Exploring the funds travel rule in terms of virtual assets issued by the FATF

In June 2019, the Financial Action Task Force (FATF) established various rules to combat the misuse of virtual assets for the purpose of money laundering and financing of terrorism. The funds travel rule featured in the FATF’s recommendations as well as it requires Virtual Asset Service Providers (‘VASPs’) to collate and share information about the sender (originator) and receiver (beneficiary) whilst undertaking a transaction.

The two main objectives of the funds travel rule are to

• prevent funds from being transferred to sanctioned entities; and
• assist authorities by having the necessary information on the originator and beneficiary available upon request.

The obligation shall be applicable for transactions that amount to € 1000 ($ 1000) or more. For each transaction, the VASPs should collect and verify

• the originator’s name (the sending customer);
• the originator’s account number where such an account is used to process the transaction (such as the virtual asset wallet);
• the originator’s physical (geographical) address, or national identity number, or customer identification number or the date and place of birth that uniquely identifies the originator to the order institution;
• the beneficiary’s name; and
• the beneficiary’s account number where such an account is used to process the transaction such as the virtual asset wallet.

Furthermore, the guidelines outlined that in case of cross-border transfers below the stipulated threshold, VASPs should also collect and share the names and account numbers of originator and beneficiary. However, this information does not need to be verified for accuracy unless there is a suspicion of money laundering or terrorist financing.

Challenges

VASPs may face various challenges when implementing the funds travel rule which include:

• VASPs across the world may have different regulatory requirements in terms of data collection and sharing.
• The identification and verification of information needs to occur in a fast-paced environment.
• A person may register with multiple VASPs and with different names and therefore, it becomes difficult to confirm the information.
• Virtual assets start-ups and small businesses may not have the resources and capabilities to comply with this rule.

CipherTrace’s travel rule information sharing architecture for VASPs (TRISA)

CipherTrace established the Travel Rule Information Sharing Architecture (TRISA) to enable compliance with the FATF funds travel rule. The system is blockchain enabled and functions via peer-to-peer mechanisms. The aim of the system is to allow for the collection of the necessary information without modifying the core blockchain protocols, without incurring increased transaction costs and with consideration for preserving high performance transaction processing at cryptocurrency virtual asset service providers.

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