Like it or not, cryptocurrency firms have long operated in a legal gray zone. For most of Bitcoin’s ten-year lifespan, exchange platforms and other services providers didn’t implement Know Your Customer (KYC) and Anti Money Laundering (AML) procedures.
But this is changing. And quick.
Bitcoin & Crypto In FinCEN Director’s Scopes
Speaking to an audience at a fintech event at the Georgetown University Law Center, Director of the Financial Crimes Enforcement Network (FinCEN) Kenneth Blanco said that cryptocurrency firms are not above AML laws.
Firms dealing with digital assets, he remarked, are still subject to the Bank Secrecy Act, “whether you are a stablecoin, centralized, decentralized crypto.” He asserted that this has to be the case due to the potential that individuals on the other side of cryptocurrency transactions might be “dealing in some kind of illicit activity,” be it “opioids or human smuggling.”
Blanco’s remarks come as the world’s regulators have begun to float and even implement stringent KYC and AML rules on infrastructure providers across the cryptocurrency space.
The most notable of these is the start of the implementation of the Financial Action Task Force’s (FATF) so-called “Travel Rule” for cryptocurrency transactions. The Travel Rule stipulates that exchanges/services should track the details of cryptocurrency trades/transactions valued at over $1,000, including the recipient, sender, value of the transaction, amongst other key details.
Technically, these guidelines aren’t mandatory. Yet, countries that don’t force these rules on local exchanges and cryptocurrency firms may be subject to ostracization from other FATF members or may lose certain financial privileges.
Similar to the impending implementation of the FATF’s guidelines, a group of 15 countries, including the U.S. and the other members of the Group of Seven, revealed to Nikkei Asian Review earlier this year that they are looking to implement a centralized system to track cryptocurrency transactions.
It seems that this proposed system is being built in order to satisfy the FATF’s concerns regarding Bitcoin and its ilk. The system will purportedly be operational within the next few years.
‘Kowtowing’ Has Begun
The “kowtowing” to regulators has already begun. As reported by Blockonomi previously, crypto exchange giant OkEx recently began the process of delisting privacy-enhancing cryptocurrencies on its Korean exchange.
In a statement published in the middle of September, the exchange said that it would be delisting Dash (DASH), Monero (XMR), Super Bitcoin (SBTC), Horizen (ZEN), and Zcash (ZEC) — all cryptocurrencies that give their users the ability to transact with more privacy than, say, Bitcoin or Ethereum.
As the FATF’s rules and similar measures from similar entities continue to come into effect, it is expected that other top exchanges will follow suit, and may even go as far as to implement even more strict KYC measures to stave off criminal activity.
That’s not all. Bitcoin mixing services have begun to be targeted by state actors. Earlier this year, Bestmixer, a cryptocurrency privacy-enhancing service, was shut down by Europol and its partners for blatantly advertising “money laundering services, and falsely claimed to be domiciled in Curacao where they claimed it was a legal service.”
Mixers are the most notable tool that privacy-consciousness cryptocurrency users harness to ensure they can’t be tracked by authorities or analytics companies.
And to put a cherry on the top of the crypto regulatory cake, the White House warned the world in August that narcotics smuggling is being directly enabled by Bitcoin, Ethereum, Bitcoin Cash, Monero, and other cryptocurrencies.
Shortly thereafter, the Treasury blacklisted some Bitcoin and Litecoin addresses associated with purported Chinese drug lords Xiaobing Yan, Fujing Zheng, and Guanghua Zheng.
It is clear that with Bitcoin and cryptocurrencies continuing to gain traction — just look to the buzz that Libra has caused — regulators won’t be stopping their crusade on the industry any time soon.
There have been fears, however, that if governments use too much force, this industry, which many claim will be behind the future of finance and business, will be seriously hampered as a result. And who wants that?
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