anti-money laundering

From Bat-Signal to Bitcoin: Projecting ‘Orange Pill’ on banks as EU drives crypto regulation

The Bitcoin logo lights up on the European Central Bank building in Frankfurt as Bitcoiners urge bankers to “study Bitcoin.”

“The signal goes on, and he shows up. That’s the way it’s been. That’s the way it will be.” Whenever Gotham faces an existential threat, the Bat-Signal lights up the night sky. In the DC Comics universe, Batman always shows up to save the day when he’s called upon.

Bitcoiners in Germany employed a similar tactic this week, emblazoning the preeminent cryptocurrency’s logo with a message to “study Bitcoin” on the side of the European Central Bank building in Frankfurt. The images were shared widely across social media, with notable Bitcoin (BTC) proponents and various company profiles lauding the display.

#Bitcoin looks good on the ECB building pic.twitter.com/k8odYEpAZd

— Alistair Milne (@alistairmilne) March 30, 2023

A dose of the proverbial “Orange Pill” is particularly pertinent, given that the global banking sector has been under the spotlight after the collapse of major institutions, such as Silicon Valley Bank and Signature Bank in the United States.

Orange pilling #Europe: Study #Bitcoin pic.twitter.com/CBcsh1T5VZ

— Carl ₿ MENGER ⚡️ (@CarlBMenger) March 30, 2023

Meanwhile, European parliamentarians adopted a new draft bill focused on Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT), which sets out potential new rules enforcing Know Your Customer requirements for traditional financial and crypto-related services.

In addition, parliamentarians seek to restrict cash and cryptocurrency payments for goods and services where customers cannot be identified. As per the draft legislation, the rules limit cash payments to up to 7,000 euros for cryptocurrency transactions — or 1,000 euros if the user’s identity is unknown.

These proposed new rules are separate from the European Parliament’s impending Markets in Crypto-Assets (MiCA) bill, which is set to come into effect in 2024, a proposed set of rules and guidelines aimed at regulating the cryptocurrency market in Europe.

Liam Murphy, managing director of EMEA at Wachsman, tells Cointelegraph that the AML-CFT bill adopted on March 28 is focused on approving stricter rules to close gaps in combating money laundering, terrorist financing and the evasion of sanctions in the European Union.

“It is a separate policy track to MiCA; although like with many policy actions, there is some crossover. It should be noted that this was just one more step in the regulatory process, and the bill is far from passed yet.”

Murphy added that he was also looking for more clarity on whether cryptocurrency transaction limits only apply to commercial transactions and not to transfers between private individuals.

Given that Wachsman serves a number of cryptocurrency service providers as a communications firm, Murphy noted industry participants are becoming more cognizant that the sector could use regulation to meet its full potential.

“Innovation is unpredictable by its very nature. We are experiencing a digital revolution, and there is a real danger of both overregulation and underregulation.”

Erwin Voloder, senior policy fellow at the European Blockchain Association, also spoke to Cointelegraph about the European Parliament’s draft bill’s implications for cryptocurrency payments.

He highlighted that greater clarity over AML/CTF provisions is welcome but contended that a double standard is constantly applied to crypto payments.

Voloder said that MEPs had previously back-peddled on the need to go through a CASP for the KYC process under Article 59a due to being unnecessarily onerous, according to industry feedback:

“The caps on crypto transactions make the case that crypto transactions are 7x as risky as cash transactions from an AML/CTF perspective, which in comparison to the available data on global money laundering does not line up.”

What also remains difficult to gauge is how cryptocurrency services like decentralized finance (DeFi) protocols and even decentralized autonomous organizations will be governed by potential new laws.

“MiCA left ‘fully decentralized finance’ out of scope because it’s often difficult to determine a chain of liability.”

Voloder used an example considering that a DeFi platform may have an interface that is “client-facing,” but the actual economic activity takes place within the smart contract, which “is abstracted and independent from the interface layer.”

This suggests that there is a strategy forming at the margins of the industry that could bring liability and default reporting obligations to the DeFi space, including nonfungible tokens.

The AML-focused legislation brings crypto under its purview to tighten up commercial transactions across Europe. Meanwhile, the cryptocurrency space is shining a broad spotlight on the recent failings of the traditional banking sector. What remains to be answered is which industry needs more oversight at this moment in time.

