compliance/aml newsroundup – EU Introduces New Money Anti-Laundering Authority
Here’s our latest roundup from the Compliance and Legal Teams here at BCB Group, providing insights into the recent news highlights in the worlds of compliance and AML, crypto-focused and beyond.
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SHYFT NETWORK LAUNCHES, AIMING FOR FATF-COMPLIANT DEFI
The Shyft Federation (a collection of companies, organisations and even a government) has launched a blockchain based solution to help companies meet the identity and data sharing requirements of the FATF implemented travel rule.
Being a decentralised ‘open base-layer platform’, the Shyft Network facilitates open source technology initiatives, and subsequently has the ability to house decentralised applications (dApps), such as the decentralised Veriscope application – the powerhouse for the Shyft Network’s travel rule application.
The effective implementation of the travel rule on decentralised payments is one of the more challenging issues for the FATF to address, particularly in a manner that does not compromise the integrity and appeal of DeFi. The Shyft Network’s solution to the travel rule consists of users of the network being required to identify themselves, meaning that a public registry of network users is created. During the process of transacting, the identified VASP broadcasts a request for the unknown counterparty’s public address. Members of the Shyft Network who function as the nodes use TOR which helps, amongst other things, to ensure the security of the network by preventing denial of service attacks. Facilitating the safe transferral of data between VASPs is a key milestone in the industry’s strive to be travel rule compliant.
Notably, the smart contract nature of this solution has opened the door to more opportunities going forward for the realm of DeFi compliance. On-chain, customizable KYC rules can be created and, if desirable, a KYC policy of one institution can be made available to all other institutions on the network almost immediately. Additionally, the Network provides users with the opportunity to set predefined rules around particular institutional liquidity pools, where users can opt in and out. The Shyft Network therefore does not sacrifice the composabile nature of DeFi, which is a key driver of innovation in the space, at the expense of KYC.
Whilst the Shyft Network likely only scratches the surface of making DeFi more appealing to regulators, its launch marks an important first step in addressing the anticipated increase of regulatory oversight and intervention in the future.
THE EU STRENGTHENS ITS PLANS FOR CENTRALISED SUPERVISION OF AML EFFORTS
The European Commission announced last week that it plans to introduce a new supervisory authority, the Anti-Money Laundering Authority (AMLA), to hinder criminals’ ability to conduct regulatory arbitrage across the EU.
It is the concern of the Commission that money launderers and terrorist financiers are taking advantage of the hodgepodge application of AML rules across EU member states. The stated purpose of the AMLA is to prevent money laundering and terrorist financing by “coordinating with national supervisory authorities” to ensure that EU AML and CTF rules are applied to an equivalent (and high) standard across the EU. Additionally, the European Commission intends to make EU AML rules “directly binding on member states”, as opposed to leaving it to member states to incorporate newly proposed regulation into national law.
The European Commission has also taken this opportunity to announce new requirements for cryptoasset service providers to collect information that echoes the infamous FATF Travel Rule. Under this proposal, service providers will need to gather beneficiary and originator data on all cryptoasset transfers, and to make this data accessible to the AMLA. It is the European Commission’s hope that the inclusion of cryptoasset transfers within the scope of the EU rules for financial services will reduce the ability of criminals and terrorists to exploit this space.
BRITISH POLICE SEIZE £180 MILLION IN RECORD-BREAKING CRYPTOCURRENCY BUST, THREE WEEKS AFTER THEY SEIZED £144 MILLION
London’s Metropolitan Police have recorded another win in their fight against money laundering this week, with the seizure of £180 million on Saturday 10 July of an unnamed cryptocurrency. This is the second multi-million pound seizure by the Met’s economic crime unit in as many months. It was made as part of ‘an ongoing international money laundering investigation‘ and brings the total amount seized to just shy of a whopping £300 million.
Details regarding the money laundering operation behind these monumental sums are, at present, few and far between. The Met have, however, disclosed that a woman in her late-30s was arrested on suspicion of money laundering offences after the first seizure and subsequently released on bail. She has since been interviewed under caution in relation to the most recent seizure and re-released on bail.
Deputy Assistant Commissioner Graham McNulty said whilst just a few years ago the tracing of criminal funds across the blockchain was “fairly unchartered territory”, the detectives in the economic crime unit “have worked tirelessly and meticulously” to track down the funds and that their efforts to catch the launderers were ongoing.
ALL CRYPTO EXCHANGES, BOTH FOREIGN AND DOMESTIC, WILL SOON BE SUBJECT TO KOREAN AML STANDARDS
Soon all crypto exchanges offering Korean won-denominated crypto trading pairs will be required to comply with the country’s AML standards. This measure, intended to take effect in September 2021, will apply to crypto exchanges based overseas too, regardless of whether they have a geographical footprint in South Korea or not.
In order to comply with these AML requirements, foreign exchanges must register with the Korea Financial Intelligence Unit, the Financial Services Commission’s AML watchdog. Additionally, they will be subject to a requirement to use real-name account trading, something that is not possible without a banking relationship with a Korean financial institution. However, these banking relationships are hard to come by, with multiple smaller exchanges reportedly finding it tough to establish them. The September deadline is fast approaching and the consequences for failing to secure a banking relationship within this time are severe. If any exchange is still operating after the deadline their operators may face a 50 million won fine or up to 5 years in prison.
However, all is not lost. The smaller exchanges are planning to fight back against the government with a new lawsuit. They are arguing that, by putting the onus of combating money laundering on Korean banks who are traditionally risk-averse and accordingly less-than-keen to consort with crypto, the Korean government is shirking its responsibilities. The exchanges believe that this relinquishing of responsibility will cause more harm than good by stifling the ability of smaller enterprises to create competition for Korea’s big crypto names.
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