Bitcoin and Travel: What is FATF’s Crypto Travel Rule?

Paigambar Mohan Raj
Source: Hodlnaut

Cryptocurrencies have taken the world by storm, and there is no doubt about that. Additionally, more and more businesses are opening up to crypto payments. El Salvador had a history when it legalized Bitcoin (BTC) as a legal tender, and the country’s tourism department reportedly flourished after the move. Nonetheless, the world of crypto is shrouded in illicit activities and laundering.

In June 2021, the FATF (Financial Action Task Force) issued a travel rule guidance for VASPs (Virtual Asset Service Provider). The FATF is an intergovernmental agency that takes care of anti-money laundering policies, and it currently serves the G7 nations and 30 other developed countries.

What is the Crypto Travel Rule?

The rule is called the “Crypto Travel Rule” because it mimics the travel rule of the US Banking Privacy Act.

The rule states that the originators and beneficiaries of crypto transactions over $1000 must be communicated to the FATF. Additionally, the FATF recommends that VASPs send the names and account numbers of the sender and recipient and the sender’s address.

Before the FATF’s 2019 proposals, a travel rule was already in place. As part of the attempts to reduce money laundering, the rule first targeted banks and financial firms. In essence, FATF’s 2019 actions just made this rule more expansive so that similar AML standards may be implemented in the cryptocurrency business.

The Financial Crimes Enforcement Network (FinCEN), acting under the U.S. Bank Secrecy Act (BSA), had placed a similar regulation on VASPs operating within its purview before publishing the crypto travel rule in 2019. This rule compels crypto asset service providers to attest that crypto transactions don’t come from or go to entities that have been sanctioned.

Importance of the travel rule

The regulation’s primary goal is to prevent money laundering and the financing of terrorism. The travel restriction makes sure that cryptocurrency firms follow sanction rules. Moreover, I t makes it simpler for the authorities to obtain transaction data. It is the first crypto rule to be applied internationally and may pave the way for more consistent industry regulation.

However, there are some challenges to the rule. One major issue is the lack of uniformity in how the rule is perceived in different regions. Different countries have additional requirements regarding the travel rule, and hence, VASPs must change their positions in other areas. This problem is popularly known as the “sunrise problem.”

Another issue is that users must let go of some of their privacy to continue interacting with crypto markets. This goes against some of the fundamentals of the crypto industry. Moreover, it could get in the way of user experience.