The Guidance explains the VASP registration or licensing requirements, in particular how to determine in which countries VASPs should be registered or licensed – at a minimum where they were created; or in the jurisdiction where their business is located in cases where they are a natural person, but jurisdictions can also choose to require VASPs to be licensed or registered before conducting business in their jurisdiction or from their jurisdiction. The Guidance further underlines that national authorities are required to take action to identify natural or legal persons that carry out VA activities without the requisite license or registration.

According to FATF guidance, Level-playing field can be defined as countries and their competent authorities should treat all VASPs on an equal footing from a regulatory and supervisory perspective in order to avoid jurisdictional arbitrage.

The FATF requirements, including as they apply in the VA space, are compatible with a variety of different legal and administrative systems is the definition of Functional equivalence and objectives-based approach.

In FATF guidance for the countries, The requirements applicable to VAs, as value or funds, to covered VA activities, and VASPs apply irrespective of the technological platform involved in the definition of Technology-neutrality and future-proofing.

Different entities within a sector may pose a higher or lower risk depending on a variety of factors, including products, services, customers, geography, and the strength of the entity’s compliance program.

The FATF does not support the wholesale termination or restriction of business relationships with a particular sector (e.g., FI relationships with VASPs, where relevant) to avoid, rather than manage, risk in line with the FATF’s risk-based approach.

countries should require VASPs (as well as other obliged entities that engage in VA financial activities or operations or provide VA products or services) to identify, assess, and take effective action to mitigate their ML/TF risks.

The absence of face-to-face contact in VA financial activities or operations may indicate higher ML/TF risks. VA products or services that facilitate pseudonymous or anonymity-enhanced transactions also pose higher ML/TF risks, particularly if they inhibit a VASP’s ability to identify the beneficiary.

As with many financial payments methods, for example, VAs can enable non-face-to-face business relationships. Further, VAs can be used to quickly move funds globally and to facilitate a range of financial activities—from money or value transfer services to securities, commodities or derivatives-related activity, among others. Thus, the absence of face-to-face contact in VA financial activities or operations may indicate higher ML/TF risks.

In the FATF Recommendations 1, If customer identification and verification measures do not adequately address the risk associated with non-face-to-face transactions the ML/TF risks increase.

The purpose of the Department of Justice (DOJ) is to enforce the law and defend the interests of the United States according to the law; to ensure public safety against threats foreign and domestic; to provide federal leadership in preventing and controlling crime; to seek just punishment for those guilty of unlawful behaviour.

All U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, all U.S incorporated entities and their foreign branches.

In general, the regulations that OFAC administers require banks to do the following:-
(A) Block accounts and other property of specified countries, entities, and individuals.
(B) Prohibit or reject unlicensed trade and financial transactions with specified countries, entities, and individuals.

The extent to which users can use VAs or VASPs globally for making payments or transferring funds is also an important factor that countries should take into account when determining the level of risk.

Illicit users of VAs, for example, may take advantage of the global reach and transaction speed that VAs provide as well as of the inadequate regulation or supervision of VA financial activities and providers across jurisdictions, which creates an inconsistent legal and regulatory playing field in the VA ecosystem.

As with other mobile or Internet-based payment services and mechanisms that can be used to transfer funds globally or in a wide geographical area with a large number of counterparties, VAs can be more attractive to criminals for ML/TF purposes than purely domestic business models.

Countries and VASPs should consider the following elements when identifying, assessing the risk:-
(A) The potentially higher risks associated both with VAs that move the value into and out of fiat currency and the traditional financial system and with virtual-to virtual transactions
(B) The risks associated with centralised and decentralised VASP business models
(C) The specific types of VAs that the VASP offers or plans to offer and any unique features of each VA, such as AECs, embedded mixers or tumblers, or other products and services that may present higher risks by potentially obfuscating the transactions or undermining a VASP’s ability to know its customers and implement effective customer due diligence (CDD) and other AML/CFT measures.
(D) The specific business model of the VASP and whether that business model introduces or exacerbates specific risks
(E) Whether the VASP operates entirely online (e.g., platform-based exchanges) or in-person
(F) Exposure to Internet Protocol (IP) anonymizers such as The Onion Router (TOR) or Invisible Internet Project (I2P)

In FATF Recommendations, “Financial institution” as any natural or legal person who conducts as a business one or more of several specified activities or operations for or on behalf of a customer.

The follwoing activities can be performed by Virtual asset service provider:-
(A) Exchange between virtual assets and fiat currencies
(B) Exchange between one or more forms of virtual assets
(C) Transfer of virtual assets
(D) Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets
(E) Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset

Virtual currency is a digital representation of value that can be digitally traded and functions as
(A) A medium of exchange
(B) A unit of account
(C) A store of value
but does not have a legal tender status.

Convertible (or open) virtual currency has an equivalent value in real currency and can be exchanged back-and-forth for real currency. Examples include Bitcoin; e-Gold (defunct); Liberty Reserve (defunct); Second Life Linden Dollars; and WebMoney.

Non-convertible (or closed) virtual currency is intended to be specific to a particular virtual domain or world, such as a Massively Multiplayer Online Role-Playing Game (MMORPG) or Amazon.com, and under the rules governing its use, cannot be exchanged for fiat currency. Examples include Project Entropia Dollars; Q Coins; and World of Warcraft Gold.

Centralised Virtual Currencies have a single administrating authority (administrator). An administrator issues the currency; establishes the rules for its use; maintains a central payment ledger, and has authority to redeem the currency (withdraw it from circulation). Examples: E-gold (defunct); Liberty Reserve dollars/euros (defunct); Second Life “Linden dollars”; PerfectMoney; WebMoney “WM units”; and World of Warcraft gold.

The FATF Recommendations are the basis on which all countries should meet the shared objective of tackling money laundering, terrorist financing and the financing of proliferation. The FATF calls upon all countries to effectively implement these measures in their national systems. FATF Recommendation 18 is regarding “Internal controls and foreign branches and subsidiaries”.

According to FATF, Cryptocurrency refers to a math-based, decentralised convertible virtual currency that is protected by cryptography. Cryptocurrency relies on public and private keys to transfer value from one person (individual or entity) to another and must be cryptographically signed each time it is transferred.

In FATF Recommendations, Peer-to-peer trading platforms are websites that enable buyers and sellers of VAs to find one another. Some trading platforms also facilitate trades as an intermediary.

The FATF Recommendations are the basis on which all countries should meet the shared objective of tackling money laundering, terrorist financing and the financing of proliferation. The FATF calls upon all countries to effectively implement these measures in their national systems. In FATF Recommendations, Recommendations 1 and 2 are regarding “AML/CFT policies and coordination”.

According to FATF, Convertible (or open) virtual currency is a currency which has an equivalent value in real currency and can be exchanged back-and-forth for real currency. A convertible currency is a liquid instrument when compared to currencies tightly controlled by a central bank or other regulating authority.

The FATF does not support the wholesale termination or restriction of business relationships with a particular sector (e.g., FI relationships with VASPs, where relevant) rather than it recommends managing the risk in line with the FATF’s risk-based approach.

A VASP’s risk assessment should take into account all of the risk factors that the VASP, as well as its competent authorities, consider relevant, including the types of services, products, or transactions involved; customer risk; geographical factors; and type(s) of VA exchanged, among other factors.