E.g., 12/17/2018
E.g., 12/17/2018

26 French companies and five major banks have completed a Know Your Customer (KYC) test based on blockchain, according to a press release by the entrant firm RCI Bank and Services released Dec. 3.

RCI Bank and Services, a French automotive financing and insurance firm unveiled details of a customer knowledge-focused blockchain solution trialed in partnership with blockchain consortium R3.

According to the press release, the Proof-of-Concept (PoC) test has been conducted in cooperation with the Association Française des Trésoriers d'Entreprise (AFTE), a local network of treasury and finance professionals.

As revealed by a participant of the test, RCI Bank and Services, which is also a member of the R3 consortium, trial participants were able to implement KYC requests within a shared network, with banks having to request access to data and enterprise clients able to approve and revoke access, with all the data recorded on the blockchain.

R3’s Corda KYC solution test reportedly involved five French banks, including the financial conglomerate BNP Paribas and Société Générale. The trial has also featured companies specializing in various fields such as insurance, consulting, the automotive and food industries, and retail, including such firms as Allianz France Insurance Company and Natixis Insurance.

Ignacio Sánchez-Miret, chairman of AFTE Fintech Commission, commented that the Corda KYC solution has achieved two major goals, including “bridg[ing] the gap and demystif[ying] blockchain for corporates,” as well as “bring[ing] together banks, insurers and corporates to work together at the same level,” according to U.K.-based fintech media FinTech Futures.

In early November, BNP Paribas participated in a blockchain-powered syndicated loan of $150 million in partnership with the second largest bank of Spain, Banco Bilbao Vizcaya Argentaria (BBVA).



EU - Parliament’s terrorism committee is proposing a range of new measures to tackle the threat, from addressing radicalization, to tracking terrorist financing and helping victims.

The special committee on terrorism was set up in July 2017 to evaluate how the fight against terrorism could be improved. Its findings and recommendations will be discussed by MEPs during the December plenary in Strasbourg.

Co-operation and information sharing

Given its international character, fighting terrorism requires a strong coordinated response and rapid information-sharing by EU countries.

“There are still gaps in the exchange of information between member states, technical gaps in the interoperability,” said German EPP member Monika Hohlmeier, one of the report authors. “If we want to boost the information exchange, Europol and Eurojust must be strengthened and used as information hubs.”

Belgian ECR member Helga Stevens, one of the other report authors, highlighted the issue of decryption “Forced decryption is very hard for smaller member states because it requires a lot of technical and human resources. I propose to give Europol authority to specialize in decryption, so they can assist member states. That would give prosecutors and police access to messages on WhatsApp and messenger for example. Right now it is quite difficult, social media companies refuse to give access to the courts.”

Better protecting the EU’s external borders 

Some recent terrorist attacks have demonstrated major failures in European border controls. The report urges EU countries to invest in up to date ICT equipment to allow proper checks against databases, stresses the need to use biometric data and highlights the importance of ensuring the inter-operability of databases.

Preventing radicalization

The main drivers of radicalization include radical content on social media, books and audio-visual media, as well as contact with radicalized people, hate preachers and prisons. The report calls for legislation forcing companies to remove terrorist content online within one hour and report regularly on this type of content.

“We have to guarantee the exchange of best practices, how to solve integration,” said Hohlmeier.

Stevens stressed the need for a EU-wide list of hate preachers, because now they can operate undetected, particularly if they move from one EU country to another.

Terrorism financing

In order to tackle the financing of terrorism, the report also calls for better traceability of art and antiques, especially from conflict zones, as well as better monitoring of financial flows. This should include identifying users of electronic wallets, prepaid cards, crowdfunding platforms and mobile payment systems. Another requirement is to make mosques and other religious institutions more transparent about their funding, especially if there are concern it could come from authoritarian countries.
“All religious institutions should be transparent and show where the funding is coming from, so authorities can check if necessary,” said Stevens.

Other measures

The report also urges EU countries to better protect critical infrastructure, such as electricity or gas grids, and develop effective response strategies. It also calls for stricter rules against illicit firearms trafficking and preventing the purchase of chemicals to manufacture explosives. In 2015 and 2016 explosives were used in 40% of attacks while the most commonly used one is TATP, which can be manufactured easily at home.

The report calls on the European Commission to put forward legislation clarifying the status of terrorism victims, their rights and levels of compensation.



Secretary-General António Guterres deemed corruption “an assault on the values of the United Nations,” in a message on International Anti-Corruption Day, which is marked each 9 December. 

 He said that "it robs societies of schools, hospitals and other vital services, drives away foreign investment and strips nations of their natural resources,” he said.

One trillion dollars are paid in bribes annually, while another 2.6 trillion are stolen; all due to corruption.

The United Nations is fighting the global scourge, which affects both rich and poor countries, through initiatives like the global campaign launched jointly by the UN Development Programme (UNDP) and the UN Office on Drugs and Crime (UNODC).

The campaign recognizes corruption as one of the biggest impediments to achieving the SDGs, or 2030 Sustainable Development Goals agreed by all nations of the world in 2015, to advance the whole of humankind. And to counter that pernicious reality, the campaign is asking communities to use the Anti-Corruption logo during related events, and highlight community actions related to the Day on social platforms by using the hashtag #UnitedAgainstCorruption and tagging @UNDP, @UNODC.

Government officials, civil society, the private sector, and anti-corruption advocates can reference the campaign’s “Call to Action Matrix,” which offers recommendations for strategies to stand against corruption.

Additionally, the United Nations Convention against Corruption, adopted in 2003, exists as the only legally-binding, universal anti-corruption instrument.

Its far-reaching approach covers the full spectrum of corruption, and a vast majority of Member States, 186, are parties to the Convention.

Mr. Guterres called the Convention a “primary tool” for advancing the fight, and highlighted the positive outcomes made possible through its implementation.

“Through the Convention's peer review mechanism, we can work together to build a foundation of trust and accountability,” said the UN chief.



TEHRAN, (MNA) – Laya Joneydi Vice President for Legal Affairs said that laws of Confronting Money Laundering and Terrorist Financing help country improve its financial, monetary and banking system particularly.

She made the above remark this morning in the 4th Annual Anti-Corruption Conference, held at the venue of Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIMA), and said, “laws of Confronting Money Laundering and Terrorist Financing will help country witness a transparent trade and business activities based on a healthy competition in the country.”

One decade has elapsed since the approval of ‘Anti-Money Laundering Act (AML)’ and ‘Law of Countering the Financing Terrorism’, she said, adding, “in this regard, the law of Countering the Financing the Terrorism (CFT) has been revised and presently, amending the Anti-Money Laundering Law has been put atop agenda.”

Accordingly, an expert-level session was held in the Expediency Council yesterday in order to look into the discrepancies occurred between Iranian Parliament and the Guardian Council in this regard, Joneydi emphasized.

Elsewhere in her remarks, the vice president said, “every business activity needs a banking transaction but we do not need these laws only in the international relations, rather, such laws can help improve banking system of the country significantly.”

The government has taken giant strides in recent years in relevant field, one of these measures can be referred to the law of getting free access to data, she said, adding “getting free access to data will block data rent which can be the source of corruption.”



EU - 04/12/2018 press release 

The Council adopted conclusions on an action plan to better tackle money laundering and terrorist financing.