Magazine: 4 out of 10 NFT sales are fake: Learn to spot the signs of wash trading

Aussie crypto exchange hints interest in Hong Kong base

The CEO of Independent Reserve says Hong Kong’s “friendly” licensing regime makes it a worthy destination to set up shop, but there are other factors to consider.

Australia-based crypto exchange Independent Reserve is looking at opportunities to set up shop in Hong Kong as the city continues efforts to become a cryptocurrency hub.

Set to take effect in June, the Hong Kong Securities and Futures Commission (SFC) released a proposed licensing regime for cryptocurrency exchanges on Feb. 20 in line with its ambitions to become Asia’s next crypto hub.

Independent Reserve co-founder and CEO Adrian Przelozny told Cointelegraph the “friendly” licensing regime makes Hong Kong a worthy destination to set up a new base, something his firm is now strongly considering.

“Right now, it is looking very interesting […] The recent announcement by the regulators in Hong Kong does make Hong Kong look like a friendly jurisdiction.”

“We see Hong Kong as a good opportunity for Independent Reserve, and we’re always looking at new areas in Asia where we can expand our business,” he added.

The potential move would follow the likes of its peers Huobi and OKX.

*CEO Adrian Przelozny pictured in center with chief operating officer Lasanka Perera (left) and chief technology officer Roman Stefanidi (right). Source:* *Independent Reserve*

Under the new licensing regime, Hong Kong-based crypto companies must comply with various measures relating to the safe custody of assets, such as Anti-Money Laundering, Know Your Customer, counter-financing of terrorism countermeasures, and conflict of interest disclosures and audits.

Przelozny said his team is visiting Hong Kong next week to meet with banks, regulators, lawyers and compliance experts to determine if the location suits the company.

Commenting on the region’s political relationship with China, Przelozny believes China is testing how a more relaxed cryptocurrency regime looks in Hong Kong.

If successful, he believes China may follow suit:

“The Chinese government is using Hong Kong as a testnet to experiment with a looser cryptocurrency regime to see what impact that has on the business landscape there. If they see it as a positive thing, then I think there’s a chance they’ll roll it out through China and loosen their existing restrictions.”

Similar remarks were made by Tron CEO Justin Sun in a December 2022 interview on Bloomberg.

He believes that China is using Hong Kong as an “experiment base” to make a final decision on its policy stance.

However, Przelozny is cautious that it may only represent a “transitory experiment” that could be reversed in the future.

If Independent Reserve is satisfied with the regulatory landscape, Przelozny said the last checkbox to tick would be how expensive it is to open up shop there and what it thinks the return on investment will be for doing so.

Independent Reserve operates as a licensed virtual-asset service provider in Singapore.

It also recently launched Bitcoin.com.au after purchasing the domain name for $2 million (3 million Australian dollars).

Longstanding Australian crypto exchange Independent Reserve has bought https://t.co/caP4K5Kwnn.https://t.co/ococz49Hwe pic.twitter.com/lRHaPi5vhe

— Independent Reserve (@indepreserve) March 23, 2023

Over 80 cryptocurrency firms across mainland China and elsewhere have expressed interest in establishing a presence in Hong Kong of late, according to a March 20 statement by Christian Hui, the Secretary for Financial Services and the Treasury.

Magazine: Best and worst countries for crypto taxes — Plus crypto tax tips

ShapeShift responds to Sen. Warren’s comments to ‘set the record straight’

Switzerland-based crypto platform claimed Warren made “mistakes” in comments at a recent senate hearing and encouraged her to “constructively engage” with its community.

Non-custodial crypto platform ShapeShift refuted United States Senator Elizabeth Warren’s claims of “illicit financing,” suggesting that she used the platform as a scapegoat to “push” her latest crypto bill, according to a recent statement.

ShapeShift stated in a tweet on Feb. 19 that Warren made “mistakes” in her “analysis” of the platform at a recent senate banking committee hearing entitled, Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets, on Feb. 14.

On Valentine's Day, @SenWarren attempted to use ShapeShift as an example to push her latest crypto bill.

Unfortunately, there were mistakes in the Senator's analysis, and we'd like to take the opportunity to set the record straight

— ShapeShift (@ShapeShift) February 18, 2023

In a follow-up tweet, ShapeShift denied Warren’s comments regarding its involvement with “illicit financing,” stating it “never handles user funds” and has no ability to “facilitate this.”

