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INDUSTRY UPDATES & INSIGHTS

March 30, 2020

  • CipherTrace CEO briefs Japanese regulators on FATF Travel Rule
  • DOJ indicts Venezuelan leader on drug-trafficking charges — says Maduro hid illicit proceeds with crypto
  • Alleged leader of crypto-for-child-porn ring faces charges in Seoul
  • Congress floats the idea of using digital currency to rapidly distribute funds as part of the coronavirus stimulus bill

CipherTrace CEO Meets with Japanese Regulators to Discuss FATF Travel Rule Progress

CipherTrace CEO Dave Jevans was invited to meet with the Japan Financial Services Agency (JFSA) in Tokyo on March 16. Due to the COVID-19 epidemic the meeting was held as a video conference, which included several other leaders from cryptocurrency-related private sector companies and emerging messaging standards organizations such as GDF, InterVASP, and OpenVASP.

While the agenda was private, the discussion centered around the industry’s progress on solutions for implementing the Interpretive Note to Recommendation 16 from the Financial Action Task Force (FATF). Among the new requirements it puts on virtual asset service providers (VASPs) is the so-called Travel Rule, which compels cryptocurrency exchanges and other “obliged entities” to transmit and store sender and receiver information for virtual asset transactions over a USD/EUR threshold.

As a founding member of TRISA—the organization driving global adoption of the open source Travel Rule Information Sharing Architecture—Jevans shared his views on how to overcome two key hurdles to compliance.

First is the “sunrise problem”— i.e, How will the first VASPs begin sharing information with their peers when not all VASPs have yet implemented their travel rule solutions because each jurisdiction has different timelines?

The second is the need to “know your VASP.” In February, Mr. Jevans was also invited to give his views to FATF members at their headquarters in Paris. In both Tokyo and Paris, a key topic of discussion was how VASPs would verify the identity of the VASP on the other side of a transaction with a high degree of confidence.

The industry is currently split on approaches to solving this problem. The proposed solutions range from a registry of VASPs to industry self-registration to a government approach to registration. Jevans explained how TRISA is supporting all three approaches, and why some technology options for information sharing would deliver greater reliability and higher levels of trust.

Why it matters: The FATF’s June 2020 deadline for VASPs to begin implementing Travel Rule compliance is fast approaching. Nonetheless, the industry has still not standardized on a viable method to meet the information sharing requirement.

To learn more about TRISA, visit www.trisa.io.

U.S. Accuses Venezuelan President of Using Crypto to Conceal Illicit Drug-Running

On March 26, the Department of Justice indicted Venezuelan President Nicolás Maduro and 14 other officials for operating a narcotics ring involving drug runners, Colombian revolutionaries, and narco-terrorism. In a related press release, Homeland Security Investigations (HSI) alleged the conspirators used crypto to conceal their crimes.

At a press conference, United States Attorney General William Barr, along with the head of the Drug Enforcement Administration and the top federal prosecutors in Manhattan and Miami, accused Maduro of conspiring with a faction of the Colombian Revolutionary Armed Forces (FARC) rebel group “to flood the United States with cocaine,” and “devastate American communities.”

Why it matters: HSI Acting Executive Associate Director Alysa D. Erichs alleged the conspirators used crypto to conceal their crimes. “Today’s announcement highlights HSI’s global reach and commitment to aggressively identify, target and investigate individuals who violate U.S. laws, exploit financial systems and hide behind cryptocurrency to further their illicit criminal activity,” explained Erichs. “Let this indictment be a reminder that no one is above the law — not even powerful political officials.”

https://www.coindesk.com/us-says-venezuelan-president-maduro-hid-massive-drug-ring-proceeds-in-crypto

Alleged Mastermind of Nth Room Sexual Exploitation Ring Arrested in South Korea

South Korean prosecutors on March 25 began reviewing whether to formally charge a man arrested for allegedly operating an online sexual exploitation and blackmail ring. Police perp-walked the handcuffed 24-year-old suspect, Cho Ju-bin, in front of waiting journalists at the Jongno Police Station in Seoul before driving him to the prosecutors’ office. Prosecutors allege Ju-bin operated a secret Telegram chat room, “Nth Room,” where he posted graphic videos of women and young teens in return for cryptocurrency payments.

South Korean authorities do not usually reveal the identity of a suspect, but they said this case involved a particularly “heinous crime.” The details of the chat room content also rocked the nation, spurring more than 5 million South Koreans to sign petitions calling for the release of his name.

Police investigating the Nth Room pedophile ring also served search warrants on the country’s leading crypto exchanges, including Upbit, Bithumb, Korbit, and Coinone. They are attempting to track down people who paid as much as 1.5 million won (US$1,200) in cryptocurrency to watch sexually exploitive and sometimes violent video footage featuring women and underage girls.

Two investigative journalists infiltrated the now-notorious chat room and revealed the story. Police believe Nth Room had been operational since 2018 and involved as many as 74 victims. In total, it took in millions of dollars’ worth of Bitcoin, Ethereum and Monero.

https://www.nwitimes.com/news/world/south-korea-investigates-chatroom-sex-abuse-allegations/article_1baa80f9-16fe-55ee-945b-232a57c87bf8.html

Congress Discusses “Digital Dollars” as Means to Distribute Coronavirus Stimulus Payments

After the US Central Bank took a number of monetary policy steps to mitigate the negative impact of coronavirus-related shutdowns, Congress also began to design fiscal steps to stimulate the economy. Among the various measures are plans to distribute payments directly to every adult in the country who meets the requirements. During deliberations on the stimulus bill, some members put forward the concept of using digital currency as a means of making it easier to get payments directly to citizens. The federal government must mail physical checks to those recipients without bank accounts registered with the IRS, causing significant delays in disbursement.

Earlier this year, Facebook’s Libra white paper also raised the possibility of a new cryptocurrency serving the roughly 1.7 billion global citizens without a bank account. Many people in the U.S. are also unbanked, and proponents of giving the Federal Reserve authorization to create a CBDC feel it could service these citizens and speed the distribution of stimulus payments to those most in need.

In addition to speeding stimulus payments, according to the Wall Street Journal, a well-known economist and former advisor to former Fed Chairs Yellen and Bernanke said a digital dollar would also allow the central bank to more directly impact monetary policy. “It would offer a more effective way to influence the economy’s momentum and achieve the Fed’s mandates of price stability and maximum job growth, largely by bypassing the fickle financial markets,” explained Dartmouth College’s Andrew Levin.

https://www.wsj.com/articles/fed-should-consider-its-own-digital-currency-prominent-academics-say-1494976659?mod=article_inline

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