CipherTrace Enters Race to Solve Crypto's FATF Compliance Headache

[jdarren]

CipherTrace has published their final white paper and open source software for wallet providers and crypto exchanges to comply with the FATF travel rule.

This means that their Travel Rule Information Sharing Architecture (TRISA) would allow exchanges and wallet providers to share payment details and exchange KYC info.

Exchanges adopting TRISA are essentially creating a 'extended validation know-your-VASP certificate' which would be verified through a third-party trusted certificate authority.

FinCEN released guidance on May 9th that gave exchanges 180 days to comply with the travel rule. I am really interested to see what everyone's thoughts are regarding the travel rule, how exchanges are meant to comply and what your thoughts are with the government making their first step into crypto.



https://www.coindesk.com/ciphertrace-enters-race-to-solve-cryptos-fatf-compliance-headache

[rmilly]

I would rather have a cybersecurity firm like Ciphertrace try to step in and offer something that is working to preserve crypto than the government implementing their own form of regulated tracking.

[figmentofmyass]

FinCEN released guidance on May 9th that gave exchanges 180 days to comply with the travel rule.

wow, this was news to me. the new FinCEN requirements are really far-reaching and burdensome. they even plan to designate mixers as financial institutions regulated under the bank secrecy act:

Providers of anonymizing services, commonly referred to as “mixers” or “tumblers,” are either persons that accept CVCs and retransmit them in a manner designed to prevent others from tracing the transmission back to its source (anonymizing services provider), or suppliers of software a transmittor would use for the same purpose (anonymizing software provider).

An anonymizing services provider is a money transmitter under FinCEN regulations. The added feature of concealing the source of the transaction does not change that person’s status under the BSA.

that means by this coming november, they are expecting mixers to register with FinCEN, perform KYC, and start filing currency transaction and suspicious activity reports!

fortunately, this new guidance doesn't appear to reflect the FATF travel rule exactly. there don't seem to be any $1000 reporting thresholds. under the BSA, institutions are required to file a CTR at $10k, and they begin filing SARs at $5k.

[darylalban]

FinCEN released guidance on May 9th that gave exchanges 180 days to comply with the travel rule.

wow, this was news to me. the new FinCEN requirements are really far-reaching and burdensome. they even plan to designate mixers as financial institutions regulated under the bank secrecy act:

Providers of anonymizing services, commonly referred to as “mixers” or “tumblers,” are either persons that accept CVCs and retransmit them in a manner designed to prevent others from tracing the transmission back to its source (anonymizing services provider), or suppliers of software a transmittor would use for the same purpose (anonymizing software provider).

An anonymizing services provider is a money transmitter under FinCEN regulations. The added feature of concealing the source of the transaction does not change that person’s status under the BSA.

that means by this coming november, they are expecting mixers to register with FinCEN, perform KYC, and start filing currency transaction and suspicious activity reports!

fortunately, this new guidance doesn't appear to reflect the FATF travel rule exactly. there don't seem to be any $1000 reporting thresholds. under the BSA, institutions are required to file a CTR at $10k, and they begin filing SARs at $5k.

I agree I didn't realize that FinCen released guidance until reading this post. Same with the mixers I had no idea. I mean it makes sense to see ciphertrace work to step in and try to help exchanges since they focus on compliance

[squatter]

I would rather have a cybersecurity firm like Ciphertrace try to step in and offer something that is working to preserve crypto than the government implementing their own form of regulated tracking.

They're just the "good cop" in a good cop/bad cop scenario. It's easy to think Ciphertrace is here to help you, but their primary role is convincing you to swallow these incredibly invasive AML requirements. At best, they're profiting from government overreach. At worst, they're literally just an arm of governments like the US.

[akeegan]

Well from the sounds of it exchanges are going to have to abide by the travel rule regardless. Meaning either they are going to have to come up with their own technology to deal with AML or they're going to have to find a reputable source or technology like ciphertrace's.

[squatter]

Well from the sounds of it exchanges are going to have to abide by the travel rule regardless.

That's not set in stone. Nothing the FATF does is binding. They just pressure individual governments to implement their standards -- it often doesn't actually happen. None of the FATF member countries have even passed complying legislation yet, let alone the rest of the world. Anything that exchanges do to comply at this point is completely voluntary, not required. And then, once laws are actually passed, enforcement is another question entirely.