This comes after Warren suggested at the senate hearing that ShapeShift had ulterior motives for restructuring itself as a DeFi platform in July 2021.

Warren suggested that the restructure was to encourage people to “launder” money on the platform.

Shapeshift also clarified that it is “not an exchange,” elaborating that it is an open-source crypto dashboard that “connects users” to different protocols and platforms.

It added that it cares about the “same things” as Warren, citing “user safety” and “access to innovation” as a mutual focus.

ShapeShift encouraged Warren and others to “constructively engage” in the topic of financial freedom and innovation with its community, sharing a link to its discussion forum.

This comes only a day after Erik Vorhees, CEO of ShapeShift, took to his personal Twitter on Feb. 18, stating that he is looking forward to Warren “submitting a proposal” to the Shapeshift DAO governance process, in response to her criticism of the platform.

Warren has been a vocal crypto skeptic in recent times, having made comments in an interview on Jan. 25, suggesting that the United States Securities and Exchange Commission (SEC) should “double down” on its crypto enforcement efforts, as the crypto industry is scared for what’s to come next.

She claimed that the previous SEC administration “essentially gave the green light” to open up a cryptocurrency market “full of junk tokens, unregistered securities, rug pulls, Ponzi schemes, pump and dumps, money laundering and sanctions evasions.”

Cointelegraph reached out to ShapeShift for comment but did not receive a response by publication.

UK’s FCA hints at why its given only 15% of crypto firms the regulatory nod

The UK financial watchdog has received 300 crypto firm registration applications but has approved only 41 applicants.

Despite the plans to turn the region into a bustling crypto hub, the United Kingdom’s financial watchdog says it has given the all-clear to only 41 out of 300 crypto firm applications seeking regulatory approval to date.

The U.K. Financial Conduct Authority (FCA) implemented the new cryptocurrency-focused regulations on Jan. 10, 2020, to supervise businesses operating in the sector and to ensure that they’re subject to the same anti-money laundering (AML) and counter-terrorism financing (CTF) regulations as firms in traditional financial markets.

A statement from the FCA has revealed that of the 265 applications that were “determined” a mere 15% of these applications were approved and registered, 74% of firms either refused or withdrew their application, while 11% were rejected. Another 35 applications are yet to be determined.

While the FCA didn’t expressly state the cause of d the rejected or withdrawn applications, it did provide feedback on “good and poor quality” applications.

Among the more complete applications included a detailed description of the firm’s business model, the roles and responsibilities of business partners and service providers, sources of liquidity, flow-of-funds charts, and an outline of the policies and systems set in place to manage risk, the report stated.

*A flowchart which helps firms understand whether they need to register with the FCA. Source: FCA*

Incomplete applications were more apparent where companies used the application to promote their products and services, particularly in cases when the application process was still ongoing:

“Applicants’ websites and marketing material must not include language that gives the impression that making an application for registration is a form of endorsement or recommendation by the FCA.”

The report suggests that some companies may have had their applications scrapped if they couldn’t show that they have sufficient blockchain-compliance resources set in place to monitor on-chain transactions.

The FCA also doubled down on its anti-money laundering stance, demanding that all firms appoint a money laundering reporting officer who is “fully involved” in the application process.

The FCA also stressed that even for those firms that had their registrations approved, such approval doesn’t mean that they’re no longer free from obligations:

“Applicants must recognize that being registered is not a one-off formality or a tick-box exercise without any further obligations or interaction with the FCA.”

“This feedback should help applicants when they prepare their application for registration and help make the process as simple and efficient as possible,” the note summarized.

Among the digital asset firms to have registered under the FCA thus far include Crypto.com, Revolut, CEX.IO, eToro, Wintermute Trading, DRW Global Markets, Copper, Globalblock, Moneybrain and Zodia Markets.

Given that many companies provide international services, the U.K. FCA also confirmed that they’re now collaborating with other state agencies around the world — most notably the U.S. securities regulator and the U.S. commodities regulator — in order to strengthen regulation where necessary.

The FCA has stressed on several occasions that failure to register before conducting business may result in criminal charges.

UK’s FCA hints at why it’s only given 15% of crypto firms the regulatory nod

The UK financial watchdog has received 300 crypto firm registration applications but has approved only 41 applicants.

