Ukraine's anti-money laundering law is about to take effect, where does China's crypto regulatory policy go under the FATF wave?

Source: Digital Chain Rating

Editor's note: The original title was "Ukraine Anti-Money Laundering Law Is Coming Soon, Where Will China Go in the FATF Wave"

The article is divided into three parts: first introduce the Ukrainian encryption policy and current situation; then explain that the motivation for developing new cryptocurrency-focused anti-money laundering rules from Ukraine to South Korea, Turkey and other countries comes from the new FATF guide last year; and finally talk about China Encryption regulatory policy.

Ukraine's crypto policy and status

Ukraine is the second largest country in European territory. According to data from the International Monetary Fund, last year's GDP was 150 billion U.S. dollars, ranking 58th in the world, with a total population of 42 million.

Since the new century, Ukraine's economy has grown for eight consecutive years due to privatization and economic transformation. After the second "square revolution" erupted at the end of 2013, the country suffered the worst political, economic and social unrest since independence. In 2015, the new regime promised comprehensive system reforms in accordance with Western standards, but the process was slow.

The Ukrainian currency is the hryvnia (UAH). From 2012 to 2013, the exchange rate of the US dollar against the hryvnia was about 1: 8, but since the outbreak of the Ukrainian crisis, UAH has depreciated sharply to the current 1:25.

With regard to cryptocurrencies, Ukraine considers crypto assets and operations based on the principles behind the assets within the existing legal framework, rather than based on their form (i.e. paper or digital). New rules and regulations for cryptocurrencies are being defined at the national level because "compared to international standards, there is still a long way to go."

Mining is free and the government will not monitor it.

On June 25, 2018, the State Special Communications and Information Protection Service of Ukraine stated that the agency has not planned to introduce cryptocurrency mining licenses.

On February 7, 2020, the Ministry of Digital Transformation of Ukraine issued the "Declaration of the Virtual Assets Ministries", saying that since the crypto mining industry has been independently managed by the blockchain consensus rules, "mining does not require the supervision of government regulators or other third-party regulations. Activities, which are overseen by the agreement itself and members of the network. "

According to Cryptorussia, Ukrainian miners typically earn more than $ 100 million a year.

Some cryptocurrencies and tokens will be considered as financial instruments.

On July 20, 2018, the Chairman of the National Securities and Stock Market Committee of Ukraine stated that "The Ukrainian Financial Stability Board has today supported the concept of regulating cryptocurrency transactions, which involves the use of financial instruments to identify certain categories of cryptocurrencies and tokens."

The Financial Stability Board is composed of the Governor of the Central Bank, the Minister of Finance, the head of the Securities and Stock Market Committee, the Financial Services Market Supervision Committee, and the Managing Director of the Deposit Guarantee Fund.

The crypto tax bill has been submitted to Parliament.

On November 18, 2019, an amendment to the law on taxation of Ukraine and other Ukrainian laws involving taxation on the operation of crypto assets was submitted to Parliament.

The bill also has tax-related provisions: (1) the personal income tax rate on investment profits obtained from the sale of crypto assets within five years is 5%; (2) the investment profits obtained from operating crypto assets are based on the taxpayer's income from the sale of crypto assets Calculated by the positive difference between income and its value; (3) VAT is not payable on the sale of crypto assets.

Once the bill is passed into law, taxes will be imposed on the holding, sale, and operation of crypto assets.

Cryptocurrencies belong to intangible assets and need to submit income declaration.

On February 13, 2020, the National Bureau of Corruption Prevention of Ukraine issued "Some Provisions on the Application of Financial Control Measures in Ukraine's" Law on Prevention of Corruption ".

The provision states that when submitting an income declaration, nationals should pay attention to "in section 10 [Intangible assets] of the declaration, reference should be made to the cryptocurrency belonging to the entity or family of the claimant as of the last day of the reporting period", and the cryptocurrency should be filled Information such as name, date of acquisition of assets, quantity, and total value, and income returns must be submitted by April 30.

Central Bank Digital Currency (CBDC) is on the way.

The National Bank of Ukraine (NBU) began exploring the issuance of its own digital currency in 2016.

On February 22 this year, the NBU has completed a pilot program for its national digital currency electronic hryvnia exchange rate, and issued 200 US dollars of electronic currency within the pilot range.

The country currently relies heavily on cash payments, and CBDC can effectively replace cash and solve the "shadow economy" problem of feeding money with paper money.

In addition, on February 20 this year, Kuna, the first crypto exchange in Ukraine established in 2014, launched a stable currency UAX linked to the hryvnia, which will be trialed before March 20.

Crypto transfers that exceed the $ 1200 threshold will be investigated.

On December 5, 2019, the Verkhovna Rada of the Ukrainian Parliament issued the "Law of Ukraine Law on Preventing and Combating Criminal Proceeds, Financing Terrorism, and Financing the Proliferation of Weapons of Mass Destruction (Money Laundering)". This law was developed under the guidelines of the Anti-Money Laundering Financial Action Task Force (FATF), with April 28 this year as the effective date.

The law states that "virtual assets are a type of digital value expression that can be digitally traded or transferred, and can be used for payment or investment purposes." For virtual asset transfers, the law imposes stricter restrictions on encrypted transactions with a value exceeding the $ 1200 threshold. Review.

For virtual asset transfers not exceeding 30,000 UAH (approximately $ 1200), the payment service provider should ensure that the identity and transaction information of the payee and payer are included, including the name of the natural person, the full name of the legal entity, and the account / e-wallet number. When provided, a unique financial transaction account number is provided.

