AML/ CFT AND LEGAL CONCERNS FOR REGULATORS IN CROSS BORDER PAYMENTS THROUGH CRYPTOCURRENCIES AND OTHER VIRTUAL ASSETS

Abstract

In very little time, virtual currencies have evolved into a robust payment method that is gaining increasing global acceptance. Virtual currencies are an innovative, inexpensive, and adaptable form of payment. Simultaneously, the unique and frequently unfamiliar business model of virtual currencies presents a challenge to global regulators who are uncertain how to handle this payment method. One such challenge is prevention of money laundering and countering financing of  terrorism through cryptocurrency as a mode of transaction. The Regulator responses vary significantly, with some nations embracing this new technology and others severely or completely restricting its legal application. Money laundering is a global problem that affects both fiat and cryptocurrency. In each jurisdiction, AML frameworks have been enacted with distinguishable distinctions. Due to the inherently global nature of crypto transactions, Regulators are now tasked with implementing AML legislation from a global approach. Similarly, to combat the financing of criminal activity, regulatory bodies have rushed to enact stringent legislation to prevent the laundering of funds through cryptocurrency exchanges and custodian services. This is a long-drawn task especially in view of the fact that technologies are evolving at a never witnessed phase and lack of its understanding is making it harder for the Regulators to keep up. 

This paper is an attempt of the Author to understand the nature of cryptocurrencies and virtual assets, followed by an understanding of regulatory framework and applicable laws. Once an understanding is established, the Author moves on to discuss the features including- anonymity, lack of regulatory compliance, traceability, global nature etc. of the cryptocurrency and how each of these features contribute to the subject-matter of this study. Special reliance is placed on India which is followed by a conclusion, recommendations and suggestions.