to be a further catalyst for tighter regulation across the board if there is a fear certain parties may now be even more actively seeking to find more and more novel ways to circumvent AML regulation. […] Crypto, which has already been in the EU’s alarmed sight for a while, may very well find itself caught up in the situation.” The hardline scenarioAnother major factor is the development of central bank and state-issued digital currency projects, which could affect the regulatory and oversight climate and would be hardly optimistic for the crypto industry. If this movement picks up steam across Europe, “unregulated” crypto companies and currencies could become increasingly marginalized and viewed as a route taken by those who, for some reason, don’t want to use state-authorized CBDCs.Such a dark scenario is far from guaranteed, however, given the increasing adoption of crypto at the retail and institutional levels and with more and more of the big names in finance becoming involved with it somehow. At the end of the day, Europe, where executive decision-making is arguably less burdened with parliamentary pressure than in the U.S., may come up with a tougher stance on crypto. The EU will likely seek to take an increasingly hard line in regulating criminal conduct and consumer protection, and crypto is still viewed with suspicion.But the game is not one-sided: After all, the crypto industry will have to figure out how to manage issues of transparency and Know Your Customer in a decentralized world.

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Russian Parliament working group: There should be 'mechanisms to control crypto transactions'

Russian Parliament working group: There should be 'mechanisms to control crypto transactions'

Uverejnil používateľ | mar 10, 2022 |

Amid the ongoing discussion between the Central Bank of Russia (CBR) and the nation’s Finance Ministry on the future of crypto, a State Duma (the lower chamber of Parliament) working group has voiced their support for regulating rather than banning digital assets. The working group called for the “clear regulation of the digital assets industry” as the most effective approach to lower the risks associated with crypto’s adoption in the country.As reported by local media, some 50 experts took part in the panel session called by the Duma’s working group “On the questions of the regulation of cryptocurrency”. The participants came to the conclusion that the “effective and transparent” regulation of the digital asset industry in Russia demands the mechanisms “to control the cryptocurrency transactions”. Such mechanisms already operate in other countries, as experts mentioned, though there is no public information as to what jurisdictions they referred to. The key takeaway from the session is the group’s apparent support of the Finance Ministry’s approach to regulation, with some technical reservations. Experts urged the Ministry to augment the language in its bill related to non-institutional mining, the role of traditional banks, know your customer (KYC) procedures and illicit uses of crypto. Should it attune to its own working group’s advice, the lower chamber will be putting its weight behind the position of the Finance Ministry in the heated up debate with the CBR, which promotes a restrictive approach to crypto. This battle came into a decisive phase in 2022. On Jan. 20, the CBR announced a proposal for a ban on mining and the circulation of private digital currencies in the country. The Finance Ministry responded quickly by presenting its own “Framework for regulating the mechanisms of digital currencies circulation”, which defined digital assets as being similar to fiat currencies in many regards. On Feb. 18, both bodies came up with their own contradictory bills. The CBR doubled down on its intention to ban the issuance and circulation of crypto, while the Ministry proposed to define legal requirements to exchange platforms enabling their operation under special registration procedures.With early signs of parliamentary support and a new regulatory roadmap proposed by deputy prime minister Dmitriy Chernyshenko, the Central Bank’s position in the crypto dispute seems increasingly precarious. The regulator’s blanket ban proposal dramatically lacks any institutional allies within both executive and legislative branches of the government.

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What the launch of the FBI crypto task force means for the digital asset space

