Cryptocurrency compliance: necessary to fight against money laundering and financial scams

Cryptocurrency compliance: necessary to fight against money laundering and financial scams

The rise of cryptocurrencies brings with it the emergence of new financial crimes. Here compliance plays a key role with the establishment of security protocols. There are not many laws around virtual currencies yet, but in view of the boom, a series of aspects related to money laundering and other types of crimes have already been regulated to ensure greater transparency and guarantee in operations.

It is important to understand that in order to prevent money laundering and other types of crimes that are very common in relation to the crypto market, different regulations have been established at international and local level in order to achieve higher levels of security and transparency.

What are compliance programs?

Criminal Compliance Programs are models of control and management of crimes that legal entities (companies and organizations) implement in order to prevent, detect and correct possible criminal risks.

The main objective of a Compliance Program is to develop a corporate culture in the company committed to ethics and compliance with current legislation and its internal regulations (requirements & commitments), as well as zero tolerance to the commission of criminal conduct within the company.

Cryptocurrencies have created a new area of activity for compliance programs. In principle, money laundering prevention, consumer protection and advertising regulation are driving compliance programs at the moment.

The cryptocurrency compliance model is broader and increasingly similar to that of banking institutions. It is not just about complying with CNMV regulations on advertising and money laundering prevention, but an increasingly broader and more mature ‘Compliance’.

Compliance in cryptocurrencies and prevention of money laundering

Compliance in cryptocurrencies is a necessary factor for the development of new currencies.

The rise of cryptocurrencies brings with it the emergence of new financial crimes. Here compliance plays a key role with the establishment of security protocols. There are not yet many laws around virtual currencies, but in view of the boom, a series of aspects related to money laundering and other types of crimes have already been regulated to ensure greater transparency and guarantee in operations.

Organizations in different parts of the world have warned of the risks of investing in this type of assets due to their scarce legislation. For example, the US FED, the British FCE or the ECB itself. In Spain, the CNMV and the Bank of Spain have also pronounced themselves on the matter and appeal to caution when investing in cryptocurrencies due to the opacity, complexity and high volatility of these currencies. In addition, they point out the danger of the aggressive advertising used to attract investors: the classic promise of high profits in a short period of time.

At the international level in terms of compliance in relation to the crypto market, we can find the so-called Travel rule 16, a standard established by the FATF.

The FATF has made several attempts to prevent money laundering and achieve higher levels of guarantees from users.

VASPs defined to classify a company as a Virtual Asset Service Provider (VASP) must perform activities related to the cost and exchange, exchange, transfer, protection or issuance and commitment of virtual assets between virtual assets. In addition, in accordance with 16 FATF Recommended Travel Rules;

VASPs collect and store the necessary and correct information about the resources and the necessary information about the beneficiaries and send this information to the beneficiary institutions, if any.

Beneficiary institutions acquire and store necessary resource information and necessary and correct beneficiary information.

Regulation of cryptocurrencies in Spain

In Spain the regulation of cryptocurrencies is made through legislation on the prevention of money laundering and the fight against tax fraud. Royal Decree Law 7/2021 of April 27 establishes the basic regulation around these currencies. This new regulation identifies several types of companies that would be affected:

• Companies that offer exchange services between virtual currencies and/or fiat currencies.
• Companies that offer electronic wallet services.

These companies must undertake a series of obligations provided for in the regulations:

• Identification of clients
• Registration of cryptocurrency operators at the Bank of Spain.
• In the case of holding cryptocurrencies in international wallets, filing form 729 in the Income Tax Return on Assets and Rights Abroad.