Chile -- AML/CFT Compliance Regulatory Overview

Chile has made significant strides in regulating Virtual Asset Service Providers (VASPs) for Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) purposes, largely driven by the Financial Action Task Force (FATF) recommendations.

Here's a breakdown of the AML/KYC requirements for cryptocurrency/virtual asset service providers in Chile:

1. Oversight Authority

The primary authority responsible for overseeing AML/CFT compliance for VASPs in Chile is the Unidad de Análisis Financiero (UAF), which is Chile's Financial Intelligence Unit (FIU).

• UAF Website: https://www.uaf.cl/

While the Comisión para el Mercado Financiero (CMF) (Commission for the Financial Market) oversees traditional financial institutions, it has not yet established a specific licensing or regulatory framework for virtual assets themselves as financial instruments. The CMF has, however, issued warnings about the risks associated with virtual assets and participates in discussions regarding their regulation.

• CMF Website: https://www.cmfchile.cl/

2. AML/CFT Legislation

The core AML/CFT framework in Chile for VASPs is based on the following:

• Ley N° 19.913, que Crea la Unidad de Análisis Financiero y Modifica Diversas Disposiciones en Materia de Lavado y Blanqueo de Activos (Law N° 19.913, which Creates the Financial Analysis Unit and Modifies Various Provisions Regarding Asset Laundering and Blanqueo de Activos): This is the main AML/CFT law in Chile, establishing the UAF and defining the framework for preventing and prosecuting money laundering and terrorist financing.
• UAF Circular N° 57 (Circular N°57 de la UAF): This is the most crucial piece of regulation for VASPs. Issued by the UAF, Circular N° 57 (published in October 2020) explicitly designates "Providers of Virtual Asset Services" (PSAV) as obligated entities under Law N° 19.913. This means VASPs must comply with all AML/CFT obligations applicable to other financial institutions.
• Other Relevant UAF Circulars:
  • Circular N° 49 de la UAF: Establishes general instructions on risk management and prevention of ML/FT for obligated entities, including policies, procedures, internal controls, and designated compliance officers.
  • Circular N° 50 de la UAF: Provides instructions for identifying Politically Exposed Persons (PEPs).
  • Circular N° 51 de la UAF: Establishes instructions regarding the detection and reporting of transactions related to terrorism financing and compliance with international sanctions lists.
  • Circular N° 52 de la UAF: Details instructions for conducting risk assessments for ML/FT.
  • Circular N° 58 de la UAF: Modifies and updates the instructions for reporting suspicious activities (ROS) and other information to the UAF.

3. Obligated Entities (VASPs)

UAF Circular N° 57 defines a "Provider of Virtual Asset Services" (PSAV/VASP) as any natural or legal person that, not being a financial entity regulated by the CMF, performs one or more of the following activities for or on behalf of another natural or legal person:

• Exchange between virtual assets and fiat currencies.
• Exchange between one or more forms of virtual assets.
• Transfer of virtual assets.
• Custody and/or administration of virtual assets or instruments enabling control over virtual assets.
• Participation and provision of financial services related to an issuer's offer and/or sale of a virtual asset.

This broad definition covers most cryptocurrency exchanges, wallet providers, custodian services, and potentially other crypto-related businesses operating in Chile.

4. Customer Due Diligence (CDD) Requirements

VASPs in Chile must implement a robust, risk-based CDD program as per UAF Circulars, particularly N° 49. Key requirements include:

• Identification and Verification:
  • Individuals: Obtain and verify identity (e.g., full name, ID number, date of birth, nationality, address, contact information) using reliable, independent source documents, data, or information.
  • Legal Entities: Obtain and verify legal form, name, address, contact information, legal representative(s), and information on beneficial ownership.
• Beneficial Ownership: Identify and verify the natural person(s) who ultimately own or control the customer, or the natural person(s) on whose behalf a transaction is being conducted.
• Purpose and Nature of Business Relationship: Understand the purpose and intended nature of the business relationship or transaction.
• Ongoing Monitoring: Continuously monitor the business relationship and transactions to ensure they are consistent with the VASP's knowledge of the customer, their business, and risk profile, including the source of funds.
• Politically Exposed Persons (PEPs): Implement enhanced due diligence (EDD) measures for PEPs, including obtaining senior management approval for establishing business relationships and taking reasonable measures to establish the source of wealth and source of funds.
• Risk-Based Approach: Apply CDD measures according to the level of risk associated with the customer, product, service, or geographic area. Higher risk scenarios require Enhanced Due Diligence (EDD).
• Source of Funds/Wealth: For high-risk customers or transactions, VASPs must take reasonable measures to establish the source of funds and, where appropriate, the source of wealth.

5. Suspicious Transaction Reporting (STR)

VASPs, as obligated entities, must report suspicious transactions to the UAF.

• Obligation to Report: VASPs are required to report any operation, transaction, business, or activity that they identify as unusual or suspicious, as well as any attempts to carry out such activities, regardless of the amount.
• What Constitutes Suspicion: Suspicion arises when a VASP's analysis, based on internal policies and the UAF's guidelines (e.g., red flags indicators), leads them to believe that funds may be linked to money laundering, terrorism financing, or other predicate offenses.
• Reporting Mechanism: Reports must be made through the UAF's official online platform, following the instructions provided in UAF Circular N° 58.
• No Tipping-Off: VASPs and their employees are prohibited from disclosing to the customer or third parties that a suspicious transaction report has been or will be filed.

6. Record-Keeping Obligations

VASPs must maintain comprehensive records to facilitate investigations and demonstrate compliance.

• Retention Period: All records related to customer identification, account files, business correspondence, and transaction data (including information on the origin and destination of funds/virtual assets) must be retained for a minimum of five (5) years from the date the business relationship ends or the transaction is executed.
• Types of Records: This includes, but is not limited to:
  • CDD documentation (identity documents, beneficial ownership information).
  • Records of all virtual asset transactions (amounts, dates, participants, wallet addresses).
  • Analysis and reasoning behind any decisions made regarding customer risk profiles.
  • Copies of all internal reports, STRs, and communications with the UAF.
  • Evidence of AML/CFT training provided to employees.

7. Other Key AML/CFT Obligations

Beyond CDD, STR, and record-keeping, VASPs must implement a comprehensive AML/CFT program that includes:

• Designated Compliance Officer: Appoint a high-level compliance officer responsible for the AML/CFT program, reporting directly to senior management.
• Internal Policies and Procedures: Develop and implement internal policies, procedures, and controls to prevent and detect ML/FT, tailored to the VASP's specific risks.
• Risk Assessment: Conduct regular ML/FT risk assessments of their customers, products, services, transactions, and delivery channels.
• Employee Training: Provide ongoing AML/CFT training to all relevant employees, ensuring they are aware of their obligations and how to identify and report suspicious activities.
• Internal Audit: Establish an independent audit function to periodically review and assess the effectiveness of the AML/CFT program.
• Sanctions Screening: Implement procedures to screen customers and transactions against national and international sanctions lists (e.g., UN, OFAC).

Conclusion

Chile, through the UAF, has established a clear and legally binding AML/CFT framework for Virtual Asset Service Providers. VASPs operating in Chile are fully obligated entities and must adhere to the same stringent standards as traditional financial institutions. While specific financial market licensing for virtual assets remains an area for potential future development by the CMF, the AML/CFT requirements are well-defined and actively enforced by the UAF.

Disclaimer: This information is for general guidance only and does not constitute legal advice. VASPs operating in Chile should consult with legal professionals specializing in Chilean AML/CFT law to ensure full compliance with all current and future regulations.