The conclusions set out a number of short-term non-legislative actions to address 8 key objectives:  

  • identify the factors that contributed to the recent money laundering cases in EU banks, to better inform possible additional actions in the medium and long term;
  • map relevant money laundering and terrorist financing risks and the best prudential supervisory practices to address them;
  • enhance supervisory convergence and better take into account AML aspects in the prudential supervisory process;
  • ensure effective cooperation between prudential and money laundering supervisors;
  • clarify aspects related to the withdrawal of a bank's authorisation in case of serious breaches;
  • improve supervision and exchange of information between relevant authorities;
  • share best practices and find grounds for convergence among national authorities;
  • improve the European supervisory authorities' capacity to make better use of existing powers and tools.

The European rules on anti money laundering and terrorist financing have been considerably strengthened in the past years, with two consecutive reforms being adopted since 2015.

The latest revision of the AML directive, the fifth AMLD, was adopted in April 2018 and is due to be transposed at national level by January 2020.

In September 2018, the Commission also presented a proposal to further strengthen the supervision of EU financial institutions and to better address money laundering and terrorist financing threats.

This proposal is currently under discussion in the Council.



SINGAPORE: Individuals and companies involved in money laundering and terrorism financing will face stiffer penalties, after Parliament passed the Serious Crimes and Counter Terrorism (Miscellaneous Amendments) Bill on Monday (Nov 19).

As such crimes can destroy the country's reputation as a trusted global financial centre or lead to terrorist attacks, Singapore is strongly committed to combating these threats and making sure they do not take root here, said Second Minister for Home Affairs Josephine Teo.

“With banking and financial systems going digital, monies can now be swiftly transferred between persons and across borders with minimum hassle. This opens up more channels to launder illicit funds and support terrorist activities,” she said.

“The growing volume and complexity of financial transactions also make it harder for regulators to detect offences.”

In the last five years, there were about 70 convictions each year for money laundering, while in 2016, six foreign nationals were convicted for terrorism financing.

Mrs Teo said the Government is concerned with two groups exposed to the risk of money laundering and terrorism financing: Corporations and professional service providers, as well as money mules in Singapore.


For the first group, the maximum penalty for a money laundering or terrorism financing offence committed by an entity will be raised from S$1 million to the higher of S$1 million or twice the value of the property, financial service or financial transaction involved.

The maximum penalty for failing to file a Suspicious Transaction Report will also be raised from a maximum fine of S$20,000 to S$250,000 and/or up to three years’ jail if the offender is an individual, and a maximum fine of S$500,000 for corporations.

Under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA), a person is required to report to the Suspicious Transaction Reporting Office when he knows or has reason to believe that a property is linked to criminal conduct, and comes across such information in the course of his work.

Mrs. Teo said the current penalties for not doing so are “manifestly low”, pointing out that they are not sufficient as a deterrent given the vast sums of money involved in such crimes.

For example, she highlighted the example of a property agent who was fined this year for not filing a Suspicious Transaction Report (STR) after finding out that his client was linked to a foreign Ponzi scheme.

The client had wanted to buy a property at Sentosa Cove and had the sale gone through, the agent’s commission would have been in the “range of hundreds of thousands”.

“Such reporting is critical to our ability to enforce against money laundering and other crimes, as law enforcement agencies rely heavily on such intelligence to initiate and support investigations,” Mrs Teo added.

Meanwhile, the maximum fine for tipping off on any investigations under the CDSA or any disclosure made to the Suspicious Transactions Reporting Officer will also be raised from S$30,000 to S$250,000.

As for money mules, the amendments will criminalise an accused’s possession or use of property “which would be suspected by a reasonable person of being benefits from criminal conduct, if the accused cannot satisfactorily explain how he came by the property”.

The maximum penalties for this new offence are a S$150,000 fine and/or three years’ jail for individuals.

Mrs. Teo said this will help investigators tackle complex money laundering operations involving multiple money mules that make it difficult for the crime proceeds to be traced to their original source.

“Under our current laws, the prosecution must prove that these money mules know the monies are linked to criminal conduct,” she added. “This is challenging, especially against mules trained to claim ignorance.

“Some money mules are even trained not to make any admission during police investigations, and taught to destroy evidence by deleting handphone messages.”


The CDSA will also be amended to make it easier to prosecute money laundering linked to overseas crimes.

For example, the courts can now decide based on evidence presented by the prosecution that an offence had been committed overseas, without having to rely on foreign governments or experts.

Currently, the law requires prosecutors to obtain a certificate from the foreign government or a testimony from a legal expert in the country to show that an offence had been committed.

This is “not ideal” as getting the certificate could take some time, while engaging an expert is costly, Mrs. Teo said. Another amendment makes it easier for Singapore to exchange financial intelligence with overseas authorities. “As money laundering offences are often transnational, the exchange of financial intelligence between jurisdictions is critical to support the investigation of these cases,” Mrs. Teo said.

 Member of Parliament (MP) for Holland-Bukit Timah GRC Christopher de Souza described the Bill as timely, saying it is easier to launder money now due to advances in technology. “The present and rapid advancement of technology has facilitated the exchanging of cash for virtual currency and vice versa,” he said. “Technology has also enabled transactions and transfers to be done from almost anywhere.”

But MP for Bukit Batok Murali Pillai said the amendments could have had “more bite” by allowing civil seizure and confiscation provisions prior to or in parallel with criminal proceedings.

Currently, a public prosecutor can apply to court for a confiscation order against any monies that a person has moved in or out of Singapore. However, this only applies after the accused has been convicted of the offence, he said.

“By then, it may be too late as the monies may have been dissipated by the accused,” he said.

Mr. Murali gave the example of the United States, which currently has a civil forfeiture regime that allows law enforcement officers to seize assets from those suspected of involvement with crime, without necessarily charging them with wrongdoing.

However, Mrs. Teo said Singapore’s laws already have “several mechanisms to seize, restraint and confiscate” the property of criminals. This includes allowing the police to seize property during investigations if it is suspected to be linked to a criminal offence.

While there is currently “no need” for a civil confiscation regime under the CDSA, Mrs. Teo added that it is a matter which the Ministry of Home Affairs will review.

Workers’ Party MP Sylvia Lim also asked for the Government’s assessment of the efficacy of both the CDSA and Terrorism (Suppression of Financing) Act (TSOFA).

In response, Mrs. Teo revealed that from 2013 to 2017, the number of STRs filed increased “significantly” from 22,000 to 35,000. “The increase in STRs filed over the past few years suggests that the different sectors are increasingly aware of their anti-money laundering and countering the financing of terrorism obligations,” she said.



CAPE TOWN, (Xinhua) -- The South African National Assembly on Tuesday passed the Cybercrimes Bill in a bid to curb the increase in cybercrimes.

The general purpose of the Cybercrimes Bill is to criminalize the distribution of data messages which are harmful, parliament spokesperson Moloto Mothapo said.

The bill provides for interim protection orders in cybercrime cases and seeks to regulate the powers to investigate cybercrimes, said Mothapo.

When tabling the bill last year, the Department of Justice and Correctional Service said the bill aimed to stop cybercrime and improve the country's security.

The bill was first initiated in August 2015, updated in January 2017 and was introduced in Parliament in February 2017. There were extensive comments on the bill during public hearings, and particularly on onerous aspects of the bill. Those comments were considered and incorporated into the latest version of the bill that was published in October 2018.

