This series of articles presents an overview of current Anti-Money Laundering (AML) approaches to cryptocurrency in different parts of the world. The first article looked into the European Union approach. This article covers regulations in parts of the Asia-Pacific region.

Link to first article: https://steemit.com/cryptocurrency/@hhim/cryptocurrencies-and-anti-money-laundering-laws-part-i-eu

Regulatory practices in Asia diverge much more than in Europe. While China currently prohibits commercial issuance and exchange cryptocurrency services, Japan and Australia both now have regimes for licensing and supervising Virtual Currency Exchanges (VCEs) and other crypto businesses. Korea has yet to settle on a regulatory scheme of any kind.

China

China has taken perhaps the strictest approach to cryptocurrency of the world’s major economies, effectively prohibiting all issuance and exchange services for cryptocurrency in the country.
Chinese regulators took a wary view beginning in December 2013, when the People’s Bank of China (the “PBOC”), the central regulatory authority for monetary policy and financial industry regulation, issued a joint circular with other Chinese regulators emphasising the AML risk of Bitcoin and other cryptocurrencies, and requesting that all bank branches extend their money laundering supervision to institutions that provide cryptocurrency registration, trading, and other services, and urge these institutions to strengthen their monitoring of money laundering. In 2016, a PRC-incorporated VCE platform was found partially liable for AML violations due to its failure to perform KYC while offering cryptocurrency registration and trading services.
Subsequently, in September 2017, the PBOC issued a joint announcement (the “Announcement”), affirming that cryptocurrencies do not have legal status or characteristics that make them equivalent to money, and should not be circulated and used as currencies.
On the issuance side, the Announcement banned “coin offering fundraising”, defined as a process where fundraisers distribute so-called “cryptocurrencies” to investors in return for financial contributions, and classified illegal distribution of financial tokens, illegal fundraising or issuance of securities, and fraud or pyramid schemes as financial crimes in this context. Organisations and individuals that raised money through ICOs prior to the date of the Announcement were commanded to provide refunds or make other arrangements to reasonably protect the rights and interests of investors and properly handle risks.

On the exchange side, the Announcement required cryptocurrency trading platforms to cease offering exchange of cryptocurrency for statutory (fiat) currency, acting as central counterparties for cryptocurrencies transactions, or providing pricing, information, agency or other services for cryptocurrencies.
Because of the criminalisation of unlicensed cryptocurrency issuances, capital or fees that have been acquired through a coin release in China are likely to be viewed as illicit proceeds for purposes of both Chinese and other countries’ AML laws. That said, although discouraged by the PRC authorities, individual purchase or peer-to-peer trading of crypto is not banned from a PRC law perspective

Japan

In May 2016, Japan amended its Payment Services Act to provide for a definition of cryptocurrency and to create a registration requirement for “Virtual Currency Exchange Operators” (“VCEOs”).
VCEO licences allow holders to engage in the exchange, purchase, sale, and safekeeping of cryptocurrencies on behalf of third parties, and to engage in ICOs subject to preapproval by the FSA. VCEOs are designated as “Specified Business Operators” subject to national AML rules contained in the Act on the Prevention of Transfer of Criminal Proceeds, including CIP and suspicious transaction reporting.

Since licences were first issued to VCEOs on September 30, 2017, the FSA, which exercises regulatory authority over Banks and other financial institutions via delegated authority from the Prime Minister, has begun conducting on-site inspections of VCEOs and has forced at least one exchange to cease operations until it remedies compliance deficiencies, including its AML compliance. The prospect of enforcement of AML regulations appears to have caused some companies to withdraw their applications to become VCEOs in recent months.

Australia

In Australia, cryptocurrency is regulated both as a currency and as a financial instrument such as a share in a company or a derivative depending on the features of the coin. Businesses that support cryptocurrency-to-fiat exchange are classified as “digital currency exchanges” and are required to comply with the AML laws and regulations under the Anti-Money Laundering and Counter Terrorism Financing Act 2006; however, the law was changed in 2017 to exclude most ICOs from such requirements. For entities that are subject to the law, the Australian Transaction Reports and Analysis Centre (“AUSTRAC”) has published a compliance guide for providing guidance on how to implement an AML-CTF compliance programme (http://www.austrac.gov.au/digital-currency-exchange-providers).

South Korea

South Korea continues deliberations on reaching a comprehensive cryptocurrency regulatory scheme, resulting in a situation that some commentators have described as “a state of ‘deliberate ambiguity’”. After initially legalising Bitcoin service providers for payments, transfers, and trades in July 2017, cybersecurity and AML concerns led to the issuance of a ban on ICOs in September 2017. Though subsequent remarks by public officials even suggested shutting down exchanges entirely, reports suggest that the ban has not been strictly enforced while the government’s internal consultations continue and that limitations will be lifted once a formal legal framework can be established.
Because of the legal uncertainty regarding the future status of cryptocurrencies, the Korean Financial Services Commission (FSC) has begun to regulate cryptocurrencies through its authority to regulate banks pursuant to its existing statutory powers. These measures, announced in January 2018, require cryptocurrency trading to occur through real-name bank accounts linked to cryptocurrency exchanges.

Subsequent to two security breaches experienced by Bithumb and Coinrail, formerly the second and fourth largest cryptocurrency exchanges in South Korea, the government acknowledged the necessity of strict regulatory frameworks to oversee the local cryptocurrency market. It was announced in July 2018 that the government is hurrying the finalization of the country’s first crypto and blockchain legislation, to recognize the cryptocurrency and blockchain sector as legitimate industries.
It is expected thatupong the finalization and passing of the new cryptocurrency and blockchain bill, digital asset exchanges will be considered as regulated financial institutions and will be under the control of the FSC. Strict security measure, internal management system, Know Your Customer (KYC), Anti-Money Laundering (AML), and transaction monitoring requirements will be demanded by the government, to ensure crypto exchanges provide the same level of service as commercial banks and major financial service providers.