Financial Action Task Force releases Bitcoin report to establish uniformity for future anti-money laundering law – CHRISTINE DUHAIME

Su gentile concessione di  , B.A., J.D., Financial Crime and Certified Anti-Money Laundering Specialist pubblichiamo un articolo uscito su Duhaimelaw:

The Financial Action Task Force (“FATF“) released its anticipated report (the “Bitcoin Report“) on digital currencies, including Bitcoin (hereinafter, “Bitcoin“). The Bitcoin Report is the first step towards the global regulation of Bitcoin and other digital currencies with the goal of providing uniformity in law of certain key terms for FATF member countries to adopt.

The Bitcoin Report was issued in conjunction with several other reports at the conclusion of a two-day FATF plenary session.

The Bitcoin Report summarizes Bitcoin as: (a) the wave of the future for payment systems; and (2) a powerful tool for criminals, terrorist financiers and sanctions evaders to move and store illicit funds.

With respect to the second use of Bitcoin identified by the FATF, above, the Bitcoin protocol stores value but does not store funds and the US Treasury Undersecretary for Terrorism and Financial Intelligence, David S. Cohen, not long ago stated that there is no evidence of widespread use of Bitcoin for terrorist financing, and with respect to money laundering and sanctions avoidance, their position is that those concerns exist but are not manifest (because if they were, he said the US Treasury would ensure the viability of the financial system over Bitcoin). We summarized Mr. Cohen’s talk on Bitcoin here, in which he provides an excellent financial crime perspective of the US government’s concerns with digital currencies, reflective of the concerns of most governments.

The Bitcoin Report describes and compares virtual currencies generally and is a shorter version of a similar comprehensive report issued by the European Commission 18 months ago.

Defines Virtual Currency and other terms

The main purpose of the Bitcoin Report is to provide definitions of, inter alia, digital currencies and virtual currencies for anti-money laundering purposes.

The FATF proposes countries adopt the following definition of virtual currency:

A “Virtual Currency” is a digital representation of:

  1. A medium of exchange;
  2. A unit of account: or
  3. A store of value without legal tender status in any country

that is not issued by any country and fulfills the functions in 1 – 3, above, by virtue only of agreement among its users.

The FATF proposes the following definition of digital currency:

A “Digital Currency” is a digital representation of a Virtual Currency.

The Bitcoin Report defines several other terms such as miners, users, administrators, wallet, cold storage, hot storage, dark web and exchangers.

Groups Bitcoin with Liberty Reserve

The Bitcoin Report groups Bitcoin in a similar category as Liberty Reserve, e-Gold and SecondLife Linden Dollars. However, there are material differences.

With respect to Liberty Reserve, for example, it was: (a) a centralized digital currency; (b) created and controlled by private enterprise; and (c) lacking transactional transparency on a public ledger.

Bitcoin has none of these characteristics.

Moreover, Linden Dollars and Liberty Reserve Dollars are not uniformly and globally merchantable by which I mean that they are not accepted by merchants to purchase goods and services, like a Visa card and Bitcoin are anywhere in the world. Linden Dollars and Liberty Reserve Dollars have or had, value only within their economic ecosystems and not outside of it with respect to third party merchants.

Identified legitimate uses of Bitcoin

The Bitcoin Report provides some legitimate uses for Bitcoin and twice as many financial crime concerns. According to the FATF, the legitimate uses include:

  1. Ability to improve payment efficiency;
  2. Reduction of transaction costs;
  3. Facilitation of micro payments;
  4. Facilitation of remittances to the underbanked and unbanked populations; and
  5. May be held for investment.

Identified concerns with Bitcoin

The FATF lists the potential concerns with respect to Bitcoin as follows:

  1. Money laundering risks;
  2. Terrorist financing risks;
  3. Anonymity in payment systems;
  4. No central oversight;
  5. No anti-money laundering systems to detect transactions of concern;
  6. No ability for law enforcement to “enforce” at one location or over one system for asset seizures, for example;
  7. Global reach that increases risks;
  8. Segmentation of transactions worldwide that obfuscate responsibility for financial crime compliance;
  9. Customer transaction records that are unaccessible to law enforcement;
  10. Ability of Bitcoin businesses to relocate to countries with lax anti-money laundering controls; and
  11. Operations that are outside the reach of any country.

There are at least 50 more legitimate uses for digital currency and at least 20 more significant legal concerns with them.

With respect to the latter, the most obvious of concern to the FATF are its use as a preferred method to receive bribes in places like China, tax evasion and preservation of beneficial ownership albeit in a new form. It is surprising that these were not identified by the FATF. Anti-bribery, tax evasion and elimination of beneficial ownership are exceedingly important policy mandates of the OECD and FATF. In fact, as far as the OECD is concerned, elimination of tax evasion and beneficial ownership are its top policy priorities.

With respect to the benefits of Bitcoin, the one I argue most often based on my experience as a financial crime lawyer, is that using the Bitcoin protocol could have eliminated the €4 billion carbon credit trading fraud in the European Union. But there are others, not the least of which is the fact that with the exercise of combined legal and technology brain power, the blockchain itself can be used to detect suspicious transactions (as we use that term in money laundering law) and transactions that are the subject of economic sanctions more efficiently, more rapidly and with more precision than anything we currently use for financial crime compliance in the banking sector. Eventually, we could apply this Bitcoin model to monitor, detect and alleviate financial crimes in the wider financial institutional sector. Wouldn’t that be a fantastic twist – Bitcoin being used to eliminate financial crime within global financial institutions.

Uniformity in law

The idea behind the creation of the Bitcoin Report was so that countries would adopt the same definitions in respect of digital currencies so that national legislation from countries on anti-money laundering and counter terrorist financing for digital currencies coming down the pipe globally in the next six months (beginning with Canada), will be uniform and capable of uniform application, such as for extradition.

The next step for the FATF is to determine if it wishes to draft amendments to the 2012 Recommendations to include digital currencies and if it does, member countries, to the extent they have not already done so, will have to take steps to bring their national anti-money laundering laws in alignment with the revised FATF Recommendations on digital currencies.

The contributors to the Bitcoin Report were US, Canada, UK and Australia.


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