Issued since 1995
Welcome to the Finance of Ukraine site (demo).
Login | Register
ACADEMY
OF FINANCIAL
MANAGEMENT
.


№ 7/2021

№ 7/2021

Fìnansi Ukr. 2021 (7): 31–52
https://doi.org/10.33763/finukr2021.07.031

ECONOMIC SECURITY: THEORY, PRACTICE, MANAGEMENT

DMYTRENKO Tetiana 1, LYUBICH Oleksandr 2, PARKHOMENKO Yuliya 3

1Organization for Security and Co-operation in Europe
OrcID ID : https://orcid.org/0000-0002-2632-2986
2SESE “The Academy of Financial Management”
OrcID ID : https://orcid.org/0000-0002-9339-4242
3 Ministry of Digital Transformation of Ukraine
OrcID ID : https://orcid.org/0000-0002-3559-0915


Virtual assets market regulation: global and national level of implementation of AML/CFT international standards


The article is devoted to the implementation of international standards of the Financial Action Task Force (FATF) in the field of new technologies (Recommendation 15) and related risks of money laundering, terrorist financing (AML/CFT). The issues of risk assessment and management are considered from the perspective of the development of the virtual assets (VA) market, its infrastructure, new instruments, and from the perspective of interaction with the banking and payment systems. The article also discusses the current problems of the development and functioning of the global cryptomarket and strategic planning of international cooperation in solving these issues, as well as an action plan at the national level. In addition, virtual asset service providers (VASPs) are trying to determine a cost-effective way to comply with this rule due to the lack of any standardized protocol in the VASP for exchanging such information. The authors disclose methodological approaches to assessing AML/CFT risks (1 Recommendation), mechanisms for conducting a sectoral risk assessment, and specifics of AML procedures, such as identification and verification of customers, determination of beneficial ownership, transfer of such information when performing transactions with virtual assets. The directions of the development of interaction between the central government authorities, the law enforcement system, and participants in the virtual asset market at the national and global level, the need to implement the "Travel Rule" (16 FATF Recommendations), using the latest fintech and blockchain (DLT) technologies to increase the speed and security of transmitted information are also analyzed. In addition, the rule requires VASP beneficiaries to obtain and retain the necessary information about the initiator and beneficiary. Particular attention is paid to the measures of the Ministry of Digital Transformation of Ukraine regarding the reduction of threats to the use of virtual assets in the shadow economy, the development of fraud in cyberspace, cybercrime in order to develop a transparent civilized crypto market and digital technologies in general.

Keywords:virtual assets, virtual asset service provider, counteraction to money laundering, risk-oriented approach, travel rule, cryptocurrency exchange, crypto market, sectoral risk assessment

JEL: F65, G14, G18


Dmytrenko T. . Virtual assets market regulation: global and national level of implementation of AML/CFT international standards / T. Dmytrenko, O. . Lyubich, Y. Parkhomenko // Фінанси України. - 2021. - № 7. - C. 31-52.

