The FATF travel rule and its role in combatting money laundering

Abstract

This dissertation examines domestic and international Anti-Money Laundering and crypto legal regimes to seek an answer regarding whether the FATF Travel Rule is an effective solution in the fight against Money Laundering and the Financing of Terrorism. The travel rule is one of the FATF’s 40 recommendations and imposes obligations on Virtual Asset Service Providers to collect and exchange information about their customers. This paper will analyse the way the world has reacted to this ground-breaking rule, with a particular focus on Malta and international organisations which may influence Malta in its domestic adoption of FATF Recommendation 16. It will also explore the role of the FATF and the importance of state adherence to its recommendations. Since the travel rule’s proclamation, various concerns have surfaced for jurisdictions and the private sector that have not only made domestic implementation challenging but also provide for further obstacles even after global implementation has been achieved. This study will examine possible courses of action to not only ensure the travel rule’s functionality but that the growing industry will not be hindered by over-regulation. It is evident that a risk-based approach is crucial to the effectiveness of the travel rule as it allows VASPs to focus on financial activities with the highest risk factor. While the travel rule may be an effective step in the international sphere regulating the fight against money laundering, there will still be transactions which remain out of the scope of legislators given that users can transact without contact with VASPs. A coordinated response on a global level will be needed to mitigate risks during the sunrise period and even though it is likely that new legislation will be implemented to bring a more robust AML framework, money laundering in the virtual currency industry will remain a challenge requiring close surveillance.