The U.K. Financial Conduct Authority (FCA) implemented the new cryptocurrency-focused regulations on Jan. 10, 2020, to supervise businesses operating in the sector and to ensure that they’re subject to the same Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations as firms in traditional financial markets.

A statement from the FCA has revealed that of the 265 applications that were “determined,” a mere 15% of these applications were approved and registered, while 74% of firms either refused or withdrew their application, and 11% were rejected. Another 35 applications are yet to be determined.

While the FCA didn’t expressly state the cause of the rejected or withdrawn applications, it did provide feedback on “good and poor quality” applications.

Among the more complete applications included a detailed description of the firm’s business model, the roles and responsibilities of business partners and service providers, sources of liquidity, flow-of-funds charts and an outline of the policies and systems set in place to manage risk, the report stated.

Incomplete applications were more apparent where companies used the application to promote their products and services, particularly in cases when the application process was still ongoing:

“Applicants’ websites and marketing material must not include language that gives the impression that making an application for registration is a form of endorsement or recommendation by the FCA.”

The FCA also doubled down on its anti-money laundering stance, demanding that all firms appoint a money laundering reporting officer who is “fully involved” in the application process.

The FCA also stressed that even for those firms that had their registrations approved, such approval doesn’t mean that they’re no longer free from obligations:

“Applicants must recognize that being registered is not a one-off formality or a tick-box exercise without any further obligations or interaction with the FCA.”

“This feedback should help applicants when they prepare their application for registration and help make the process as simple and efficient as possible,” the note said.

Given that many companies provide international services, the U.K. FCA also confirmed that it’s now collaborating with other state agencies around the world — most notably with the U.S. securities regulator and the U.S. commodities regulator — to strengthen regulations where necessary.

The FCA has stressed on several occasions that failure to register before conducting business may result in criminal charges.

Countries ignoring crypto AML rules risk placement on FATF’s ‘grey list’ — Report

Reports suggest the Financial Action Task Force will conduct annual checks to ensure countries are enforcing anti-money laundering rules for crypto providers.

Countries failing to adhere to anti-money laundering (AML) guidelines for cryptocurrencies could find themselves added to the Financial Action Task Force’s (FATF’s) “grey list.”

According to a Nov. 7 report from Al Jazeera, sources say the global financial watchdog is planning to conduct annual checks to ensure countries are enforcing AML and counter-terrorist financing (CTF) rules on crypto providers.

The grey list refers to the list of countries the FATF deems as “Jurisdictions under Increased Monitoring.”

The FATF says countries on this list have committed to resolving “strategic deficiencies” within agreed timeframes and are thus subject to increased monitoring.

It differs from the FATF “blacklist,” which refers to countries with “significant strategic deficiencies in relation to money laundering”, a list which includes Iran and the Democratic People’s Republic of Korea.

At the moment, there are 23 countries on the grey list, including Syria, South Sudan, Haiti and Uganda.

Crypto hotspots like the United Arab Emirates (UAE) and the Philippines are on the grey list as well, but according to FATF, both countries have made a “high-level political commitment” to work with the global financial watchdog to strengthen their AML and CFT regime.

Pakistan was previously also on the list, but after taking 34 actions to solve FATF’s concerns, they are no longer subject to increased monitoring.

One of the anonymous sources cited by Al Jazeera noted that while failure to comply with crypto AML guidelines won’t automatically put a country on the FATF’s grey list, it could affect its overall rating, tipping some to fall into increased monitoring.

Cointelegraph has reached out to the Financial Action Task Force for comment but has not received a response at the time of publication.

In April 2022, the AML watchdog reported that many countries, including those with virtual asset service providers (VASPs), are not in compliance with its standards on Combating the Financing of Terrorism (CFT) and Anti-Money Laundering (AML).

Under FATF guidelines, VASPs operating within certain jurisdictions need to be licensed or registered.

In March, it found that several countries had “strategic deficiencies” in regard to AML and CTF, including the United Arab Emirates, Malta, the Cayman Islands and the Philippines.

In October, Svetlana Martynova, the Countering Financing of Terrorism Coordinator at the United Nations (UN) noted that cash and hawala have been the “predominant methods” of terror financing.