Article original in Ukrainian (pp. 31 - 52) DownloadDownloads :175
1. FATF. (2019). Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers. Retrieved from www.fatf-gafi.org/publications/fatfrecommendations/documents/guidance-rba-virtual-assets.html.
2. FATF. (2012). International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation. Retrieved from www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF%20Recommendations%202012.pdf.
3. FATF. (n. d.). Recommendation 16: Wire transfers. Retrieved from www.cfatfgafic.org/index.php/documents/fatf-40r/382-fatf-recommendation-16-wire-transfers.
4. FATF. (n. d.). Recommendation 15: New technologies. Retrieved from cfatfgafic.org/index.php/documents/fatf-40r/381-fatf-recommendation-15-new-technologies.
5. USA Congress. (2020). National Defense Authorization Act for Fiscal Year 2021. Retrieved from www.govtrack.us/congress/bills/116/hr6395/text.
6. Rauchs, M., Blandin, A., Klein, K., Pieters, G., Recanatini, M., & Zhang, B. (2018). 2nd Global Cryptoasset Benchmarking Study. Cambridge Centre for Alternative Finance. doi.org/10.2139/ssrn.3306125
7. Greenberg, A. (2017). Monero, the Drug Dealer's Cryptocurrency of Choice, Is on Fire. Retrieved from www.wired.com/2017/01/monero-drug-dealers-cryptocurrencychoice-fire/.
8. Moiseienko, A., & Izenman, K. (2019). Gaming the System: Money Laundering Through Online Games. RUSI Newsbrief, 39 (9). Retrieved from static.rusi.org/20191011_newsbrief_vol39_no9_moiseienko_and_izenman_web.pdf.
9. Dmytrenko, T., & Lyubich, O. (2020). Implementation of international standards of virtual assets market regulation in Ukraine. Finance of Ukraine, 9. 65–79 [in Ukrainian]. doi.org/10.33763/finukr2020.09.065
10. Mishchenko, V., Naumenkova, S., & Mishchenko, S. (2021). Central bank digital currency: the future of institutional changes in the banking sector. Finance of Ukraine, 2, 26–48 [in Ukrainian]. doi.org/10.33763/finukr2021.02.026
11. Yatsyk, T., & Shvets, V. (2020). Cryptoassets as an emerging class of digital assets in the financial accounting. Economic Annals-XXI, 183 (5-6), 106–115 [in Ukrainian]. doi.org/10.21003/ea.V183-10
12. United Nations Security Council. (1999). Resolution 1267 (1999), adopted at 4051 meetings (No. 1267(1999), October 15). Retrieved from zakon.rada.gov.ua/laws/show/995_452#Text [in Russian].
13. United Nations Security Council. (2001). Resolution 1373 (2001) adopted at the 4385th meeting (No. 1373(2001), September 28). Retrieved from zakon.rada.gov.ua/laws/show/995_854#Text [in Russian].
14. FATF recommendations. International standards for combating money laundering, terrorist financing and proliferation of weapons of mass destruction. Methodology for assessing compliance with FATF recommendations and the effectiveness of anti-money laundering and anti-terrorist financing systems. Rules and procedures of the 5th round of mutual evaluations by the MONEYVAL committee. (2018, February). Retrieved from fiu.gov.ua/assets/userfiles/books/5%20round%20FATF.pdf [in Ukrainian].
15. European Parliament, & EU Council. (2005, October 26). Directive 2005/60/EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing. Retrieved from zakon3.rada.gov.ua/laws/show/994_774 [in Ukrainian].
16. CoinMarketCap. (n. d.). Today's Cryptocurrency Prices by Market Cap. Retrieved from coinmarketcap.com/.
17. Chainanalysis. (2020, January). The 2020 State of Crypto Crime. Retrieved from ag-pssg-sharedservices-ex.objectstore.gov.bc.ca/ag-pssg-cc-exh-prod-bktex/257%20-%20001%20Appendix%20A%20-%202020-Crypto-Crime-Report%20
Chainanalysis.pdf.
18. Khaustova, M. (2020, December 21). Crystal Blockchain End of Year Report 2020. Retrieved from crystalblockchain.com/articles/crystal-blockchain-end-of-yearreport-2020.
19. Elliptic. (2020). Financial Crime Typologies in Cryptoassets. The Concise Guide for Compliance Leaders. Retrieved from www.elliptic.co/hubfs/Financial%20Crime%20Typologies%20in%20Cryptoassets%20Guides%20(All%20Assets)/Typologies_Concise%20Guide_12-20.pdf?utm_campaign=Typologies%20Campaign%20%7C%20Q4%202020%20-%20Q1%202021&utm_medium=email&_hsmi=102370644&_hsenc=p2ANqtz--bpoJScViE4WFHyea40NrVG40XpoNFQFRd-cpluYgKT3uveLvgZSzN1HdyNmP0OzZbdjCVUfApDF7bwr8Kv9DaNcsxDA&utm_content=102370644&utm_source=hs_automation.
20. CipherTrace Cryptocurrency Intelligence. (2019, November). Cryptocurrency Anti-Money Laundering Report, 2019 Q3. Retrieved from ciphertrace.com/q3-2019-cryptocurrency-anti-money-laundering-report/.
21. Hebergementwebs. (2021, March 12). CipherTrace releases its friendly AML tools for cryptocurrencies. Retrieved from www.hebergementwebs.com/%D0%B1%D0%BB%D0%BE%D0%BA%D1%87%D0%B5%D0%B9%D0%BD/ciphertrace-publishes-its-amlfatfriendly-tools-for-crypto-exchange [in Ukrainian].
22. FATF. (2021, March). Public consultation on FATF draft guidance on a risk-based approach to virtual assets and virtual asset service providers. Retrieved from www.fatf-gafi.org/publications/fatfrecommendations/documents/public-consultation-guidancevasp.
html.
23. SCCF. (2020, December). ML/TF vertical risk assessment: virtual asset service providers. Retrieved from www.cssf.lu/en/Document/ml-tf-vertical-risk-assessmentvirtual-asset-service-providers/.
24. Verkhovna Rada of Ukraine. (2021). Virtual Assets Act (Draft Law No. 3637, June 11). Retrieved from w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=69110 [in Ukrainian].
25. Verkhovna Rada of Ukraine. (2020). On prevention and counteraction to legalization (laundering) of proceeds from crime, financing of terrorism and financing of proliferation of weapons of mass destruction (Act No. 361-IX, August 16). Retrieved from zakon.rada.gov.ua/laws/show/361-20#Text [in Ukrainian].
26. FATF. (2020). Money Laundering and Terrorist Financing Red Flag Indicators Associated with Virtual Assets. Retrieved from www.fatf-gafi.org/media/fatf/documents/recommendations/Virtual-Assets-Red-Flag-Indicators.pdf.
27. European Parliament, & EU Council. (2018, May 30). Directive (EU) 2018/843 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU. Retrieved from eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32018L0843.
28. FATF. (2019). Guidance for a risk-based approach to virtual currencies. Retrieved from www.fatf-gafi.org/publications/fatfrecommendations/documents/guidance-rbavirtual-assets.html.
29. FATF. (2020, June). FATF Report to G20 on So-Called Stablecoins. Retrieved from
www.fatf-gafi.org/media/fatf/documents/recommendations/Virtual-Assets-FATFReport-
G20-So-Called-Stablecoins.pdf.
30. FATF. (2015). Guidance for a risk-based approach to virtual currencies. Retrieved
from www.fatf-gafi.org/media/fatf/documents/reports/Guidance-RBA-Virtual-
Currencies.pdf.
31. European Commission. (2019). Supranational National Risk Assessment : Report from the Commission to the European Parliament and the Council. Brussels. Retrieved from ec.europa.eu/info/sites/default/files/supranational_risk_assessment_of_the_money_laundering_and_terrorist_financing_risks_affecting_the_union.pdf.
32. EBA. (2019, January). Report with advice for the European Commission on cryptoassets. Retrieved from eba.europa.eu/eba-reports-on-crypto-assets.
33. The Bank of International Settlements. (2019, January). Proceeding with caution – a survey on central bank digital currency. Retrieved from www.bis.org/publ/bppdf/bispap101.htm.
34. CoinMarketCap. (n. d.). Retrieved from coinmarketcap.com.