"The use of virtual assets equal to or exceeding 30,000 UAH for financial transactions should be properly verified," which includes verification of identity, source of assets, and nature of business relationships.

FATF anti-money laundering wave

FATF, established in 1989, is the most influential intergovernmental anti-money laundering and anti-terrorist financing organization in the world. It is the global anti-money laundering and anti-terrorist financing standard-setting organization.

On June 22, 2018, FATF issued a new version of the "Anti-Money Laundering Financial Action Task Force Guide", which established binding global standards for virtual assets and virtual asset service providers.

In recent years, the first countries have begun to supervise the virtual asset sector.

For example, the United States has a comprehensive, technology-neutral regulatory framework for the supervision and supervision of “digital financial assets”; since 2013, the Swedish Financial Supervisory Authority has considered Bitcoin and Ethereum as means of payment, which means Virtual asset trading services should follow the licensing system; Japan revised the Payment Services Law in 2016 to deal with the bankruptcy of large virtual asset service providers in 2014; Mexico issued a money-laundering measure related to virtual assets in September 2018 And procedural standards.

Since October 2018, virtual asset service providers are bound by the Norwegian Anti-Money Laundering Act and their obligations; in March last year, Italy passed an updated National Risk Assessment, including a risk assessment of virtual assets; Finland The "Virtual Currency Provider Law" came into effect last May, and virtual asset service providers must register with the Finnish Financial Supervisory Authority.

In addition, Ukraine, which passed the new version of the anti-money laundering law at the end of 2019, is not a member of the FATF. In February this year, the speed of South Korea ’s adoption of the FATF cryptocurrency standard on anti-money laundering measures will be affected by the corona virus. To operate the digital currency business requires the approval of the German Federal Financial Supervisory Authority; Hong Kong, China intends to include virtual currency service providers in the regulatory framework in the new Budget; Turkey plans to develop a crypto market regulatory framework this year.

From Ukraine to South Korea and Turkey, the impetus for countries to formulate new anti-money laundering rules focusing on cryptocurrencies comes from the new version of the FATF guidelines released in 2019.

It called on member states to update their domestic laws so that "virtual asset service providers" will meet the same standards of information disclosure as traditional financial institutions within a year.

Whether the regulatory policy is adapted to the national conditions

The FATF will review the implementation of the new regulatory guidelines in various countries in June 2020, including: whether virtual asset operators have made progress in anti-money laundering, risks in the field of virtual assets, and potential changes in market structures.

However, so far, most countries have not taken any action. In the field of cryptocurrency, the anti-money laundering standards adopted by various countries are fragmented. Different countries have different policies. In other countries, virtual assets are completely banned.

China became a full member of FATF in 2007 after accepting the third round of mutual assessment and is one of 39 members.

In January 2018, the financial regulator of the People's Bank of China has begun to investigate with the digital asset exchange to find out if the compliance requirements regarding anti-money laundering and capital controls are met.

In October 2018, the "Administrative Measures on Anti-Money Laundering and Anti-Terrorist Financing of Internet Finance Practitioners (Trial)" issued by the central bank led to blank treatment. Article 4 of the Measures authorizes the China Internet Finance Association as its representative to formulate industry rules In order to explain and refine the role.

This is just to highlight the role of the China Mutual Fund Association in supervision. The government has not formulated a systematic anti-money laundering law focusing on cryptocurrencies. While banning virtual asset service providers in China, China is trying to issue a CBDC to reduce the risk of money laundering.

The FATF Directive provides general guidance and leaves enough room for individual countries to adopt legislation to adopt these regulatory recommendations. Although the agency's recommendations on anti-money laundering policies are not binding, countries that severely violate working group standards will be blacklisted.

The formulation of anti-money laundering policies will inevitably involve issues such as the characterization, supervision, operating permits, and investor protection of virtual assets and service providers. Blockchain networks have no borders. Implementing “one size fits all” on virtual assets cannot cut off money laundering channels, nor can it provide protection for investors who have been harmed by fraudulent manipulation of money laundering.

In fact, once an anti-money laundering law that focuses on cryptocurrencies is enacted, virtual assets and virtual asset service providers will be classified as "obligated entities", which makes crypto institutions the same as financial institutions such as banks and third-party payment providers Legal category.

And the relevant agencies cannot simply stop providing services or manipulate the market without justified reasons. Because of this, there is no need to worry about being warned when buying virtual assets.

Source: 1. FATF, Guide to the Financial Action Task Force on Anti-Money Laundering, 2019/06 2. Ministry of Digital Transformation of Ukraine, Ministry of Virtual Assets Declaration, 2020/02/07 3. Ukraine's National Special Communication and Information Protection Service Bureau, "Ukrainian Authorities Will Not Regulate Mining", 2018/06/25 4. Ukraine National Securities and Stock Market Commission, "Ukrainian Securities Regulators Want Cryptocurrency as a Financial Instrument", 05/08/2018 5 . The Economic and Commercial Section of the Chinese Embassy in Ukraine, "Ukraine's bill on cryptocurrencies is submitted to parliament", 2019/11/19 Certain Provisions on Control Measures, 2020/02/13 7. Verkhovna Rada of the Ukrainian Parliament, "Law of Ukraine Law on Preventing and Combating Criminal Proceeds, Financing Terrorism and Financing the Proliferation of Weapons of Mass Destruction "2019/12/05 8. State Administration of Taxation," Guidelines for Taxation of Chinese Residents' Investment in Ukraine ", 2018 9. Anti-Money Laundering Bureau of the People's Bank of China," Internet Finance from Measures for the Administration of Anti-Money Laundering and Anti-Terrorist Financing of Commercial Institutions (Trial), 2018/10/10