The enacted bill creates many new offences in relation to data, messages, computers, and networks such as hacking, unlawful interception of data, ransomware, cyber forgery and uttering, or cyber extortion.

Under the bill, if somebody is convicted of a cybercrime, he or she could spend between one year to 15 years in prison, depending on the cybercrime.

The bill gives the courts jurisdiction to try these offences in some cases where there is uncertainty. It also enables the Minister of Justice and Correctional Service to make regulations on information sharing, including sharing information on cybersecurity incidents, detecting, preventing and investigating cybercrimes.

South Africa has the third highest number of cyber crime victims worldwide, resulting in a loss of about 2.2 billion rand (about 159 million U.S. dollars) each year to cyber attacks, according to the South African Banking Risk Information Center (SABRIC).

This means that every time a user logs onto his or her smartphone, computer or opens an email, he or she is at risk of being exposed to cyber crime, the SABRIC said in a report released earlier this year.

Globally, 978 million consumers were affected by cyber crime in 2017, with a total of 172 billion dollars stolen, cyber security firm Norton said in its latest report.



Cyprus - The central bank’s (CBC) new directive on shell companies is credit positive for Cypriot banks, because the specific definitions of shell companies will help eliminate suspicious transactions and further strengthen banks’ anti-money-laundering (AML) practices, Moody’s rating agency said on Monday in its Credit Outlook.

In the report Moody’s quoted CBC head of banking supervision Yiangos Demetriou who on November 5 said that a new Central Bank of Cyprus circular that formally and narrowly defines what constitutes a shell company “…is more clear with specific directions regarding what banks should be doing” with respect to shell companies.

“The implementation of the circular, which was initially sent to the banks for consultation in June 2018, eliminates room for interpretation from individual banks regarding what constitutes a shell company, and establishes uniform practices across the Cypriot banking system,” Moody’s said.

It also pointed out that the circular defines a shell company as an entity that has no physical presence other than a mailing address, no established economic activity in the country of incorporation, or has little to no independent economic value. Not defined as shell companies are holding companies of entities engaged in legitimate businesses and that have identifiable ultimate beneficial owners.

According to Moody’s, Cyprus’ framework and the banking system’s AML practices have been strengthened through the years following greater scrutiny from international and domestic financial authorities. As part of the country’s bailout programme, the Moneyval Committee of the European Commission and Deloitte Italy in 2013 conducted an assessment to establish Cypriot banks’ compliance with the legislative and regulatory framework for customer due diligence. Although these assessments did not have major findings, the authorities took certain actions to strengthen AML practices. The Moneyval Committee plans to conduct another assessment next year.

Cypriot banks continue to be scrutinised in the international press, mainly because of their international banking business centres, which cater to offshore entities registered in Cyprus for tax reasons. Given the low corporate tax rate of 12.5% and Cyprus’ double-tax treaties with more than 60 countries, offshore entities benefit from lower taxes when they channel their investments to any of these 60 countries via Cyprus. Cyprus is one of the largest foreign direct investors in Russia, mainly because of these offshore companies.

Although reduced, Moody’s said, a large chunk of Cypriot banks’ funding continues to come from the transactional deposits of these offshore companies, which elevates funding risks for the banks given these deposits’ short-term nature.



MANILA — President Rodrigo Duterte has signed an executive order strengthening the country’s campaign against money laundering and terrorism financing (ML/TF).

Duterte signed Executive Order No. 68 on Nov. 12 adopting the National Anti-Money Laundering and Countering the Financing of Terrorism (AMLCFT) Strategy or NACS.

“It is declared policy of the State to ensure that the Philippines shall not be used as a money laundering site for the proceeds of any unlawful activity,” the order stated.

The Anti-Money Laundering Council (AMLC), together with relevant government agencies, has formulated and adopted the NACS which will be implemented over the period of 2018 to 2022.

The NACS will enable the government and the private sector to have a coordinated and strategic approach towards combating money laundering and terrorism financing in the country.

“There is a need to harmonize AML/CFT efforts to relevant government agencies and private stakeholders and ensure that they are consistent with the NACS and addresses ML/TF risks,” it said.

The order called for the creation of the National AML/CFT Coordinating Committee (NACC) which will ensure “efficient and effective” implementation of the roles and responsibilities of relevant government agencies as stated in the NACS.

NACC shall also facilitate the periodic conduct of the ML/TF risk assessment and recommend action plans, which may be included in the NACS, to address the risks identified.

The committee is tasked also to promote activities to spread awareness of the NACS and identified high ML/TF risk areas.

The NACC will be chaired by the Executive Secretary “or his duly-authorized representative” with Bangko Sentral ng Pilipinas (BSP) Governor and AMLC Chairperson as co-vice chairpersons.

The panel members include the secretaries of Foreign Affairs, Finance, Justice, National Defense, Interior and Local Government, Trade and Industry and top officials of Securities and Exchange Commission, Philippine Amusement and Gaming Corp., and Cagayan and Aurora-Pacific economic zones.

The AMLC shall serve as the Secretary for the NACC which will be organized into several sub-committees primarily responsible for the implementation of specific strategic objectives and relevant action plans of the NACS.





The G20 mentioned crypto regulation in its recent declaration on sustainable development adopted in Argentina. The declaration was published on the official website of the Council of the European Union and the European Council Dec. 1.

At a meeting in Buenos Aires on Nov. 30 and Dec. 1, G20 officials reiterated their concerns about the crypto industry along with its overall agenda regarding the future of work and infrastructure for development.

The declaration entitled “Building consensus for fair and sustainable development” regards cryptocurrencies as an important part of an “open and resilient financial system” that “is crucial to support sustainable growth.”

While recognizing the importance of the cryptocurrency industry for the global economy, the G20 noted that it will introduce anti-money laundering (AML) and anti-terrorist financing measures per Financial Action Task Force (FATF) standards.

G20 participants also expressed a positive stance on non-bank financial institutions, pointing out the potential advantages of technology in the financial sector provided that the tech disruptors are managing associated risks:

“We look forward to continued progress on achieving resilient non-bank financial intermediation. We will step up efforts to ensure that the potential benefits of technology in the financial sector can be realized while risks are mitigated.”

G20 officials have previously expressed a “soft” stance on crypto, stating that they will continue a “hands-off approach” towards crypto regulation. In July, a summary of interim decisions made by the dedicated Finance Ministers & Central Bank Governors said that “technological innovations, including those underlying cryptoassets, can deliver significant benefits to the financial system and the broader economy.” However, the document noted: 

“Crypto-assets do, however, raise issues with respect to consumer and investor protection, market integrity, tax evasion, money laundering and terrorist financing.” 

 As Cointelegraph reported yesterday, G20 leaders have urged the global community to develop taxes on cryptocurrencies, calling for “a taxation system for cross-border electronic payment services.”




UNITED NATIONS, New York – The United Nations (UN) General Assembly has called for increased cooperation with INTERPOL in countering terrorism and combating transnational organized crime including human trafficking, migrant smuggling and the illicit trade in small arms and light weapons.

By endorsing the review of GA Resolution 71/19 (2016), UN member states recognized the importance of providing INTERPOL with information from battlefields, counter-terrorism military operations and national prison systems to increase the chances of positively identifying terrorists.

Addressing the UN General Assembly, INTERPOL Secretary General Jürgen Stock said the Organization’s global network assists law enforcement to make arrests around the world, in some cases within 24 hours of a source country sharing information on suspected foreign terrorist fighters.

