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INDUSTRY UPDATES & INSIGHTS

May 8, 2020

  • The Cayman Islands Provides Clarity to Virtual Asset Companies with New Bills
  • New AMLD5 Implementation Leads to Shut Down of Crypto Companies
  • Privacy Coin Ransom Tall Tale Part of a Suspected Murder Cover-Up

The Cayman Islands Introduce Travel Rule Compliance Regulations for VASPs

On April 28th, the Cayman Islands proposed a series of five bills to provide a framework for Virtual Asset Service Providers to comply with the FATF’s international AML standards—including the cryptocurrency Travel Rule. Minister Rivers of the Cayman Islands expressed in a government-issued Ministry of Financial Services statement, “The legislative enhancements being put forward are designed to increase the jurisdiction’s attractiveness as a domicile for virtual assets business while ensuring Cayman meets international obligations.”

One provision in the VASP Bill is a technology-neutral regulatory sandbox to help promote and regulate new financial technologies, including virtual assets. The sandbox would allow VASPs one-year licenses to test new models that allow them to comply with anti-money laundering requirements.

Why It Matters: The FATF’s cryptocurrency Travel Rule, which requires enforced compliance in June, is sparking VASPs all over the world to consider how best to securely transmit customer PII. While the Cayman bill demands VASPs collect and maintain beneficiary and originator information when conducting virtual asset transfers, there is no indication on how this should be done. TRISA, the Travel Rule Information Sharing Architecture, is an open-source framework that enables VASPs to meet Travel Rule requirements for free in a secure and distributed manner.

Read the Cointelegraph coverage here:

https://cointelegraph.com/news/noted-tax-haven-cayman-islands-sees-new-bills-to-bring-local-crypto-to-fatfs-heel

Read the report from the Ministry of Financial Services of the Cayman Islands Government here:

https://www.mfs.ky/news/government-proposes-framework-for-virtual-asset-service-providers/

Join the TRISA initiative: https://trisa.io/

Dutch Crypto Market Struggles with New AML Regulations

On April 27th Coinnounce reported that the Dutch crypto market is being heavily impacted by newly implemented AMLD5 regulations. Virtual Asset Service Provider Bittr, for example, announced the cessation of operations at the end of April, citing insufficient cash flow to cover the estimated $36,000 registration cost and additional compliance-related fees. Dutch Senator Bastiaan van Apeldoorn responded to the AMLD5 backlash in a parliamentary report, noting that “it’s unlikely that cryptocurrencies are being used on the same scale as cash for money laundering, but that they still require supervision.”

Why It Matters: Creating, implementing and maintaining an effect AML program has always been an expense and challenge for financial institutions—VASP or not— but is vital for securing government support for cryptocurrencies. AMLD5 was adopted to address weaknesses in the EU’s Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) regime that allowed terrorist groups to benefit from anonymity in the use of cryptocurrency exchanges. AMLD5 requires EU member states to bring cryptocurrency into their national AML regulations, with enforced compliance set to June 2020.

Read more on Coinnounce’s coverage of the AMLD5 Regulation here: https://coinnounce.com/dutch-crypto-market-faces-challenges-anti-money-laundering-regulations-2/

Was a Privacy Coin Ransom Scheme Cover-Up for a Murder?

On April 30th, Modern Consensus provided an update to the story of a multi-million-dollar Monero ransom for the return of a Norwegion billionaire’s wife. Investigators now suspect husband Tom Hagen may have murdered his wife, Anne-Elisabeth Hagen, and used the privacy-coin ransom request as part of the cover-up. Hagen has been charged and remains in custody; his lawyer contends Hagen is innocent.

In the article, CipherTrace Chief Financial Analyst John Jefferies commented: “The $10 million ransom was an unrealistic request because it represented 10% of the daily traded volume of Monero at the time.”  John reiterated that bitcoin remains the most common cryptocurrency used by criminals because of its ubiquity and ease of ‘cashing out’ for fiat currency at exchanges lacking proper KYC and AML measures, and that roughly 63% of top exchanges either have no KYC or poor KYC with little verification.

Why It Matters: It is a common myth that privacy coins are the crypto of choice for criminals. While privacy coins may seem like a boon to illicit activity, the barriers to entry for buying and selling Monero and other anonymous tokens makes them impractical for ransom payments. CipherTrace researched the use of various cryptocurrencies—ETH, LTC, XMR, BCH, and even DOGE—in illicit activity such as dark market sales and ransomware attacks. The results revealed that privacy coins are barely used, with BTC as the payment of choice in 76% of dark market sales and 98% of ransomware cases.

Read the full Modern Consensus story here:

https://modernconsensus.com/technology/tale-of-10m-monero-ransom-unravels-as-husband-arrested-for-murder/

Read CipherTrace’s research on privacy coins here:

https://ciphertrace.com/q2-2019-cryptocurrency-anti-money-laundering-report/

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