Crypto Businesses

Innovative technologies, such as cryptocurrency, have revolutionized the way how people interact with each other when it comes to financial transactions. While crypto exchanges may provide significant benefits to consumers by streamlining financial interactions, they also create new money laundering and terrorist financing risks. The European Union (EU) included crypto-fiat exchanges and wallet providers in 2018 into the scope of its AML regulations (the so called AMLD5), meaning they must comply with the same rules as financial institutions¹.

Some of the risk factors money launderers are attracted to in this sector include the simplicity of use, globally transferable virtual currencies, easy conversion ability, inexpensiveness due to low commissions as well as the speediness of transfer². Crypto exchanges using free software packages are identified as particular popular for terrorist financiers, demonstrating their suitability as a scalable alternative to more traditional terrorist funding transfer methods³.

Virtual Asset Service Providers (VASPs) and financial institutions involved in virtual asset transfers are required to abide by the Travel Rule under the updated FATF Recommendations. It entails gathering and sharing with VASPs or financial institutions the personal information of the sender and recipient of a crypto transaction. For virtual asset transfers, the FATF's suggested threshold is $1,000/€1,000. As a result, VASPs can take advantage of less onerous requirements if a transaction amount is below the threshold. However, country-specific thresholds can be established⁴. In accordance with the Travel Rule, VASPs must gather and verify specific client data, including checks against sanctions lists. This compliance process is partially covered by the KYC procedure. Information gathering outside the purview of KYC is necessary to fulfill Travel Rule obligations. It should be noted that KYC and the Travel Rule are separate requirements under AML regulations despite their overlaps⁵.