The INTERPOL Chief also highlighted that biometric data recovered from improvised explosive devices in the Middle East and North Africa, and shared via INTERPOL, has resulted in the identification of suspects in Europe and Asia.

“Whilst the transnational threat landscape continues to evolve and pose new challenges, what remains constant is the determination of terrorists and organized crime groups to evade the rule of law,” said Secretary General Stock.

“Embracing and strengthening international law enforcement cooperation is the only way to stay ahead of the curve.

“As an apolitical organization, INTERPOL’s mission is to make this cooperation as seamless and effective as possible, to carry our collective fight against crime across borders within our principles of neutrality and independence,” concluded the Head of INTERPOL, highlighting recent successes.

In the past year, INTERPOL-led operations Epervier (Chad, Mali, Mauritania, Niger and Senegal), Libertad (Caribbean, Central and South America) and Sawiyan (Sudan) led to the rescue of nearly 1,000 victims of human trafficking and people smuggling.

Regional operations coordinated by INTERPOL to disrupt the movement of illicit weapons have resulted in the seizure of hundreds of firearms, ammunition and explosives, the arrest of individuals linked to migrant smuggling and the seizure of illicit drugs.

Secretary General Stock said INTERPOL’s seven Global Policing Goals, designed to complement and further support the UN 2030 Agenda for Sustainable Development, provide a blueprint for future law enforcement action.

The Global Policing Goals focus on seven key cross-border crime priorities:

-Counter the threat of terrorism;

-Promote border integrity worldwide;

-Protect vulnerable communities;

-Secure cyberspace for people and businesses;

-Promote global integrity;

-Curb illicit markets;

-Support environmental security and sustainability.



The Daily Star (Lebanon) - 30 Nov 2018

BEIRUT: Financial cybercrime in Lebanon has seen an “absolute decrease” of 15 percent in 2018 from the previous year due to an extensive awareness campaign, the head of the Special Investigation Commission said Thursday.

Speaking at the opening of the Anti-Cybercrime Forum, the Secretary General of the Lebanese Special Investigation Commission Abdul Hafiz Mansour said the number of cybercrime cases decreased to 107 by the third quarter of 2018, down from 165 overall in 2017.

However, he did not let the positive development cloud his vision when it comes to challenges in the near future, saying that a further increase of transactions would inevitably lead to more cybercrimes and that there technically still is no solidly effective mechanism to combat such crimes.

“We don’t have a culture of online shopping in Lebanon yet, but once it becomes a fixture, once the new [electronic transactions and personal data] law will be implemented, then we’re going to have to deal with all the headaches that come along with it,” Mansour told The Daily Star.

Asked about the current status of the law, Mansour said that since it was issued two months ago, a process of implementation had begun, with companies and banks “starting to open up the systems.”

Mansour said the Central Bank would continue to implement key measures in the coming year to further mitigate the risks involved in cyber transactions.

One of these measures is a binding circular disseminated by the Central Bank to warn citizens and pre-emptively make them more aware of such risks, and motivate them to proactively detect any inconsistencies that might indicate fraudulent transactions.

The fourth edition of the forum was organized by the SIC and the Cybercrime and Intellectual Property Bureau at the Directorate General of the Internal Security Forces, in cooperation with the Middle East and North Africa Financial Action Task Force.

Also speaking at the opening, Central Bank Gov. Riad Salameh announced that Banque du Liban would soon launch digital currencies as a recognized form of official transactions. “BDL will launch the digital currency for local use only, and the purpose is to facilitate payment methods, activate monetary technologies and save the cost on the consumers,” Salameh said.

BDL currently explicitly forbids cryptocurrencies as a form of payment or settlement, regarding them as commodities to be invested in, stored or exchanged, similar to gold.

The digital currencies that BDL will soon adopt, Salameh stressed, are different from cryptocurrencies such as bitcoin.

He added that Lebanon must keep up with innovations in electronic transactions and said that “banks should have bigger budgets in order to better protect themselves, and should not merely rely on supervisory bodies.”

Internal Security Forces chief Maj. Gen. Imad Othman reiterated the ISF’s commitment to implementing adequate responses to any cyber emergency.

Othman said that in 2018, many Lebanese firms were still subjected to piracy and hacking, primarily by email. He said hackers used service providers in Europe to access the accounts of Lebanese firms, resulting in massive losses, with some of the companies having been liquidated as a result.

Othman veered off into a philosophical debate about the limits of freedom, especially in the realm of crime and punishment.

He quoted former Prime Minister Salim Hoss as saying “there is too much freedom in Lebanon but too little democracy,” adding that “freedom doesn’t mean that anyone can go to the media and say whatever they want, which is against the law.”

It soon became clear what brought on these slightly off-topic musings when he said: “The other day, a huge crime was committed in Lebanon, I say huge because it was against a foreigner,” seemingly referring to the murder of British radio DJ Gavin Ford. Osman continued, saying, “I will not accept any discord being sown in Lebanon. Anyone who violates the law should be punished, and by that I mean imprisonment,” which was met with a standing ovation by the audience.

During one of the sessions, the Lebanese road map to develop a national cybersecurity strategy and an action plan to face the risks of cybercrimes was presented by National ICT Strategy Coordinator Lina Oueidat.

She stressed the importance of such a road map, particularly because “Lebanon as a state is lagging behind, as there is a lack of organization when it comes to ICT, particularly in the realm of cybercrime and … things are often done arbitrarily.”



China’s central bank is scaling its efforts to develop a digital equivalent of its fiat currency. According to reports, the country’s Digital Currency Research Institute is hiring cryptography and blockchain experts. The institute has also filed 40 patent applications to set up infrastructure related to disbursement of digital currency. Its latest moves come after Zhou Xiaochuan, the former governor of PBOC, said the development of a digital currency was “inevitable” in April. 

Using the 'Positive Energy' of Crypto to Better China's Economy

Thanks to the proliferation of e-commerce and messaging apps like WeChat and AliPay, digital payments are already big in China. According to recent estimates, they accounted for $12.7 trillion in payments value this year. That figure is expected to soar to $26.8 trillion by 2022. But cash still holds sway in the country. Data released by the People’s Bank of China (PBOC) earlier this year indicated that 86% of the 7.13 trillion yuan in circulation was in the form of 100 yuan notes. 

In addition to tamping down on cash usage in the country’s underground economy, a digital version of the yuan would help China achieve economic policy goals, distribute the currency more efficiently, and regulate its usage more closely. In his April statement, Xiaochuan said the bank was considering “convenience, rapidity and low costs in a retail payment system while taking into account security and protection of privacy” in its development of a digital alternative. His successor Yi Gang has said that the country is studying “how to use the positive energy of digital currency to better the real economy.” 

China is the latest country to consider developing a digital currency. Venezuela is, perhaps, the most famous example of a country developing a national cryptocurrency. Sweden, Tunisia, and the Marshall Islands have already researched or undertaken similar projects. While a national digital currency makes disbursement and regulation easier, it will have to overcome privacy challenges from consumers. The currency will also need to be refined to achieve economic policy goals. For example, adding an interest rate to a digital currency could enable central banks to use it for monetary expansion because citizens will gravitate towards it instead of making anonymous cash payments.

