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INDUSTRY UPDATES & INSIGHTS

April 15, 2020

  • CBDCs Gain Steam in the Midst of Coronavirus Pandemic 
  • Criminals Are Taking Advantage of Lax Enforcement Related to COVID-19 
  • US Earns “B” Rating from FATF For Complying with Crypto AML/CTF Rules 

COVID-19 Underscores Global Need for a New Way of Doing Money 

On March 30, France became the latest nation to announce a digital currency trial, joining the Bahamas, Sweden and a long list of other countries that have launched Central Bank Digital Currency (CBDC) initiatives. With China moving full steam ahead on its digital yuan and Libra’s potential to achieve instant adoption by billions of Facebook users upon launch, many nations are feeling the pressure to move quickly on digitizing their own sovereign currencies.  

According to the announcement, Banque de France is calling for applications—institutional or otherwise—to experiment with the use of a CBDC for interbank settlements, but doesn’t impose specific technological requirements (such as blockchain)Banque de France highlights that the goal is not to replace the existing forms of central money, but to identify how innovative technologies could improve the efficiency and fluidity of payment systems and financial infrastructures, allowing a better financial sector to ensure the smooth financing of the economy.  

Why it matters: It’s only a matter of time before digital currencies are adopted as the norm worldwide, given the increasingly digital nature of the global economy; however, it will take time for nations to evaluate these proof of concepts . The success of these CBDCs will hinge on the issuer’s ability to ensure usability, privacy, and compliance. 

Read more: 

https://www.banque-france.fr/sites/default/files/media/2020/03/30/fact_sheet_-_central_bank_digital_currency_30_march_2020.pdf 

https://fortune.com/2020/04/01/digital-dollar-coronavirus-relief/ 

 Governments Scramble to Mitigate Pandemic Impactsand Criminals Strike  

Governments are under the gun to quickly allocate resources and funds towards mitigating the health and economic impacts of COVID-19. Jodi Vittori from the Carnegie Endowment for International Peace warns that the speed by which varying departments must act does not allow for the level of oversight required to adequately guard against corruption. Inevitably, there will be misallocated funds—which will need to be laundered—and opportunities for criminals to take advantage of the urgent need for action with bribes, kickbacks, and contract malfeasance. 

The pandemic’s shelter-in-place orders makes AML/CTF oversight more difficult, creating new challenges for banks and other traditional financial institutions in conducting customer due diligence (CDD)Regulators are encouraging traditional financial institutions to find creative ways to conduct CDD, including developing new AML protocols that allow employees to safely and securely work from home. 

Why it matters: Many Virtual Asset Service Providers (VASPs) are already adept at virtual KYC/CDD procedures, as the nature of their business is all online. However, an FBI Press Release issued on April 13 warned of an increase in scams involving cryptocurrency related to the COVID-19 pandemic. As a result, VASPs must ensure they are vigilant in detecting and mitigating any of these scams in their payment networks—especially if the VASP can be used as a fiat offramp. The CipherTrace Defenders League has already begun working pro bono with victims of coronavirus-related scams to provide the evidence needed to return any stolen funds.  

Read more:

https://thehill.com/opinion/finance/490815-illicit-financial-flows-will-be-easier-during-the-coronavirus-pandemic  

https://www.fbi.gov/news/pressrel/press-releases/fbi-expects-a-rise-in-scams-involving-cryptocurrency-related-to-the-covid-19-pandemic 

On Crypto AML/CTF, FATF Finds U.S. “Largely Compliant” 

FATF anti-money laundering and counter-terrorist financing measures report, released on March 31st, reevaluated the United States regulations relating to cryptocurrencies and virtual assets. The FATF found the United States has met or mostly met most of the new criteria set out by Recommendation 15 and retains a rating of “largely complaint. According to the report, while US authorities understand and are aware of the ML/TF risks emerging from virtual assets,” the FATF expressed concerns that the US does not adequately deal with VASPs that are incorporated in the US but do not operate in the country.  

The findings of the global anti-money laundering watchdog highlight the importance of continued conversation and collaboration between various regulatory bodies at the international, national, and local levels.

Why it matters: Since the United States’ last assessment in 2016, the FATF has updated its policies to reflect new cryptocurrency regulation, including the Travel RuleRecommendation 16. The Travel Rule requires VASPs to store and share certain information pertaining to the sender and receiver in any cryptocurrency transaction over a given value threshold. This requirement presents new challenges for VASPs in achieving compliance without sacrificing user reliability or security. Countries have until June 2020 to comply with the new policy. CipherTrace has released a solution, TRISA, which is designed to facilitate open-source, secure information sharing among VASPs seeking to comply with FATF’s new rules. 

Read the full reporthttp://www.fatf-gafi.org/media/fatf/documents/reports/fur/Follow-Up-Report-United-States-March-2020.pdf 

Explore TRISA: https://trisa.io   

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