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Israel Anti-Money Laundering Authority: "Necessary to complete the regulation of digital currencies"

Thirty-two countries in the world have already allowed digital currency services by law, according to a report published by the International Task Force to Combat Money Laundering.

Although Israel is one of these countries, the law has no meaning until the Israeli Parliament (Knesset) approves the new money laundering order.

On July 7, the leading international task force in the global fight against money laundering, FATF, published a report reviewing the progress of the world countries in implementing the international standards required for the field of digital currencies ("virtual assets") amended about a year ago. The report, prepared by the organization's policy development group, was based on the responses of 54 countries to detailed questionnaires, research work by the organization's secretariat, as well as on the contact group's meetings on the organization's virtual assets with representatives of the private sector.

The main conclusion that emerges from the report is that significant progress has been made in the implementation of the framework to combat money laundering and terrorist financing, both by states and regulators and by relevant bodies in the private sector. However, the report notes that there is still a long way to go towards full and effective implementation of the rules. The organization will continue to closely monitor the implementation of the rules throughout the coming year.

Data gathered by the FATF regarding investigations around the world show that criminals are abusing the characteristics of digital currencies, both for cybercrime and for money laundering and terrorist financing. While Bitcoin is still the most common digital currency in these contexts, it has been found that no less than 30 other types of digital currencies have been linked to criminal activity.

In another report released by the FATF last week, after being forwarded to the finance ministers of G-20 countries, the organization identifies "illegal financial vulnerabilities" mainly in "stable" digital currencies (stablecoins). The organization states that the risks associated with stablecoins must be analyzed and prepared for before their issuance is allowed in the organization’s partner countries.

The value of a "stable" digital currency can be linked to assets or indices of various types, such as the value of a fiat currency (sovereign currency) or a basket of assets, which can include, for example, securities or commodities. The most popular stablecoin today in the crypto market is Tether, along with currencies like USD Coin or Paxos. The Libera organization, led by Facebook, also plans to issue digital coins of this type.

"The field is developing and growing rapidly"

According to the report reviewing the annual progress in the field, in 32 of the 54 countries that participated in the FATF questionnaires, the provision of financial services in digital currencies has already been permitted. Israel has been among those 32 countries since October 2018, after the Financial Services Supervision Law came into force, with the definition of a financial asset also including virtual currency. However, the law has no practical significance for entities that provide services in digital currencies in Israel, as long as the Knesset has not approved a new anti-money laundering order, which also applies to this area.

According to Dr. Shlomit Wegman Ratner, head of the Israeli Anti-Money Laundering Authority:

"It is necessary to complete the regulation of virtual assets in Israel and install a money laundering order, which was placed on the Constitution Committee table about a year and a half ago, so that Israel is not left behind and even becomes a magnet for criminals in this field. The Israeli delegation to the FATF takes an active part in shaping global policy and regulation in this area, and we welcome the many efforts the organization is devoting to this".

In the year and a half that has passed since the new money laundering order was placed on the table of the “Constitution, Law and Justice Committee”, the Knesset has been replaced, and last March the tenure of the current Knesset began. Therefore, a new submission of the order is required for approval by the “Constitution, Law and Justice Committee”, which is currently headed by MK Yaakov Asher of the Torah Judaism faction. The Ministry of Justice told Globes that the submission of the order is the responsibility of the Capital Market Authority.

In 19 of the 54 countries that responded to the questionnaires, the binding international standards for digital currency amended by the FATF about a year ago have not yet been implemented. In three of the 54 countries, digital currency services are banned by law. States' responses to the questionnaires also indicate that there are many categories of license types relevant to virtual property service providers, and respectively a wide range of regulators who oversee them.

According to the countries' response to the questionnaires, there are currently 1,133 service providers in virtual assets that are licensed or registered as required by law, and most of the gaps in compliance with rules in this sector relate to the existence of internal control and document retention mechanisms.

Last month, as published in "Globes", the Israeli Authority for the Prohibition of Money Laundering and Terrorist Financing published a document on the implementation of a risk-based approach in the field of virtual assets, which includes a list of "red and white flags".

According to Wegman Ratner, head of the Authority, "The field of virtual assets is developing and growing rapidly. Along with promoting important financial innovation, unfortunately, it is also well known for misuse by criminals and professional money launderers, which even intensified in the shadow of the corona crisis. On this background, the FATF activity in this field, including setting world standards last year and monitoring their implementation now by countries and the private sector – shows great importance".

By Roy Katziri, July 13, 2020, published (Hebrew) on Globes

Image byguaxipofromPixabay


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