To that end, research director for the Central Bank Digital Currency CBDC Yao Qian said that the institute will integrate more features in the future. “An approach that just rigidly mimics and digitalizes the fiat currency may undermine the competitive of CBDC in the long term,” he said.  

"Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. At the time of writing, the author owns 0.21 bitcoin and 1 Litecoin." 



BRUSSELS, Belgium – At the invitation of the Austrian Presidency of the Council of the European Union (EU), INTERPOL recently presented its e-MLA initiative to experts at the Working Party on Consular Affairs (COCON).

The initiative aims to develop an INTERPOL tool for the secure electronic transmission of mutual legal assistance (MLA) exchanges.

As one of the two partners of INTERPOL’s e-MLA project, co-funded by the EU, the Austrian Federal Ministry for Europe, Integration and Foreign Affairs hosted the meeting.

The e-MLA team and its co-partners on the project, Austria and France, presented the first phase of the e-MLA initiative which aims to report on the legal feasibility of creating a dedicated virtual global network allowing for the secure and electronic transmission in MLA matters.

The event gathered some 50 experts in international cooperation, including counsellors on justice and home affairs from the Permanent Representations of the EU Member States in Brussels, delegates from ministries of foreign affairs, national authorities competent for MLA and officials from EU institutions.

The e-MLA team announced that the final report on the legal study undertaken with the e-MLA Working Group since 2017 will soon be finalized and presented to member countries. It welcomed further support from participating authorities for the second phase of the project on the technical development of the INTERPOL electronic platform which aims to facilitate international cooperation in criminal matters.



Joining the gradually expanding list of countries planning to introduce their own native crypto, Saudi Arabia has recently announced that it will be releasing its own digital currency next year.

The cryptocurrency was announced to have reached its design phase last Monday, and follows the country’s recent partnership with United Arab Emirates. Right now, it’s being evaluated by the Saudi Arabian Monetary Authority, as reported by FX Street.

If all goes accordingly, the crypto is due to launch in 2019, though it’s unknown what name the token name is likely to take.

Multiple countries seem to be warming up to the idea of implementing their own digital cryptocurreny. Venezuela’s Petro currency is currently being backed by the nation’s oil and gas reserves, and Japan, Tunisia and Sweden are following suit with their respective J-Coin, eDinar and E-krona.

The Central Bank of Iran also announced the finalisation of its own crypto, following the renewal of US Sanctions against the country on November 5.

Others, on the other hand, are less enthused by the concept of a national digital currency.

Alim Guliyev, first Chairman of the Central Bank of Azerbaijan announced last week that the country has no current plan to create its own cryptocurrency, due to concerns with the “great risks” that can accompany crypto dealing.



Press Release: The MENAFATF holds its 28th Plenary Meeting in Beirut.

The 28th Plenary Meeting of the Middle East and North Africa Financial Action Task Force on Combating Money Laundering and the Financing of Terrorism (MENAFATF) was opened today, Tuesday 27 November 2018, at the Intercontinental Phoenicia Hotel, Beirut, Lebanon, under the presidency of HE Mr. Abdul Hafiz Mansour, the Secretary General of the Lebanese Special Investigation Commission (SIC), and the secretariat of HE Dr. Alwaleed Bin Khalid Alsheikh, the MENAFATF Executive Secretary.

The Meeting is attended by a large number of experts in the field of combating Money-laundering and the financing of terrorism from the Member States and the observers.

In the three days prior to the plenary meeting, the MENAFATF held the meetings of the Mutual Evaluation Working Group (MEWG), the Technical Assistance and Typologies Working Group (TATWG), the Financial Information Units Forum, the Operational Experts Forum on combating Terrorists Financing, and the National Risk Assessment Committee.

The plenary meeting will address, throughout two days, many topics on its agenda, the most important of which are the discussion of the Assessment Report of the Kingdom of Morocco which assess its compliance with the International standards on Combating Money-Laundering and the Financing of Terrorism and Proliferation, and the follow-up report of the Republic of Tunisia, in addition to a number of follow-up reports of some member states.

The meeting will also address the relationship with international bodies and organizations working in the field of money-laundering and the financing of terrorism, the existing and future cooperation with them, such as the Financial Action Task Force (FATF), the Counter-Terrorism Executive Committee of the United Nations Security Council, and other counterpart entities, in addition to considering the strategic plan for the years 2019 – 2021, the work Plan for the year 2019, and some working papers on plans, funding and other organizational and administrative matters. Moreover, the meeting will consider some applications for observer status.

This meeting is part of the consolidation of regional and international efforts to combat money-laundering and related predicate offences and financing of terrorism in order to protect economic, social and political systems from the threats of such crimes.

The Anti-Cybercrime Forum will also be held by the Lebanese Special Investigation Commission for the fourth consecutive year, which is held this year in cooperation with the MENAFATF on Thursday, 29 November 2018.



National Australia Bank (NAB) has confirmed it is working with financial crimes intelligence agencies to deal with "a number issues" related to anti-money laundering (AML) and counter-terrorism financing (CTF) laws.

In its full year results, the bank revealed it was working with the Australian Transaction Reports and Analysis Centre (AUSTRAC) and equivalent foreign regulators to fix weaknesses in its systems.

Weaknesses in Commonwealth Bank's (CBA) operations and "Know Your Customer" (KYC) requirements led to a record $700 million fine earlier this year.

"When significant AML or CTF compliance issues are identified, they are notified to AUSTRAC or equivalent foreign regulators," NAB noted in the annual report's section on contingent liabilities.

The bank said it had been working with AUSTRAC since July 2016 to strengthen its AML and CTF program and implementation.

"In addition to a general uplift in capability, the program of work aims to remediate specific compliance issues and weaknesses as they are identified," NAB said.

NAB aiming to keep issues out of court

It is understood there has been a significant shake-up in NAB's financial crime compliance program, including the hiring of two senior executives from overseas, over the past 12 months in the wake of the CBA action.

"As we've seen recently with the CBA case, compliance with the key obligations of knowing your customer, monitoring their transactions and reporting are fundamental compliance requirements", Neil Jeans, a financial crime consultant with Initialism, said.

"Any failure to comply with these would be taken very seriously by AUSTRAC as it could undermine the basic objectives of the regime."

Mr. Jeans — an expert witness for AUSTRAC in the CBA litigation — said while the details of the NAB issues were still unclear, part of CBA's recent record penalty related to failures in KYC, transaction monitoring and reporting.

"Ultimately, all of the compliance work comes back to effective reporting," he said.

"The compliance obligations are put in place to help businesses detect suspicious activity and other forms of financial intelligence and report it to AUSTRAC."

NAB's focus will be keeping any issues out of court, preferring to accept an enforceable undertaking if serious problems emerge.

CBA lessons learnt

"It's going to be a challenging year for banks as the impact of the $700 million Commonwealth Bank enforcement action ripples across the sector," Nathan Lynch, head of financial crime and risk at Thomson Reuters, said.

Mr. Lynch said NAB and the other big banks had learnt from the CBA case.

"AUSTRAC has made it clear that it sees civil litigation as a last resort," Mr Lynch said.

"Ideally, it wants to work with the banks to resolve issues and get back to their core job of intelligence sharing. 

AUSTRAC told Thomson Reuters it could confirm it was working with NAB to address AML and CTF compliance issues.

"It is not appropriate for us to provide details at this point in time," an AUSTRAC spokesman said.