However, Martynova also highlighted that technologies such as cryptocurrencies have been used to “create opportunites for abuse.”

“If they’re excluded from the formal financial system and they want to purchase or invest in something with anonymity, and they’re advanced for that, they’re likely to abuse cryptocurrencies,” she said during a “Special Meeting” of the UN on Oct. 28.

Countries ignoring crypto AML rules risk placement on FATF’s ‘grey list:’ Report

Reports suggest the Financial Action Task Force will conduct annual checks to ensure countries are enforcing Anti-Money Laundering rules for crypto providers.

Countries failing to adhere to Anti-Money Laundering (AML) guidelines for cryptocurrencies could find themselves added to the Financial Action Task Force’s (FATF) “grey list.”

According to a Nov. 7 report from Al Jazeera, sources say the global financial watchdog is planning to conduct annual checks to ensure countries are enforcing AML and Counter-Terrorist Financing (CTF) rules on crypto providers.

The grey list refers to the list of countries the FATF deems as “Jurisdictions under Increased Monitoring.”

The FATF says countries on this list have committed to resolving “strategic deficiencies” within agreed timeframes and are thus subject to increased monitoring.

It differs from the FATF “blacklist,” which refers to countries with “significant strategic deficiencies in relation to money laundering,” a list that includes Iran and North Korea.

At the moment, there are 23 countries on the grey list, including Syria, South Sudan, Haiti and Uganda.

Pakistan was previously also on the list, but after taking 34 actions to solve FATF’s concerns, they are no longer subject to increased monitoring.

Cointelegraph has reached out to the Financial Action Task Force for comment but has not received a response at the time of publication.

Under FATF guidelines, VASPs operating within certain jurisdictions need to be licensed or registered.

In March, it found that several countries had “strategic deficiencies” in regard to AML and CTF, including the United Arab Emirates, Malta, the Cayman Islands and the Philippines.

In October, Svetlana Martynova, the Countering Financing of Terrorism Coordinator at the United Nations (UN) noted that cash and hawala have been the “predominant methods” of terror financing.

However, Martynova also highlighted that technologies such as cryptocurrencies have been used to “create opportunites for abuse.”

A16z-backed CoinSwitch exchange raided over alleged forex law breaches

The Andreessen Horowitz-backed crypto exchange is the latest on the Enforcement Directorate’s anti-money laundering hit list.

Major Indian crypto exchange CoinSwitch Kuber had five of its premises searched by Anti-Money Laundering agents on Thursday over alleged violations of forex laws.

According to a Thursday report from Bloomberg, India’s Enforcement Directorate searched CoinSwitch Kuber’s offices as well as the residences of its directors and CEO Ashish Singhal.

A source told the publication the crypto exchange is under suspicion of acquiring shares worth more than $250 million in contravention of forex laws, as well as being non-compliant with certain Know Your Customer (KYC) requirements.

The Directorate of Enforcement is a federal enforcement and intelligence agency operating under the Ministry of Finance. According to its website, the agency’s primary objective is the enforcement of acts including the Foreign Exchange Management Act and the Prevention of Money Laundering Act.

CoinSwitch Kuber said in a statement: “We receive queries from various government agencies. Our approach has always been that of transparency:”

“Crypto is an early stage industry with a lot of potential and we continuously engage with all stakeholders.”

Launched in India in 2020, CoinSwitch Kuber is one of the largest crypto exchanges in India, alongside WazirX and CoinDCX, with over 18 million registered users.

CoinSwitch Kuber reached unicorn status last year after raising $260 million in a Series C funding round led by Coinbase venture capital arm Coinbase Ventures and Andreessen Horowitz. The company is also backed by Sequoia, Paradigm, Ribbit and Tiger Global.

The actions follow a continued clampdown on the cryptocurrency space in India.

Earlier this month, Enforcement Directorate froze roughly $8.1 million in funds from crypto exchange WazirX, alleging that the crypto exchange facilitated transactions by unnamed fintech firms “to purchase crypto assets and then launder them abroad.”

This year has also seen the government introduce two new laws demanding crippling taxes on crypto-related unrealized gains and transactions.

In a recent survey conducted with 2042 Indian cryptocurrency investors by crypto exchange KuCoin, 33% of survey respondents noted they were concerned by ambiguous government regulations that could deter potential investors from crypto.