[ccryptopark]

Well from the sounds of it exchanges are going to have to abide by the travel rule regardless.

That's not set in stone. Nothing the FATF does is binding. They just pressure individual governments to implement their standards -- it often doesn't actually happen. None of the FATF member countries have even passed complying legislation yet, let alone the rest of the world. Anything that exchanges do to comply at this point is completely voluntary, not required. And then, once laws are actually passed, enforcement is another question entirely.

Does what they propose somehow become a regulation or law overtime? What would an ideal timeline be like for something to be set into place?

[Kakmakr]

Purpose of the Travel Rule:
" The Rule was created to help law enforcement agencies detect, investigate and prosecute money laundering and other financial crimes by preserving an information trail about persons sending and receiving funds through funds transfer systems." Source : https://medium.com/@sashahodler/the-fincen-travel-rule-d9e6e2cd8b28

My take on this is a little bit different, because I think it was created to have full control over people's financial data and to use this as a tool to collect more income tax for the government.

The Money laundering and terrorism funding nonsense is just used as a scare tactic to influence people to give up control over their financial privacy. 

[squatter]

That's not set in stone. Nothing the FATF does is binding. They just pressure individual governments to implement their standards -- it often doesn't actually happen. None of the FATF member countries have even passed complying legislation yet, let alone the rest of the world. Anything that exchanges do to comply at this point is completely voluntary, not required. And then, once laws are actually passed, enforcement is another question entirely.

Does what they propose somehow become a regulation or law overtime? What would an ideal timeline be like for something to be set into place?

The FATF has set a June 2020 deadline (one year) for countries to codify the Travel Rule into national law. At that time, they'll issue a statement flagging countries that are non-compliant or not working towards implementing the rules.

They have no real power to enforce anything of course, but there is an element of "soft power" as governments pressure each other into compliance. My guess is that some/most of the 36 member countries will have passed complying laws by that time. It might take a while longer than that before laws take effect and compliance is widespread.

[dothebeats]

that means by this coming november, they are expecting mixers to register with FinCEN, perform KYC, and start filing currency transaction and suspicious activity reports!

Which kinda defeats the main purpose of mixers IMO. One person mixes his coins because he feels the need to, and so the solution is to go to a service which tumbles and turns coins and ensuring that no one, not even the mixing service themselves, know who he is and why he's doing it. They are really closing in on the privacy that some of these services offer, and that's not good in any way.

[Baofeng]

@figmentofmyass - I think FATF just made a recommendation about sharing informations across all exchanges. FINCEN is in charge of "enforcing" Travel Rule. BSA (Bank Secrecy Act) of 1996 was amended in 2012 to include all electronic funds transfer. I'm assuming it includes crypto and the threshold is $$3k or more.

I think crypto mixers falls under the definition of VASP (Virtual Asset Service Provider) and also includes exchanges. So I don't know if they are going to comply with this new rules or take the risk of being shutdown.

I guess there will be no privacy here, as the guidelines states that originator and receiver should exchange information. And the thing is, there will be a something to validate everything, a certificate authority (CA) to protect the communications between VASP.


https://ciphertrace.com/wp-content/uploads/2019/08/TRISA-Enabling-FATF-Travel-Rule-V4.pdf

[wattcrypto]

I think to some extent this is just an extension of KYC right? Their technology will only be flagged for movements greater than 3k

[gentlemand]

they even plan to designate mixers as financial institutions regulated under the bank secrecy act:

Can't say I'm surprised by that in the slightest.

What I would be interested to know is how an exchange or other service that has to yield to this would treat coins that come either from mixers that ignore this or are mixed crowd style a la Coinjoin. Would they be automatically obligated to reject them? Will there be a point where you need a completely unbroken trail to go anywhere near a centralised service?

It's same old fungibility question. Where does it begin and where does it end? I can see it becoming an impossible mess unless everyone's sensible.

[figmentofmyass]

@figmentofmyass - I think FATF just made a recommendation about sharing informations across all exchanges. FINCEN is in charge of "enforcing" Travel Rule.

the travel rule is not part of american law, so FinCEN does not enforce it.