In the 2017/18 financial year AUSTRAC received 126,000 suspicious matter reports, a 70 per cent increase on the 70,000 submitted in the previous year.



After exhausting all options to eradicate the illicit trading of blood diamonds, the diamond industry has turned to blockchain for a solution. 


A Failed Crusade against Blood Diamonds

A nearly 20-year-long global crusade against blood diamonds seems to have failed spectacularly. Blood diamonds, aka conflict diamonds, continue to be mined in war zones, often on the back of forced or child labor, only to be used by militias, armed rebels and even government-backed troops to fund violence against civilian populations. Africa, home to 65% of the world’s diamonds that make up an $81.4 billion-a-year industry, is central to this conflict.

Efforts have been made to curb this illegal practice; a UN General Assembly resolution in 2000 formulated the Kimberley Process, an international scheme to track diamonds while enforcing their standards and certifications. Falsification and tampering of documents, besides other semantical loopholes, have rendered that process effectively useless, as is widely observed in Sierra Leone. A UN panel declared that $24 million worth of diamonds had been smuggled out of the Central African Republic from 2013-2015, after a ban had been imposed for funding a genocidal war. An NGO reported that armed groups raise up to $5.8 million a year by trading conflict diamonds. 

Issues Faced by the Industry

In an era of widespread supply chain transparency where even a $4 latte provides information on the provenance of the coffee beans, there is no reason why luxury goods like diamonds shouldn't offer traceability and verification proofs. Such is the degree of complexity in diamonds that even experts fail to identify their origin purely by looking at them. Once a diamond is cut, there is believed to be no scientific or technical way to trace where they came from, making blood diamond laundering a fairly easy task. Thus, their traceability from the mines becomes all the more critical. Experts understand that a packet of diamonds changes hands on average 8-10 times in the country where they are mined, to add to another 8-10 times in the country of export until it reaches its final destination. There is also the issue of synthetic stones being passed off as diamonds nowadays.

Increased public awareness of the issues around blood diamonds, not in the least due to the motion picture by the same name, has played its role in pressuring the diamond industry to commit to responsible and ethical sourcing. Millennial consumers want guarantees about environmental impact, fair labor practices, and sustainability and are not afraid to pay a little more as long as they receive reassurance. 

Blockchain Solution

Blockchain technology provides the perfect use case for the diamond industry to eliminate blood diamonds. A decentralized ledger can trace diamonds right from the mine to retail. A unique digital fingerprint - using digitized attributes and a digital passport - identifies each diamond and builds up its reputation. Blockchain’s immutability ensures records are permanent and cannot be changed, thereby effectively becoming a certificate that authentically records the entire journey of diamonds. Decentralization brings greater transparency as it helps customers verify the provenance of their diamonds by letting them check for aberrations in the publicly accessible tracking chain. This ledger becomes a single version of verifiable truth by holding information about the origin, trail of ownership, and processes undergone by the stone. It can even help law enforcement agencies as it records the stone’s travel and transactional history, guarding against duplicitous behavior. Furthermore, the use of smart contracts that facilitate sale, insurance policies, registered rights, financing and transport of diamonds can be used to authenticate and prove business agreements and relationships. This effectively makes blockchain the diamond industry’s supply chain dream.

A Look at The Market

Several companies have already employed blockchain based solutions to solve the diamond industry’s supply chain woes for good. Everledger was founded in May 2015 in London to track the provenance of diamonds and other valuable products using blockchain technology. It constructs a diamond’s unique ID using over 40 features such as color and clarity and has digitized over 1 million diamonds thus far. The work has been so well received that Barclays decided to partner up with the 20 person company. Next in line for Everledger is an anti-counterfeit database that will flag stolen stones when they try to re-enter the system, which will also be a blessing for the insurance industry.

Fura Gems, a strong player in the emerald and ruby mining industry, recently revealed their own blockchain based supply chain management initiative. Vikram Pathak, head of investor relations at Fura, told Forbes:

What we will be able to say is that these minerals have come from a mine in Colombia, where they were shipped to India to be cut and polished, and combined in a bulk container and transferred to a wholesaler in Switzerland, and from there they were sent to multiple retailers in the UK and Canada. And we’re tracking every single movement of these stones around the world and know exactly where they are going.

Tech giant IBM has been developing its own global blockchain collaboration called TrustChain. Various leaders across different precious metals and stones industries form this initiative which will be used to track and authenticate their assets across the global supply chain, from start to finish, by putting physically documented provenance on the blockchain. This product will likely be available to consumers in certain retail stores by the end of the year. Earlier this year, Canadian diamond company Lucara Diamond acquired a blockchain platform called Clara Diamond Solutions that determines the provenance of diamonds.

The world’s largest producer of diamonds De Beers, which held over 90% of the world’s diamond supply for the greater part of the 20th century, tested a pilot project in January by tracking 100 high-value diamonds along its entire value chain using a blockchain platform called Tracr. Their unique “Global Diamond ID” logs characteristics such as carat, clarity and color to differentiate each individual diamond. They believe that Tracr will increase visibility, trust, efficiency across the value chain while providing asset traceability assurance in a way that was hitherto impossible. The South Africa-based company will launch their offering later this year, after having partnered with 5 leading diamond manufacturers: Diacore, Diarough, KGK Group, Rosy Blue NV and Venus Jewel. 

Blockchain's Success in Supply Chain

Blockchain technology has already had a sizeable impact on the supply chains across all sorts of industries, including technology, manufacturing, retail, and even food. Walmart has teamed up with IBM to trace lettuce from the farm to shelves using blockchains, which are also being deployed to track poultry, cattle and beef shipments. The elimination of blood diamonds using DLT marks yet another effective real-world application of the emerging technology. Blockchain’s end to end traceability enhances transparency and efficiency, which makes it ideal for supply chain management.



The Standing Committee on Finance (Committee) recently released its report, Confronting Money Laundering and Terrorist Financing: Moving Canada Forward (Report), where it makes 32 recommendations on proposed modifications and additions to the Canadian anti-money laundering (AML) regime.

The Report follows and responds to the Department of Finance’s consultation paper (Consultation Paper) on Canada’s anti-money laundering (AML) regime, which was published in February 2018 as part of the five-year statutory review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). 

This bulletin highlights the key changes proposed by the Report and discusses their potential implications, if implemented.

The Report recommends that the federal government work with the provinces and territories to create a pan-Canadian beneficial ownership registry for all legal persons and entities (including trusts) for individuals who have at least 25 per cent of the voting rights or a 25 per cent ownership interest.

While this may seem as promising news for regulated entities under the PCMLTFA (Regulated Entities), it is not contemplated that the registry will be publicly accessible. Instead, it will only be available for certain law enforcement agencies such as the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and Canada Revenue Agency.

As such, Regulated Entities will likely continue to be required to obtain beneficial ownership information. However, promising developments regarding beneficial ownership information are underway.

In December 2017, the federal and provincial ministers of finance agreed to pursue legislative amendments to federal and provincial incorporation statutes to ensure that corporations hold up-to-date information in respect of beneficial owners.

The federal government is honouring this commitment with proposed amendments to the Canada Business Corporations Act, pursuant Bill C-86, Budget Implementation Act, 2018, No. 2, which has received first reading and is currently making its way through the legislative process. While this is not the panacea that Regulated Entities had hoped for, it is definitely progress from the current state of affairs.

