As we have reported on several previous occasions, the regulatory establishment and government officials want to dismantle the anonymity privileges that various blockchains provide for crooks, money launderers, and those intent on funding terrorist operations. The “noose”, orchestrated by this group, is slowly tightening around the neck of the crypto community. The previous G20 meeting in June adopted guidelines presented by the Financial Action Task Force (FATF), due to take effect in June 2020.
By that date 37 countries and two regional entities are expected to adopt regulations that will implement these guidelines on a consistent basis around the world. At issue is what is known as the “Travel Rule”, a requirement that both sending and receiving exchanges in a transaction must know personal information about the parties involved. Blockchian technology, unfortunately, cannot easily comply with this rule. In fact, the FATF was advised of this issue, but they chose to ignore it. CipherTrace, a blockchain tracing and security company, recently held a conference to get the ball rolling in the crypto world.
For the time being, the Travel Rule is what it is. For those that are curious as to why the FATF went in this direction, you need only note who was in charge at the time of its proposal. Presidents of the FATF serve one-year terms, ending on June 30th. The one in charge was Marshall Billingslea, none other than the Assistant Secretary for Terrorist Financing of the U.S. Department of the Treasury and a direct report to Steven Mnuchin, a vocal critic of Bitcoin and the crypto universe.
Billingslea is very familiar with the Bank Secrecy Act (BSA) and patterned many of his suggestions in line with this outdated statute intended for financial institutions. The folks at CryptoBriefing summarized:
The BSA is nearly a 50-year old piece of legislation, drafted to eliminate money fraud issues associated with wire transfer infrastructure. Though, this legislation doesn’t account for the nuances associated with distributed ledger technology.
The clock is now ticking. There is less than a year to develop at least a make-shift industry approach to the problem, and for this reason, CipherTrace held its conference to give developers a chance to share ideas and issues. After several scheduled round table discussions, CipherTrace (CT) concluded the sessions with a friendly competition, what it termed a “Hackathon”. Software developers were asked to build solutions in a limited timeframe for CT’s “Travel Rule Information Sharing Architecture” or “TRISA”.
The discussions included many well-known spokesmen from the industry, as well as representatives from regulatory outliers like Dash, Zcash, and Monero, which have been staunch advocates for privacy in all blockchain matters. The attendee list included, in addition to these privacy coin advocates, developers, financial institutions, cryptocurrency exchanges, regulators, government entities, law enforcement, and money transmitters. The group as a whole did condemn the criminal element in our society and that their illicit use of cryptos to support their activities must be mitigated.
Eliahu Assif, the chief security officer at eToro, explained how his centralized exchange “aims to be compliance-friendly by offering a complete audit trail and reconciliation process… they must be able to identify each customer, both the individual and their wallet.”
Lee Brown, Department of Homeland Security investigator, discussed how criminals use the Bitcoin network, but it was apparent that the was not “demonizing” the network, as other Treasury officials have done publicly in the past. His comment was non-judgmental: “Bitcoin is a new way to exploit money, just like Western Union, and wire transfers.” He also acknowledged the common advocate’s refrain to these types of attack:
Cash is probably the most anonymous.
The “hackathon” was an interesting competition for five teams over two days to design and build, if possible, working solutions for CT’s open-source, peer-to-peer protocol, TRISA. The intent of TRISA is to “to comply with FATF guidelines at a minimal cost to participants while offering an entity high-performance transaction processing”. The forum encouraged developers to “to include the ability to verify the originator and receiver of a transaction to ensure they are not blacklisted criminals (without sharing their private information among the sending and receiving parties)”.
When all was said and done, several solutions were created that CipherTrace will more than likely incorporate within its open-source protocol. There was also the observation that the industry will not be ready come June of next year to meet the mandates of the FATF. The industry needs more time, but it is on course to deal with these “touchy” issues of privacy concerns versus criminal intent, which must be addressed for the industry to gain the respect and support of the regulatory establishment going forward.