BSA (Bank Secrecy Act) of 1996 was amended in 2012 to include all electronic funds transfer. I'm assuming it includes crypto and the threshold is $$3k or more.

the $3k threshold is only for "cash purchases of monetary instruments such as money orders, cashier's checks, and traveler's checks". it doesn't apply to cryptocurrency. FinCEN asserting that virtual currency falls under the BSA means that CTR and SAR do apply though. https://en.wikipedia.org/wiki/Bank_Secrecy_Act#Reports

I think crypto mixers falls under the definition of VASP (Virtual Asset Service Provider) and also includes exchanges. So I don't know if they are going to comply with this new rules or take the risk of being shutdown.

as the DOJ and FinCEN discovered in 2017 when they came after BTC-E, they can't seize cryptocurrency. fiat exchanges are exposed to banking risks, but if the american government targets crypto-only businesses, they can remain as hidden services and/or spin up new clearnet domains, wallets fully intact. coming after mixers this way could be a game of cat and mouse they know they can't win. and three letter agencies hate looking powerless.

i think the american government is more likely to indirectly target mixers by implementing "know your customer's customer" standards like those seen in the FATF travel rule. basically, they'll pressure services to blacklist non-complying services like mixers. anyone who doesn't fall in line is at risk of adverse government action. the exchanges police themselves.

[squatter]

they even plan to designate mixers as financial institutions regulated under the bank secrecy act:

Can't say I'm surprised by that in the slightest.

What I would be interested to know is how an exchange or other service that has to yield to this would treat coins that come either from mixers that ignore this or are mixed crowd style a la Coinjoin. Would they be automatically obligated to reject them? Will there be a point where you need a completely unbroken trail to go anywhere near a centralised service?

That's the million dollar question. For now, nobody really knows. To my knowledge, Gemini is the only service that specifically prohibits interfacing with mixers in their user agreement. I don't think they'll be the last, though.

Exchanges will likely take a risk-based approach, with a spectrum of different policies. The worst of them will do as Bitstamp already does -- demanding proof of source of funds for every satoshi deposited. Others may only flag accounts that deposit specifically dubious coins that are sent directly from DNMs and things like that.

It's same old fungibility question. Where does it begin and where does it end? I can see it becoming an impossible mess unless everyone's sensible.

Well, what's sensible?

[gentlemand]

Well, what's sensible?

Dunno. I was hoping you could help me out with that.

Stuff like the story about Coinmama shutting someone down for having a gambling transaction about 10-15 txs back is the type of thing that's worrying. I can get 1-2 tx away stuff that breaks terms and conditions, but if it was months and many wallets ago that's going to wind up nightmarish.

[darylalban]

IMHO I think the technology will be able to track those 1x movements but won't really be alarmed until reoccurances of movements sets it off showing signs of money laundering. I think that's the entire premise behind what Ciphertrace is trying to create. A privacy preserving compliance tool

[squatter]

Well, what's sensible?

Dunno. I was hoping you could help me out with that.

Stuff like the story about Coinmama shutting someone down for having a gambling transaction about 10-15 txs back is the type of thing that's worrying. I can get 1-2 tx away stuff that breaks terms and conditions, but if it was months and many wallets ago that's going to wind up nightmarish.

It sure is. I won't lie, this is probably going to end with lots of disgruntled exchange customers, frozen money, closed accounts, unexpected law enforcement investigations, etc. I've always been extremely careful to ensure that anything touching my Coinbase account is unimpeachable. Unfortunately with the way things are headed, we'll need to employ that sort of caution to most services -- maybe even lower tier exchanges registered in random island nations. You just never know.

[Baofeng]

i think the american government is more likely to indirectly target mixers by implementing "know your customer's customer" standards like those seen in the FATF travel rule. basically, they'll pressure services to blacklist non-complying services like mixers. anyone who doesn't fall in line is at risk of adverse government action. the exchanges police themselves.

Right, they going to like "flex" their muscle again, maybe ala BTC-E seizure most likely in the future. Interpol/EUROPOL also have this sort of mentality as in the case of Bestmixer.io last May.

I suggest everyone to brace yourself next year about this new regulations and policies. Maybe some exchanges will stay in their ground and try to protect themselves, but which pressures coming at all angle, just a matter of time before they succumb. And it will create a lot of mess, maybe exchanges will run to a supposedly safe haven countries, who knows.