Crypto Snippet: AML Watchdog Tells Crypto Exchanges to Share Client Info

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These days every government and non-government agency is trying to be the next to announce its stance on the regulation of crypto assets. Now, the Financial Action Task Force (FATF) has just joined the party with a set of strict information sharing standards

A few weeks ago in my Consensus recap, I wrote about speculations on the development of a new ‘travel rule’ for crypto exchanges. Last week, FATF officially put these rules to paper. 

These new ‘requirements’ are the nightmare of any privacy advocate, and have caused a stir throughout the ecosystem. But how will they really impact the industry?

To give a little background, the FATF is an International Governmental Organization responsible for setting international anti-money laundering standards. 

So as you can imagine, the FATF is not a big fan of individual privacy. But even knowing that, the new standards it released regarding crypto regulation were still shocking. 

According to the FATF’s new guidelines, all “virtual asset service providers (VASP)” should be required to record, hold and pass on their customers’ data on to other VASPs when making transactions. 

The new guidance would require every crypto exchange to collect and pass on the following information:

  1. Originator’s name (i.e., the sending customer);
  2. Originator’s account number where such an account is used to process the transaction (e.g., the VA wallet);
  3. Originator’s physical (geographical) address, or national identity number, or customer identification number (i.e., not a transaction number) that uniquely identifies the originator to the ordering institution, or date and place of birth;
  4. Beneficiary’s name; and
  5. Beneficiary account number where such an account is used to process the transaction (e.g., the VA wallet).

Will the FATF rules really be implemented?

Now, I know that sounds pretty bad. But before you panic, the reality is that an International Governmental Organization has no power per se

So it’s likely that it will take years to adopt these rules. In some cases, they may be “forced” upon weak jurisdictions like Malta and Bermuda.

But, they will not officially determine the regulations in any powerful countries like the USA or China.

Powerful countries enforce their regulations when it serves them to do so. But, they have no reason to pay heed to the standards that this external organization sets.

The FATF is most famous for its annual “blacklist” of countries that are at high risk of money laundering. Landing on the FATF’s blacklist can make banking a nightmare for local institutions. It often complicates life for the citizens of the country in anything they do abroad as well. 

So for smaller jurisdictions that don’t want to risk falling on the bad side of the FATF, they will take care to comply. Whereas the big dogs, can just ignore the FATF if they want.

We’ve seen this before…

For a good example of this, just look at banking privacy

Every International Governmental Organization on the planet has recommended doing away with banking privacy for years. 

They can enforce these rules against every country except the US (and probably China and Russia too).

But as mentioned before, for anyone using crypto exchanges in a smaller or ‘weaker’ jurisdiction, this will likely impact you.

What does this mean for Crypto Law Insiders?

Overall, this is yet another sign that crypto will eventually become regulated like stocks and cash. 

As with all assets that can be transferred or hidden, governments try to do everything in their power to outlaw them. Always under the guise of “money laundering” and “terrorism”.

The way governments frame this debate is important, because nobody could possibly be against a law that would fight terrorists [insert eye roll]. But, Insiders shouldn’t be fooled. This is not about money laundering or terrorism. It’s about personal freedom.

Dean Steinbeck

Dean Steinbeck

Dean Steinbeck, Managing Director of Crypto Law Insider, is the leading authority on legal issues related to cryptocurrency and blockchain technologies.