In another positive development, the Report recognizes the challenges that the Politically Exposed Person (PEP) provisions of the PCMLTFA pose for Regulated Entities. Specifically, the broad definition of PEPs, which includes not only the PEPs themselves, but also their prescribed family members and individuals who are closely associated with PEPs. The Report also notes that many institutions treat the determination of PEPs differently.

After hearing evidence from numerous parties in respect of the PEP provisions of the PCMLTFA, the Report recommends that the statutory definition of a PEP be reviewed, refined and clarified. The Report specifically notes that the concept of “association with a PEP” creates ambiguity and inconsistency among institutions about who exactly is a PEP.

The Report also recommends that Canada move to a risk-based model of compliance for PEPs, softening the requirements for those with transparent and unsuspicious financial portfolios. The recommendation is consistent with the 2017 version of the Wolfsberg Guidance on Politically Exposed Persons, where the 13 global banks comprising the Wolfsberg Group advocated for a more risk-based approach to PEP determination and treatment.

Under the current PCMLTFA, only certain Reporting Entities (financial entities, money services businesses, securities dealers and life insurance agents) are subject to the requirement to identify PEPs and to make beneficial ownership determinations in respect of corporate and other entities.

In this regard, the Report recommends that all Regulated Entities be subject to the PEP and beneficial owner requirements in the PCMLTFA. If implemented, this would subject other sectors including casinos and real estate brokers to the beneficial ownership and PEP requirements of the PCMLTFA, creating additional compliance measures for such entities.

The Report also recommends that the white label ATM and armoured car sectors both be subject to regulation under the PCMLTFA.

In respect of the ATM sector, in Canada, ATM operators are only subject to oversight in Quebec but even in that case, they are not subject to an AML reporting regime.

In respect of the armoured car industry, the Report notes the potential for the use of armoured cars to obscure the origin of funds. It recommends that, similar to the United States and other jurisdictions, the armoured car sector be subject to the Canadian AML regime.

While there is AML regulation for certain participants in the real estate sector, the PCMLTFA does not regulate all entities involved in the real estate sector that are in a position to gather and report relevant information in respect of money laundering.

The Report recommends that the provisions of the PCMLTFA that apply to the real estate sector be expanded to apply to mortgage insurers, land registry systems and title insurance companies. This recommendation will be significant for those involved in these industries.

While structuring has long been recognized as an indicia of suspicious activity, in Canada, unlike in the United States, it is not prohibited under the PCMLTFA or under the Criminal Code.

In this regard, the Report recommends that similar to the United States, structuring transactions in a manner designated to avoid record-keeping or reporting requirements under the PCMLTFA should be a criminal offence (for both customers and regulated entities).

The Committee recommends that the provisions be modelled on Title 31 of the U.S. code (section 5324). This is noteworthy as this section of the U.S. code goes beyond the structuring of transactions to also make it an offence to cause a regulated entity to file a report or retain a record that “contains a material omission or misstatement of fact”.

The Report further recommends that companies selling luxury items should be subject to PCMLTFA requirements, including the requirement to report large cash transactions if these are not reported by other means.

The Report specifically refers to luxury automobile dealers, art and antique dealers and auction houses selling precious metals and stones. This will inevitably require more enhanced due diligence by the financial institutions that provide banking services to these sectors.

The Committee made numerous recommendations to change the PCMLTFA as it applies to the casino sector.

Specifically, in addition to the casino sector being subject to PEP and beneficial ownership requirements, the Report recommends that all casino operators, employees and front-line personnel be trained in AML legislation.

The Report also recommends that the federal government establish an information sharing regime through FINTRAC and provincial gaming authorities to ensure more accurate and timely reporting. The recommendation is welcome news for casinos given that the provincial authorities have access to information about patrons that the casinos themselves may not, and if implemented, should facilitate better information flow between the parties.

Lastly, the Report recommends that the government enhance the direct reporting system of casinos so that in addition to suspicious transactions, suspicious activities be required to be reported. This change goes hand-in-hand with the recommendation to train all employees in the sector.

Although recent proposed amendments to the PCMLTFA look to regulate those dealing in virtual currency (see our June 2018 Blakes Bullein: The Good, the Bad and the Ugly: Revised Regulations to PCMLTFA), the Report provides more specific recommendations for crypto-exchanges and crypto-wallets.

Specifically, the Report recommends that the government establish a regulatory regime for crypto-wallets so as to ensure that proper identification is required and that the true ownership of wallets is known to the exchanges as well as to law enforcement.

The Report also notes that both bitcoin purchases of real estate and cash cards should be tracked and subject to AML legislation. Furthermore, the Report recommends that the government regulate crypto-exchanges at the point that fiat currency is converted so as to establish these exchanges as money services businesses.

More significantly, the Report proposes that the government establish a licence regime for crypto-exchanges in Canada that includes an AML program. In this regard, the Report recommends looking to the New York’s program as a model for best practices.

It is noteworthy that the licensing regime for crypto exchanges in the state of New York has come under intense scrutiny by industry participants and others for hampering innovation in the State given the arduous licensing process.

Interestingly, the Report recommends that suspicious transaction reporting focus on suspected violations as opposed to an “arbitrary monetary threshold”. However, in Canada, there are no monetary thresholds for reporting suspicious transactions — they can occur at dollar zero. It may be that this recommendation was meant to be a reference to large cash transaction reporting, which is discussed in the Report, where it is noted that the C$10,000 threshold may be viewed as arbitrary.

Similar to the commentary in the Consultation Paper, the Report recommends amending the PCMLTFA to allow for geographic targeting orders similar to those that are provided for in the United States.

In the U.S., geographic targeting orders are used to target high-end residential real estate transactions that are paid for in cash in six major metropolitan areas. The regulation of mortgage insurers and title insurance companies under the PCMLTFA will facilitate the reach of these targeting orders.

The Report makes several recommendations regarding the sharing of information that will facilitate the coordination of efforts in respect of the fight against crime and money laundering.

For example, the Report speaks to tabling legislation that would allow information related to anti-money laundering and anti-terrorist financing to be shared between federally regulated entities (provided that FINTRAC is notified). As previously noted, the Report also recommends information sharing between FINTRAC and commercial gaming authorities.

It remains to be seen which of these recommendations will actually be reflected in draft legislation. In the meantime, Regulated Entities and others affected by the Report are wise to stay tuned for further developments. 



In a keynote speech at the Hong Kong Fintech Week on 1 November 2018, the Securities and Futures Commission (SFC) again asserted its cautious regulatory approach by announcing that it would step up its game in protecting investors of virtual assets.

A virtual asset is a digital representation of value and include digital tokens (such as digital currencies, utility tokens or security or asset-backed tokens) and other virtual commodities, crypto assets and assets of essentially the same nature. Where the virtual assets fall outside the definitions of "securities" and "futures contracts" under the Securities and Futures Ordinance (the "Non-SF Virtual Assets"), the activities relating to them may fall outside the ambit of the regulator's jurisdiction, leaving investors unprotected.

