NPPS – NEW PRODUCTS AND PAYMENT SERVICES

Virtual currencies : Bitcoins and others

THE SIGN OF THE TIMES

They are flexible, efficient and have low transaction costs

However, virtual currencies also present potential AML/CTF risks, such as

The limited identification and verification of participants

The ability to easily conduct online cross-border transactions

The anonymity provided by the trade or transfer

The funding of virtual currency units through illegal cash

Virtual currencies have recently developed into a widely accepted method of online payment

HOW DO REGULATORS VIEW THE ISSUE?

Currently, virtual currencies are not regulated and are therefore prone to be used for illegal activities. Some governments have prohibited their use, others view them less rigidly.

Regulators around the world are facing a number of challenges with regards to virtualcurrencies and are still seeking to develop and implement AML/CTF regulation for these newpayment products and services.

Virtual currency addresses have no names or other customer identification information

The anonymity provided by transfers makes the users difficult to trace

Protocols do not provide for historical records of transactions

As a decentralised system, there is no central server, service provider or oversight body

YOU ARE A DIGITAL CURRENCY OR NPPS PROVIDER!WHAT CAN YOU DO?

Although the legal framework is not set, you can already now conduct sufficient efforts to ensure you and your company are not used for illegal purposes, by

Identifying the risks of your business on a risk based approach (RBA) prior to its launch: i.e. risks pertaining to the new technology, the new product, the business practices, your counterparties

Allocating an AML risk classification on a RBA to each of your customers (ongoing activity): risk criteria to include Customer Due Diligence, record keeping, account and transaction limits, geographical and cross-border, potential outsourced services and interaction of service providers

YOU ARE A DIGITAL CURRENCY OR NPPS PROVIDER!WHAT CAN YOU DO?

Maintaining a continuous follow-up of your customers and their transactions relative to the risk they present

Ensuring regular training to company staff

Ensuring appropriate interaction with the respective authorities

Additional information may be obtained from following sources:

http://www.fatf-gafi.org/topics/methodsandtrends/documents/virtual-currency-definitions-aml-cft-risk.htmlhttp://www.fatf-gafi.org/topics/fatfrecommendations/documents/rba-npps-2013.htmlhttp://www.cssf.lu/fileadmin/files/Publications/Communiques/Communiques_2014/Communique__monnaie_virtuelle_140214.pdfhttp://www.cssf.lu/fileadmin/files/Protection_consommateurs/Avertissements/A_EBA_Monnaies_virtuelles_181213.pdf

CHARLIE SHREM: BITCOIN ENTREPRENEUR IN THE NEWS

Charlie Shrem, CEO of the Bitcoin payment processor BitInstant was arrested in January 2014 and charged with money laundering and operating an unlicensed money transmitting business.

Shrem is being accused of knowingly selling more than $1 million worth of Bitcoins to a Florida man who in turn sold them to anonymous users of Silk Road, a black market cyber broker, to enable its users to buy and sell illegal drugs, weapons, stolen identity information and other unlawful goods and services.

Shrem is also accused of failing to report these illegal transactions.

The US Justice Department seized the website and approx. 174,000 bitcoins worth $33.6mio.

Recently, Charlie Shrem pleaded guilty to one count of aiding and abetting an unlicensed money transmitting business (Silk Road) and admitted he knew he was doing wrong.

The investigation is ongoing… Keep watching this space!

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