New FATF AML Recommendations And Bitcoin

The Financial Action Task Force (FATF), an global inter-governmental body, updated its anti-money laundering (AML) recommendations (PDF) (last updated 2003) and includes some wording that is relevant to Bitcoin:

From the glossary:

Funds:
The term funds refers to assets of every kind, whether corporeal or incorporeal, tangible or intangible, movable or immovable, however acquired, and legal documents or instruments in any form, including electronic or digital, evidencing title to, or interest in, such assets. [emphasis added]

Money or value Money or value transfer services (MVTS):
Refers to financial services that involve transfer service the acceptance of cash, cheques, other monetary instruments or other stores of value and the payment of a corresponding sum in cash or other form to a beneficiary by means of a communication, message, transfer, or through a clearing network to which the MVTS provider belongs.Transactions performed by such services can involve one or more intermediaries and a final payment to a third party, and may include any new payment methods.Sometimes these services have ties to particular geographic regions and are described using a variety of specific terms, including hawala, hundi, and fei-chen. [emphasis added]

Recommendation 14:

14. Money or value transfer services
Countries should take measures to ensure that natural or legal persons that provide money or value transfer services (MVTS) are licensed or registered, and subject to effective systems for monitoring and ensuring compliance with the relevant measures called for in the FATF Recommendations. Countries should take action to identify natural or legal persons that carry out MVTS without a license or registration, and to apply appropriate sanctions. [emphasis added]

And Recommmendation 15:

15. New technologies
Countries and financial institutions should identify and assess the money laundering or terrorist financing risks that may arise in relation to (a) the development of new products and new business practices, including new delivery mechanisms, and (b) the use of new or developing technologies for both new and pre-existing products. In the case of financial institutions, such a risk assessment should take place prior to the launch of the new products, business practices or the use of new or developing technologies. They should take appropriate measures to manage and mitigate those risks. [emphasis added]

Protections are in place for licensed instituations, such as the banking industry.  The FATF has a provision establishing that know your customer (KYC) requirements for some wire transfers (those below a “de minimis” threshold, i.e., $1,000 USD) can be skipped.  But for unlicensed individuals, such as those exchanging bitcoins, there appears to be no no such “de minimis” exemption.  In the U.S., this was explicitly made clear when director James H. Freis stated: “An entity that engages in money transmission in any amount is subject to the BSA rules.”

The gold and precious metals industry has their protections in place as well:

For the purposes of Recommendation 32, gold, precious metals and precious stones are not included, despite their high liquidity and use in certain situations as a means of exchange or transmitting value.

This development follows the published reminder from the U.S. Treasury’s FinCEN that they were serious about their new definition of what qualifies as a Money Service Business (MSB):

“Foreign-located MSBs are subject to the same civil and criminal penalties for violations of the BSA and its implementing regulations as MSBs with a physical presence in the United States.

Bitcoiners had already been discussing this last year, but others appear to have just gotten the memo.

While FinCEN’s spokesperson says the agency is “aware of Bitcoin”, there has not yet been any action or direction given by the agency (at least not publicly) indicating what if any of the agency’s regulations would apply to Bitcoin exchanges or merchants using bitcoins as currency for trade.

One has to wonder though how much higher the growth of Bitcoin currency would be if the future regulatory uncertainty weren’t holding Bitcoin’s adoption back from its use in commerce. 

[Update: Ernst & Young published their International Tax Alert Treasury and IRS issue proposed FATCA regulations (pdf) relating to the plans to have the United States, France, Germany, Italy, Spain and the United Kingdom share domestic tax records for owners of accounts that cross borders.]

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