What the launch of the FBI crypto task force means for the digital asset space

Uverejnil používateľ | feb 28, 2022 |

On Feb. 17, United States Deputy Attorney General Lisa Monaco announced at the Munich Cyber Security Conference the formation of the new task force “dedicated to cryptocurrency” within the Federal Bureau of Investigation (FBI). Coming four months after the launch of the Justice Department’s National Cryptocurrency Enforcement Team (NCET), this marks another major step in the U.S. government’s crusade against criminal abuse of cryptocurrencies. What the task force will look like The name of the new task force that Monaco revealed is the Virtual Asset Exploitation Unit (VAXU). It will bring together the personnel from the various units of the FBI with crypto expertise to conduct investigations that use blockchain analysis and can result in virtual assets’ seizure. There are still not a lot of details available on the details of the VAXU’s operation but in her speech, Monaco clearly emphasized the fight against cyber ransomware as the main priority: “Ransomware and digital extortion, like many other crimes fueled by cryptocurrency, only work if the bad guys get paid, which means we have to bust their business model […] The currency might be virtual, but the message to companies is concrete: if you report to us, we can follow the money and not only help you but hopefully prevent the next victim.”The VAXU also plans to work jointly with foreign task forces to track down multinational criminal networks operating in crypto. Relation to the NCETDespite its primary affiliation with the FBI, VAXU will in fact be part of the National Cryptocurrency Enforcement Team (NCET), launched in Oct. 2021, to target money launderers and cyber criminals. As per the official release, the NCET’s mission is to “tackle complex investigations and prosecutions of criminal misuses of cryptocurrency, particularly crimes committed by virtual currency exchanges, mixing and tumbling services, and money laundering infrastructure actors.”The NCET’s mission includes investigation and prosecution of cryptocurrency cases, identifying areas for increased investigative and prosecutorial focus, building relationships with crypto-adjacent units and officers across the law enforcement system and collaborating with the industry players.Essentially, the NCET has a mandate to participate in almost any relevant case, no matter who is investigating it. The addition of the FBI-backed VAXU will further extend the unit’s capacities and entrench its status as one of the most important forces in the crypto law enforcement game.NCET’s new lookOn Feb. 17, Eun Young Choi, ex-senior counsel to the Deputy Attorney General, was appointed to lead the NCET. Choi spent over nine years as the cybercrime coordinator at the U.S. attorney’s office for the Southern District of New York where she dealt with cryptocurrency while investigating money laundering schemes and online fraud. To name one, Choi served as lead prosecutor in the case of illegal crypto exchange Coin.mx, an unlicensed virtual currency exchange whose operator, Anthony Murgio, was sentenced to 66 months in prison. She also successfully argued the appeal in the case against Ross Ulbricht, the founder of the Silk Road, who’s been serving his back-to-back life sentences since 2015. Speaking to Cointelegraph, Sujit Raman, partner in the privacy and cybersecurity practice at Sidley Austin law firm, underlined the consistency of the current U.S. law enforcement approach. As early as 2018, the Department of Justice publicly declared that “cybercriminals increasingly use virtual currencies to advance their activities and to conceal their assets,” and announced its intention to “continue evaluating the emerging threats posed by rapidly developing cryptocurrencies that malicious actors often use.” Detailed internal evaluation and analysis within DOJ led to the publication of a comprehensive crypto enforcement strategy by the Trump Administration in October 2020. Raman noted: “The launching of the NCET and of the FBI’s Virtual Asset Exploitation Unit are, therefore, significant and important expansions upon lines of thinking that senior officials have been pursuing for some time, across administrations.”Executive synergiesMichael Bahar, chair of global law firm Eversheds Sutherland’s Cybersecurity practice said to Cointelegraph that there will be a synergetic effect to the prospective cooperation between the DOJ and other regulatory bodies. Bahar commented: “The growing experience and expertise within the Department of Justice will also spread to regulators like the Securities and Exchange Commission and financial regulators. Indeed, we should now expect the Department of Justice to further enhance its engagement with state and local law enforcement and regulatory bodies in the United States and globally.”As Raman explains, these relationships between the DOJ and bodies such as the SEC, Commodity Futures Trading Commission (CFTC), Financial Crimes Enforcement Network (FinCEN) and Internal Revenue Service (IRS) already exist and, while there are limits on how much criminal enforcers can collaborate with civil regulators, “those partnerships will only continue to deepen.” But, in Raman’s opinion, the DOJ and its task forces will not drive the actual rulemaking around digital assets: “DOJ is a law enforcement agency. It is not likely to play a very significant role in crafting a legislative framework to govern the crypto industry writ large.”Both experts agree that these developments don’t pose any threat to the legitimate crypto industry. On the contrary, capable law enforcement can help move it forward toward becoming a more transparent and safe zone for investments.The signal the DOJ activity sends is quite clear: It’s time to comply. “If you engage with cryptocurrency, you will need to demonstrate that you can do so in a compliant manner, calibrating your compliance programs to the unique risks that cryptocurrencies and the underlying blockchain technology present,” Bahar explained.The continuing centralization and coordination of federal law enforcement’s investigative and prosecutorial efforts in the virtual currency space makes it clear: While the fast-growing crypto industry is here to stay, law enforcement is adjusting its strategies in response.

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The crypto oasis: How the UAE became the Middle East’s digital asset champion

