Written By Maureen M. Ward and Nathan J. Shaheen
On May 24, 2022, nine Canadian cryptocurrency companies—Wealthsimple, CoinSmart, Netcoins, Shakepay, VirgoCX, Tetra Trust, BlocPal, Balance and Coinsquare—announced their membership in the Travel Rule Universal Solution Technology (TRUST), an industry group formed to advance compliance with the Financial Action Task Force (FATF) anti-money laundering guidelines for virtual asset service providers (VASP). TRUST, and its expanded Canadian membership, is a positive development for those seeking to prevent illicit cryptocurrency transactions, or aiming to trace funds into the hands of wrongdoers when such transactions occur.
FATF Guidelines and TRUST
As we discussed in our previous insight, FATF’s Take on Digital Assets: Updated Guidance and Recommendations, in October 2021, FATF updated its Guidance for a Risk Based Approach to Virtual Assets and Virtual Asset Service Providers (FATF Guidance). We noted that “persons in the virtual asset space should be aware of the FATF Guidance, assess its potential implications for their business and consider what measures ought to be taken to ensure compliance.”
Following the updated FATF Guidance, TRUST was launched in February 2022 as a coalition of 18 U.S. cryptocurrency companies. TRUST is “a platform that allows cryptocurrency exchanges to securely send information legally required by the “Travel Rule.” As described by the FATF Guidance, the Travel Rule “includes the obligation to obtain, hold, and submit required originator and beneficiary information associated with [virtual asset] transfers in order to identify and report suspicious transactions, take freezing actions, and prohibit transactions with designated persons and entities.”
While the standards and measures identified in the Travel Rule have long applied to traditional financial institutions, the goal of TRUST is for cryptocurrency companies “to achieve top-tier compliance with the Travel Rule, while fully honouring customers’ expectations over how their information is handled.” Although the exact requirements vary with jurisdiction, the overall purpose of the Travel Rule is to deter money laundering and other financial crimes by improving the ability of various law enforcement agencies to detect and respond to illicit activities.
More specifically, TRUST ensures that member VASPs obtain and preserve certain information about both the payer and payee for any cryptocurrency transaction in excess of US$1,000. This is aimed at improving the likelihood of identifying and mitigating the risks inherent to peer-to-peer cryptocurrency transactions and, in the event of illicit transactions, providing valuable information to assist with tracing assets to the hands of wrongdoers.
TRUST in Canada
In Canada, which is a FATF member country that routinely incorporates FATF guidelines in to domestic law, the industry-led move to join TRUST and coordinate the implementation of the Travel Rule indicates the willingness of Canadian TRUST members to assist governments in combatting money laundering and other financial crimes involving cryptocurrencies, and a desire to bring consistency and appropriate transparency to the cryptocurrency industry more generally.
In addition, with cryptocurrency fraud becoming widespread globally, and as the Canadian government continues to address and create legal frameworks for emerging cryptocurrency and blockchain industries, this new Canadian industry-led step appears likely to expand the tools available to practitioners in the anti-money laundering, cryptocurrency litigation and asset recovery spaces to assist those who risk being, or have been, victimized by illicit cryptocurrency transactions.
If you have questions about the information in this blog post or are in need of legal counsel regarding cryptocurrency litigation, money laundering or other financial crimes, please contact the authors, or a member of the Bennett Jones Anti-Money Laundering group or Fraud Law group.