A similar and often received inquiry from many of our clients and subscribers, regarding the restricted countries from which a Crypto Exchange should not on-board clients from. More specifically, if a non-regulated Crypto Exchange platform operated by an European entity. We say non-regulated Crypto Exchange Platform because at the moment, said activity is not specifically regulated at regional level in EU or Member States.
We thought that by putting the explanation in a post, we will help readers understand how the overall and general provision of services through countries on a global and continental level, works.
Further to the inquiry regarding to the countries that a non-regulated Crypto Exchange Platform operated by a Company incorporated in a Member State, should reject, the following should be noted:
For countries in and outside the European Economic Area
If Company is not regulated by any financial authority in EU then it most probably would not have specific requirements coming from such supervision authority. It is however highly recommended to seek the advice of a legal professional in the territory of the EU country that you are interested in, who can tell you if the incorporation authority of this country has any specific prohibition of any country member or not of the EEA, due to political reasons, conflicts between the countries, AML deficiencies etc.
Countries in European Economic Area
All countries that are member of the EEA, must adhere to EU regulations which means they are also following the strict applicable EU requirements in respect to Anti-Money Laundering among other. As such, form this aspect, all EEA countries could be accepted by the Company.
There is a possibility but we are not fully updated, that some countries in the EEA (local supervisory authorities for example) may have their own restrictions towards their citizens, prohibiting them from depositing or dealing with cryptocurrency trading since these are very volatile and risky products. I am not aware myself of any country in the EEA imposing such restriction to its citizen however.
Countries outside European Economic Area
For monitoring the Company’s risk exposure to AML deficiencies, scams and other fraudulent activities, it is also strongly recommended to follow the public statements made by the FATF. The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. You can check the list of members here.
The purpose of the FATF is to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
The FATF has developed a series of Recommendations that are recognised as the international standard for combating of money laundering and the financing of terrorism and proliferation of weapons of mass destruction. They form the basis for a co-ordinated response to these threats to the integrity of the financial system and help ensure a level playing field.
FATF is not a supervisory body and does not have authority over your Company (or others for that matter) and they do not explicitly say to the public to “accept” or “reject” countries. They do however periodical assessments of the countries procedures for combating AML and corruption among other and release public statements which show their findings. Based on the findings and the levels of risk identified for each country, your Company may decide which jurisdictions to reject or not. Worldwide financial and payment institutions follow FATF recommendations and rely on their assessments in order to prepare their risk mitigation techniques and procedure.
At the moment, there are two jurisdictions identified by FATF for having made very little progress for combating the AML deficiencies and these are Iran and the Democratic People’s Republic of Korea (DPRK). More details on the FATF’s concerns with respect to these two jurisdictions can be found here. Again, FATF is not explicitly saying “do not accept these countries” but is informing the public of their concerns.
With regard to the People’s Republic of Korea, also keep in mind the Dictatorship regime applied in this country and the restrictions imposed by the local authorities over their citizens. This means that even if FATF would not have any concerns, clients/deposits coming out this country would not be allowed by their local laws anyway.
Difficulty in processing payment from some jurisdictions
As you can appreciate, a PSP (Payment Service Provider) will most probably opt not to process payments from the above mentioned jurisdictions and, may as well add some additional countries on their restriction list to avoid supplementary risk of fraudulent activities when processing payments from certain jurisdictions.
On the 29th of June 2018, FATF has released another public statement Improving Global AML/CFT Compliance:
As part of its ongoing review of compliance with the AML/CFT standards, the FATF identifies the following jurisdictions that have strategic AML/CFT deficiencies for which they have developed an action plan with the FATF. While the situations differ among each jurisdiction, each jurisdiction has provided a written high-level political commitment to address the identified deficiencies. Not all jurisdictions have yet been reviewed by the FATF and FATF continues to identify additional jurisdictions, on an ongoing basis, that pose a risk to the international financial system. More details on each country and the results of the assessment and closes monitoring performed by FATF can be found at the link provided above.
Jurisdictions with strategic deficiencies Jurisdictions no longer subject to the FATF’s on-going global AML/CFT compliance process
- Sri Lanka
- Trinidad and Tobago
Virtual currency regulation in the EU is still in its early stages, and even though the FinTech Task Force is working on the harmonization of the existing national laws regulating virtual currencies, most individual member states have undertaken separate legislative strategies in accordance with their specific legal traditions and practices. Having said this, it is always recommended to verify the applicable regulation or legislation in your country to ensure you are up to speed with any developments on the matter at hand and doing the right thing.
The information provided is originated from the public source of FATF, experience and knowledge and does not represent a legal opinion or advice. It is always recommended to seek the review, advice and opinion of a legal professional expert on the field you are interested in.