Show Me the Money: Approaches to Anti-Money Laundering Compliance for Digital Assets

Authors

Mollie Rouan

First Page

485

Abstract

The European Union’s Markets in Crypto-Assets Regulation (“MiCA”) created a harmonized framework to regulate digital asset issuance and services that were not already covered by existing regulations. Notably, MiCA requires virtual asset providers to adhere to the Financial Action Task Force Recommendation 16 (“FATF”), also known as the Travel Rule. Though the Travel Rule has existed for almost 20 years, its application to crypto asset transfers is entirely new. The purpose of the Travel Rule is to detect and prevent money laundering and terrorist financing, but its application to cryptocurrency wallet transactions is criticized for being overly burdensome and invasive due to the enhanced diligence it requires. Comparatively, the United States has been reluctant to issue any new regulations specific to digital assets. However, the US Department of Treasury’s August 2024 semiannual agenda included an item that would expand the Bank Secrecy Act’s (“BSA”) definition of “money” to include digital assets. This proposed expansion of the definition would make clear that the existing rules under the BSA apply to digital asset transactions because it would now reference cryptocurrency. The inclusion of digital assets in the term “money” is also important because it would act as anti-money laundering (“AML”) legislation for digital assets. Presently, the US does not have AML legislation specifically for the digital asset space. Thus, the agenda item indicates that the US may now be looking to implement legislation specific to digital asset AML compliance. This Note argues that though the application of MiCA and the Travel Rule are meaningful steps to clarify what rules apply to digital assets, these regulations do not provide a workable AML compliance framework because of the low transaction threshold amount. Instead, this Note proposes that the US should adopt a rule more like the UK’s flexible approach to digital asset AML compliance. This Note suggests that the UK’s approach would allow for more effective compliance because it requires enhanced diligence only when illicit activity is detected whereas the Travel Rule requires it for any transaction above a threshold amount.

Recommended Citation

Mollie Rouan, Show Me the Money: Approaches to Anti-Money Laundering Compliance for Digital Assets, 19 Brook. J. Corp. Fin. & Com. L. 485 ().
Available at: https://brooklynworks.brooklaw.edu/bjcfcl/vol19/iss2/7