Premier Su Tseng-chang's executive order on virtual currency - Understanding FATF, VASP, Anti-Money Laundering

Taiwan Premier Su Tseng-chang issued an Executive Yuan regulatory order on April 7th, providing further clarification on virtual currency activities to be regulated under the existing anti-money laundering laws. This article aims to give you a quick overview of its contents.

Special thanks to Chairman Peng Shao-fu of the Taiwan Blockchain University Alliance for his insights.

Simple Explanation in One Sentence

Executive Yuan: I am authorized to supplement these provisions, and operators engaged in these activities must comply with anti-money laundering regulations! If something goes wrong, the responsibility will fall on you service providers.

Following the guidelines published by the Financial Action Task Force (FATF) in 2019, the Executive Yuan has further specified regulations for service providers in the virtual currency sector to adhere to anti-money laundering activities.

This includes:

• Exchange between virtual currency and New Taiwan Dollar or foreign currency
• Cryptocurrency-to-cryptocurrency transactions
• Transfer of virtual currency
• Providers of custodial or asset management tools for virtual currency must be regulated
• Regulation for ICOs, IEOs, and other issuances or sales

Original Executive Yuan Order

Impact on VASP Service Providers

Imagine this scenario: Cryptocurrencies in Taiwan are officially named virtual currencies, and service providers are obligated to implement anti-money laundering measures, such as establishing internal controls, conducting internal audits, performing user KYC (Know Your Customer), retaining necessary transaction records, establishing reporting and notification mechanisms in collaboration with investigative agencies, and providing relevant information to regulatory authorities. All of these are practices that exchanges in Taiwan are already undertaking.

The term VASP (Virtual Asset Service Provider) not only applies to exchanges but also includes wallet providers, OTC traders, cryptocurrency asset management companies, custodians, cryptocurrency issuers, etc. In Taiwan, apart from exchanges, wallet providers and cryptocurrency asset management companies may face increased compliance costs after the regulations are further detailed.

What is Money Laundering and Anti-Money Laundering?

According to Taiwan's anti-money laundering laws, money laundering involves three types of behaviors: disguising or concealing the source of specific criminal proceeds to evade criminal prosecution, transferring or changing specific criminal proceeds; disguising or concealing the nature, source, destination, location, ownership, disposal, or other rights of specific criminal proceeds; receiving, holding, or using another person's specific criminal proceeds.

Exchanging virtual currency for fiat currency, as well as the anti-money laundering mechanisms in traditional banks; cryptocurrency-to-cryptocurrency exchanges that occur within VASP platforms are all within easily monitored scopes. However, external transfers of virtual currencies may pose challenges in conducting KYC on external wallets. They may be anonymous wallets or DeFi contracts, making it difficult for VASPs to provide information to regulatory authorities.

Extreme Case Before Trump's Departure: Shocking U.S. Operators

The Federal Reserve and the Financial Crimes Enforcement Network (FinCEN) proposed on October 23, 2020, to apply the anti-money laundering travel rule to cryptocurrencies, where VASPs are required to obtain and share information about the sender and recipient.

If the proposal is passed, cryptocurrency exchanges will have to verify the name and address of owners for single deposits or withdrawals exceeding $3,000 to non-custodial wallets, and also report deposits and withdrawals exceeding $10,000 to the Financial Crimes Enforcement Network (FinCEN).

At that time, numerous operators, including Coinbase, strongly opposed the proposal, leading to FinCEN receiving 7,500 public feedback within 15 days. Due to the rushed discussion, Silicon Valley venture capital firm a16z and the CEO of Coinbase voiced their concerns, stating that they would object in court if the bill passed.

However, with Biden taking office, the proposal has been announced to extend the public comment period. On January 21, the White House issued an order to instruct all departments to halt new regulatory developments pending review by the new administration.