In view of the growing investor interest in virtual assets, the SFC has decided to escalate its regulatory effort within the existing regulatory regime. The regulatory approach, requirements and their implementation are discussed in the following Statement and Circular published by the SFC on 1 November 2018:

-The Statement on regulatory framework for virtual asset portfolio managers, fund distributors and trading platform operators (the "Statement"), which identifies the material risks associated with investing in virtual assets; delineates the regulatory standards expected of virtual asset portfolio managers and virtual asset fund distributors; and outlines a conceptual framework for licensing and regulating virtual asset trading platforms (e.g. cryptocurrency exchanges)

-The Circular to intermediaries - Distribution of virtual asset funds (the "Circular"), which stipulates additional requirements that intermediaries are required to observe when distributing virtual asset funds not authorised by the SFC.

The SFC has been educating the public on the potential risks associated with dealing in cryptocurrencies and investing in initial coin offerings (ICO). The Statement reiterates the risks that are "inherent in the nature and characteristics of the virtual assets themselves" or "stem from the operation of platforms or portfolio managers". In particular, the SFC focuses the regulatory attention on the following aspects:

  • Valuation, volatility and liquidity of virtual assets
  • Accounting and auditing, including existence and ownership of virtual assets and valuation standards
  • Cybersecurity and safe custody of assets, including hacking risks and lack of qualified custodian solutions
  • Market integrity, unregulated markets and opaque trading rules
  • Risk of money laundering and terrorist financing, heightened by conversion between fiat currencies and virtual assets
  • Conflicts of interest, arising from multiple roles of operators
  • Fraud and use of virtual assets to defraud investors

In addressing the regulatory concerns, the SFC will adopt a new way forward to bring a significant portion of virtual asset portfolio management activities into its regulatory net. The SFC will apply the following overarching principles and standards:

  • Scope – the regulatory net catches (i) persons that manage funds which solely invest in virtual assets that do not constitute "securities" or "futures contracts" and distribute such funds in Hong Kong, (ii) persons licensed or to be licensed for Type 9 regulated activity (asset management) for managing portfolios in "securities" or "futures contracts" or both who also manage portfolios which invest solely or partially in Non-SF Virtual Assets (subject to a de minimis test), and (iii) persons that distribute funds that invest (solely or partially) in virtual assets in Hong Kong.
  • Standards – as regards the virtual asset portfolio managers in (i) and (ii) above, to impose, via licensing conditions, a set of principle-based standard terms and conditions that capture the existing requirements with adaptation to better address the unique risks associated with virtual assets; and the virtual asset fund distributors in (iii) above will be subject to further guidance on the expected standards and practices specified in the Circular.
  • Licensing process – licence applicants and licensed corporations are required to inform the SFC existing or planned activities involving management of portfolios that invest in virtual assets, to enable the SFC to assess and decide next steps, including imposing the standard terms and conditions, unwinding existing arrangements, and taking regulatory action.

Standard terms and conditions

The SFC will impose the terms and conditions on licensed corporations subject to a de minimis test, and catches a licensed corporation which manage or plan to manage portfolios with (i) a stated investment objective to invest in virtual assets; or (ii) an intention to invest 10 percent or more of the gross asset value (GAV) of the portfolio in virtual assets.

The terms and conditions focus on two aspects: (i) the licensed corporation's management of portfolios that invest in virtual assets (subject to the 10 percent de minimis threshold) and (ii) the financial resources if the licensed corporation intends to hold Non-SF Virtual Assets on behalf of portfolios under its management. Principal features of the standard terms and conditions include:

  • Limiting investors to professional investors and risk disclosures requirement
  • Assessing and selecting most appropriate custodians and custodial arrangements, whether self-custody or use of third party custodian or exchange, whether to hold through "hot wallets", "cold wallets" or "deep cold wallets"
  • Carefully selecting valuation principles, methodologies, models and policies, and disclosure to investors
  • Setting caps on investment by reference to each product, market, counterparty and virtual asset exchange as appropriate and periodic stress testing
  • Appointing capable independent auditor to audit financial statements of the funds
  • Maintenance of required liquid capital of at least HK$3 million (or its variable required liquid capital), if the licensed corporation holds Non-SF Virtual Assets
  • Complying with future guidance provided by the SFC from time to time

The Statement expressly clarifies that the terms and conditions do not apply to: (i) licensed corporations which only manage funds of funds (i.e. portfolios that invest in virtual asset funds); or (ii) licensed corporations whose mandate is to mainly invest in securities, futures contracts (or both) but the investment in virtual assets exceeds the 10 percent de minimis threshold due to increase in prices of the virtual assets held in the portfolios managed by them (BUT the licensed corporation should take all reasonable steps to reduce the value of investment in the virtual assets in a timely manner to below the threshold, AND the licensed corporation should notify the SFC if it anticipates the situation where the value exceeds the threshold to persist to enable the SFC to impose the terms and conditions, and failure to notify the SFC may result in disciplinary action).

Conceptual regulatory framework for virtual asset trading platform operators

A virtual asset trading platform operator may opt-in and be placed in the SFC regulatory sandbox if it is interested in being licensed by the SFC and the SFC considers that it can demonstrate its commitment to adhering to the high standards imposed by the SFC. The sandbox and opt-in approach are designed to set the platform operators that are committed to adhering to the SFC's high standards apart from those that are unwilling or unable to meet the conduct standards set by the SFC.

This exploratory stage is crucial for the SFC to understand its operation and business model in order to determine whether it is suitable for regulation. If the SFC grants a licence to a qualified platform operator, it will impose certain licensing conditions and the platform operator will proceed to the next stage of the sandbox during which the SFC will continue close supervision. The SFC may also revise or refine its regulatory and supervisory approach. After a minimum 12-month period, the platform operator may apply to the SFC to remove or vary the licensing conditions and exit the sandbox.

The licensing conditions on a platform operator will include core principles and other specific terms and conditions. There are five core principles:

  1. All virtual asset trading activities under a single legal entity
  2. Compliance with applicable requirements by entire virtual asset trading business
  3. Services to be offered to professional investors only
  4. Limitations on trading of ICO tokens within the initial 12 months
  5. Transactions be pre-funded, and no leverage for virtual asset-related futures contracts or other derivative products

Other specific terms and conditions address financial soundness, insurance requirements, knowledge assessment of investors, anti-money laundering and counter-financing of terrorism measures, risk disclosure and other disclosure requirements, due diligence on virtual assets to be admitted for trading, publication of trading rules, measures to prevent market manipulative and abusive activities, governance of employee dealings, proprietary trading, segregation and custody of client money and virtual assets, and ongoing reporting obligations.

The Circular

The SFC sets out further guidance on the expected standards and practices of intermediaries when distributing virtual asset funds. The Circular applies to entities licensed or registered for Type 1 regulated activity (dealing in securities) and/or Type 9 regulated activity (asset management) which distribute non-SFC authorised funds which (i) have a stated investment objective to invest in virtual assets; or (ii) intend to invest or have invested more than 10 percent of the gross asset value (GAV) in virtual assets directly or indirectly (e.g. funds of funds and funds which invest in derivatives with virtual assets as underlying). The new requirements fall into three categories:

  1. Selling restrictions and concentration assessments
  2. Due diligence on virtual asset funds not authorised by the SFC, including on the operations, IT system and risk management of the fund manager; and features, operation and counterparties of the fund
  3. Information for client, including the provision of specific information and warning statements to clients

Way Forward

There has been relatively limited regulatory and enforcement interventions from the SFC, mainly involving ICOs. As the SFC steps up its regulatory effort and clarifies its regulatory policy and standards relating to virtual assets, the market players should review their existing activities and business plans and take suitable steps in light of the applicable regulatory requirements.