The crypto oasis: How the UAE became the Middle East’s digital asset champion

Uverejnil používateľ | feb 24, 2022 |

The United Arab Emirates is reportedly getting ready to start issuing federal licenses for virtual asset service providers (VASPs) by the end of the first quarter of 2022. The move is expected to become part of a complex regulatory framework that the Middle Eastern nation is looking to establish on its way to becoming one of the world’s most crypto-friendly jurisdictions. What could this trajectory look like for the UAE?The proposed regimeThe UAE’s Securities and Commodities Authority (SCA) is reportedly finalizing rules that would allow digital asset firms to set up shop in the country. While working on the legislation, the SCA bore in mind both Financial Action Task Force guidelines and the current legislative developments in the United States, the United Kingdom and Singapore. In what was described as a “hybrid approach,” the SCA will oversee the digital asset marketplace in a dialogue with the Central Bank of the United Arab Emirates without directly interfering with the daily licensing procedures of the financial institutions in the country’s key financial centers, such as Dubai and Abu Dhabi. The government also reportedly intends to create a regulated environment for crypto mining.Current outlookThe United Arab Emirates is a federation consisting of seven emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain. Usually, the federal government has the final say over financial matters, and the two principal bodies that define financial regulation are the UAE Central Bank and the SCA. Still, the federation includes several free zones, which are granted a degree of autonomy when crafting financial rules. In fact, there are already around 30 VASPs, operating in the country’s free zones. Dubai Multi Commodities Centre (DMCC) accommodates 22 VASPs, Abu Dhabi Global Market (ADGM) has six, and Dubai Silicon Oasis Authority (DSOA) hosts one. Each of these centers is overseen by its own regulatory body. ADGM corresponds to the Financial Services Regulatory Authority, while the Dubai zones are under different agencies’ authority: The Dubai International Financial Centre is regulated by the Dubai Financial Services Authority (DFSA), while DMCC is directly under the nationwide SCA’s purview.Patchwork of regulationsCurrent rules — quite naturally, in the light of the regulatory diversity — present a varied picture.For example, the DFSA started rolling out its rules as recently as 2021. According to them, any entity operating a crypto exchange should seek DFSA approval. At the moment, though, that regulation covers only those digital assets that qualify for “investment tokens” status. The DFSA intends to include cryptocurrencies and utility tokens in its framework at a later stage.At the same time, the SCA, which oversees DMCC and “onshore” UAE, provides a much more detailed framework titled “Crypto Assets Activities Regulation.” It contains a clear definition of crypto assets and applies to the majority of their forms.Overall, despite the need to navigate this regulatory diversity, the UAE appears to have a largely crypto-friendly legal environment. As Kokila Alagh, founder and CEO of Karm Legal Consultants, previously told Cointelegraph, “The regulations provided certainty and have opened new opportunities in the UAE, which makes SCA a progressive regulator in the global landscape.” In December 2021, news emerged thatthe Dubai World Trade Centre would become yet another zone of regulated digital asset activity, with rigorous standards for investor protection and Anti-Money Laundering and Counter-Terrorist Financing requirements in place. The major intrigue regarding the incoming federal legislation is whether it will successfully unify this patchwork of rules under one roof. A path to crypto oasis The UAE government started on its crypto-friendly course years ago. The first regulations for the digital asset sector were established back in 2018 in ADGM. The same year saw the nation put its “Emirates Blockchain Strategy 2021” into action, which was to use blockchain technology to “save time, effort and resources and enable individuals to conduct most of their transactions in a timely manner that suits their lifestyle and work,” according to statements made at the time by Vice President and Prime Minister Mohammed bin Rashid Al Maktoum.The initiative laid out some impressive goals, such as saving $3 billion per year in government paperwork spending and millions of work hours.The strategy came with several declarations of more specific intentions, including a blockchain-based vehicle lifecycle management system to be launched by Dubai’s Roads and Transport Authority and the creation of a blockchain-based business-to-business platform for local hotel operators and tourism companies. In November 2021, the United Arab Emirates’ postal operator announced it would be the first in the Middle East to issue nonfungible token (NFT) stamps, celebrating the federation’s 50th anniversary. Several months earlier, the UAE Central Bank revealed it would start trials of a national digital currency.The launch of a central bank digital currency project is a move often accompanied by a turn toward restricting decentralized digital currencies. In the UAE’s case, however, the announcement of a CBDC seemed to have little effect on the nation’s willingness to embrace private innovation.Why so friendly?Speaking to Cointelegraph, Brad Yasar, co-founder and CEO of automated liquidity pool aggregator EQIFi, described the UAE’s openness to crypto as a pragmatic approach taken by the country’s leadership to ensure the diversification of its sources of wealth: “The country’s historical reliance on commodities such as oil could be seen as a key driver behind its dive into digital assets. The government was quick to recognize the many benefits to be derived from digital assets for institutions and retail users, and so acted quickly to implement the necessary support measures in place to allow financial innovation to flourish.” Christian Borel, senior executive officer and branch manager at Switzerland-based SEBA Bank — which has moved to open a regional office in the UAE — highlighted the vast opportunities provided by the nation’s approach to financial regulation alongside the strategic geographical advantages: “The UAE has a number of features that position it as an ideal global hub for the digital asset and blockchain industry. It is ideally positioned in terms of existing business networks to take advantage of connectivity between the Middle East, Northern Africa, India and the West.” Both experts are optimistic about the nation’s digital asset prospects, with Yasar emphasizing the significance of the freshly proposed nationwide licensing system for virtual-asset firms.Borel expects the UAE to be “at the forefront of regulation in the industry,” anticipating that the new legal framework will be integrated into the country’s legal system within the next 12 months.As some major jurisdictions impose bans and severe restrictions on crypto, and as Europe and the U.S. tread slowly and carefully, the UAE is moving fast to become a place with clear, safe rules for the digital asset industry.

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