The Cryptocurrency Travel Rule: Everything You Need to Know

The cryptocurrency travel rule, a proposed expansion of the Travel Rule, is a set of requirements that Virtual Asset Service Providers (VASPs) must adhere to in order to maintain compliance with Financial Action Task Force (FATF) recommendations. The FATF is the global intergovernmental money laundering and terrorist financing watchdog. 

This rule demands that VASPs take certain steps to mitigate the risk of money laundering and terrorist financing when exchanging cryptocurrency. 

In this article, we’ll cover everything essential that you need to know about the cryptocurrency travel rule. 

What is the travel rule?

The cryptocurrency travel rule is a regulation that demands Virtual Asset Service Providers (VASPs) to store and when required share information about their account holders’ transactions  with the Internal Revenue Service (IRS). 

Put simply, the travel rule requires VASPs to comply with certain requirements in order to prevent individuals from using cryptocurrencies for money laundering and tax evasion purposes. These requirements include identifying account holders, verifying their identities, and sharing certain information about their transactions with government agencies. Failure to comply with the travel rule can result in hefty fines and even criminal prosecution. 

What are the origins of the travel rule?

The cryptocurrency travel rule, is a proposed expansin of the current Travel Rule that is targeting to implement  regulation that demands Virtual Asset Service Providers (VASPs) to adhere to specific requirements in order to prevent money laundering and terrorist financing. 

In Europe, the rule was tabled in Feb 2022 by two major factions of the European Union who submitted a policy draft to the European parliament. While it has caused some uncertainties and reactions among cryptocurrency businesses, who must now implement costly compliance measures, the long-term benefits of compliance should not be ignored. 

The preamble to the proposed Amendment reads, The global reach, the speed at which transactions can be carried out and the possible anonymity offered by cryptoasset transactions make crypto-assets particularly suitable for criminals seeking to carry out illicit transfers across jurisdictions and operate beyond national borders. In order to effectively address the risks posed by the misuse of crypto-assets for money laundering and terrorist financing purposes, the Union should aim to advance the implementation at global level of the standards established under this Regulation and also to develop the international and cross-jurisdictional dimension of the regulation and supervision of transfers of crypto-assets in relation to money laundering and terrorist financingEuropean Parliament

What are the requirements of the travel rule?

The requirements of the travel rule are as follows: each transaction must include the customer’s name, address, and date of birth; the name of the virtual asset service provider; and the type and amount of the digital assets transferred. The draft submitted to the European Parliament proposes to lower the threshold for reporting cryptocurrency transactions to below 1,000 euros, which is the threshold in the original Travel Rule that mandates banks to store information for transactions above 1,000 euros. 

In order to be compliant with the travel rule, cryptocurrency businesses must verify the identities of their customers and keep track of all information related to each transaction. This can be accomplished by using blockchain technology, which creates an unalterable digital ledger of all transactions. Becoming Travel Rule-compliance can be beneficial for cryptocurrency businesses, as it will help them build trust with their customers and attract new business. 

How can cryptocurrency businesses benefit by becoming Travel Rule-compliant?

Cryptocurrency businesses can greatly benefit by becoming Travel Rule-compliant. The first and most obvious benefit is avoiding enforcement actions and fines. But becoming compliant also allows businesses to conduct their transactions with more transparency and efficiency. 

In addition, compliance helps build customer trust and can even lead to increased business opportunities. By adhering to the Travel Rule, cryptocurrency businesses can ensure they’re operating in full compliance with current regulations and stay ahead of any future changes. 

What are the challenges of implementing the travel rule?

One of the challenges of implementing the travel rule is that it can be difficult for cryptocurrency businesses to become compliant. There are many specific requirements that Virtual Asset Service Providers must meet in order to be considered compliant, and the process can be complex and time-consuming. 

However, there are many benefits to becoming Travel Rule-compliant, and businesses that make the effort will be well-positioned for future growth. 

Conclusion

By becoming Travel Rule-compliant, cryptocurrency businesses can demonstrate their commitment to these important goals and improve their customers’ trust.

The challenges of implementing the travel rule can be overcome by working with a knowledgeable and experienced provider of cryptocurrency compliance services.

Meanwhile for the ordinary user, this means that cryptocurrency scammers’ records will always be stored and shared with government authorities, a significant contribution to efforts to fight scammers who currently take advantage of cryptocurrency platforms to scam unsuspecting citizens. 

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