Financial Action Task Force to Issue Anti-Money Laundering Guidelines on Virtual (Crypto) Assets

On the chance you missed it …

FATF is expected to issue recommendations regarding Anti-Money Laundering procedures that should be applied to virtual assets, e.g., Bitcoin et al. If these reports are true and FATF adopts its typical formula for standards, this which will fundamentally change these assets.

The FATF is an iinter-governmental international organization that issues standards for combatting money laundering and terrorism finance.

It does not have the power to issue laws which bind individual countries. But its standards are generally but not always adopted by countries into their national laws.

Why?

Countries that don't adopt or sufficiently implement FATF standards on AML and countering terrorism finance are identified by FATF as "high risk and other monitored jurisdictions".  The financial community then imposes special measures when dealing with these countries or more simply "black-lists" them.  Typically countries fall in line, though there are some exceptions, e.g., DPRK.

FATF's recommendations tend to focus on two areas:

1. CDD or KYC - That is, knowing the identity of the customer through obtaining various information evidenced by documents (e.g., for an individual a copy of a passport or national ID card, proof of address) and as well the customer's financial status and any special status, e.g., politically exposed person.  This information is generally to be periodically reviewed and updated as necessary
2. Transaction Monitoring - Scrutinizing of transactions to identify any that are suspicious with subsequent further review/investigation of the transaction.  If after the investigation, it appears that the transaction is suspicious, a report must be filed with the designated national authority.

These measures go to the heart of one of the two touted features of crypto-assets; anonymity.   

The other major feature that the crypto-assets are backed by air remains intact.

Provision of Bahrain's Anti Money Laundering Law Ruled Unconstitutional

Bahrain has a fairly strict AML/CFT regime, including a tough law.  The CBB AML/CFT regulations for conventional banks are here.  There is a mirror law for Islamic banks.  And separate rules for other types of financial firms.

Bahrain is also the headquarters for the Middle East North Africa FATF organization - MENA's regional organization under the FATF.  For those who like techspeak, it's "our" very own FSRB.

More information from Bahrain's Ministry of Interior Financial Intelligence Unit website.

Here's a recap of some of the provisions of Decree Law #4 of 2001.

1. Offenses include not only actively participating in money laundering but as well failure to undertake reasonable AML procedures, obstructing an investigation, or informing a person that they are being investigated.  Examples of the first would be failure to conduct proper due diligence at the initiation of a relationship, failure to monitor customer accounts and transactions, follow-up on suspicious transactions, etc. (Articles 2.1, 2.2, and 2.6)
   
2. The authorities do not have to prove that the funds are the proceeds of criminal or illegal activity to prosecute or obtain a conviction.  (Article 2.3)
   
3. There is no statute of limitations.  That is, regardless of when the offense occurred one can be prosecuted.  (Article 3.6).
   
4. Fines are up to a maximum BD 1 million (US$2.65 million per offense) and up to a maximum seven years in jail.  (Article 3)
   
5. The law also allowed the authorities to not only confiscate the violator's assets to satisfy the fine but as well those of his spouse and minor children. (Article 3.2).
   

It is this last provision which has been struck down by Bahrain's Constitutional Court as per this article in the Gulf Daily News.

This action, which may be reconsidered, does not really diminish the other strong aspects of this law.