FATF revised crypto guidelines

Money laundering is a worldwide problem that is handled rather badly.

The organisation that is charged with creating homogenous international AML guidance is FATF, which determines money handling standards and reserves the option to “penalize” non-compliant countries by adding them on a gray or black lists. FATF’s favourite strategy appears to be tightening controls over smaller and smaller amounts of money, and yet every so often we learn about increasingly big laundering schemes and bank frauds. One couldn’t help wondering if such an approach could bear any fruit… and if FATF really knows what it is doing ?

When it comes to crypto, FATF isn’t very competent, in our opinion. In June 2019 FATF issued special guidelines for “Virtual Asset Service Providers” (VASP), a broad category of entities involved with transfer, exchange and safekeeping who were obliged to undergo the same reporting obligations as traditional financial institutions, and notably the “travel rule” – an obligation to report detailed personal data on every sender and receiver of a crypto transaction exceeding $1000 worth. The guidelines were almost laughable, so far were they from the doable reality (if applied thoroughly, even providers of non-custodial wallets or DeFi companies could have been subject to this impossible reporting) ?

Quite naturally, two years after the first guidelines FATF was obliged to admit that “the majority of jurisdictions have not yet implemented the FATFs requirements, including the “travel rule”. It was pretty obvious that the guidelines must be made more realistic in order to be observed.

This week an updated version of FATF guidelines was released, precising that VASP definition “is meant to exclude ancillary participants that do not provide or actively facilitate any of these covered activities”. A DeFi DApp is not a VASP, however, anyone maintaining “control or sufficient influence in the DeFi arrangements” still may be ?

The “travel rule” should now be applied only to crypto transfers between VASPs, and for amounts exceeding $3000.

These changes are welcome, but we think they still witness the lack of knowledge on how crypto works. So it is a good thing that FATF only gives “recommendations”, and the final legal framework is up to individual countries, which can open consultations with crypto companies to determine the best AML practices.