Micronesia -- Travel Rule Implementation Regulatory Overview

The Federated States of Micronesia (FSM) has made efforts to align its Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) framework with the Financial Action Task Force (FATF) recommendations, including those pertaining to virtual assets (VAs) and Virtual Asset Service Providers (VASPs), which encompass the "Travel Rule."

Here's a breakdown of the status:

1. Adopted

Yes, FSM has adopted legislative measures to cover virtual assets and VASPs under its AML/CFT regime, thereby encompassing the principles of the FATF Travel Rule.

• Legal Basis: The FSM enacted the Anti-Money Laundering and Counter-Terrorist Financing Act 2011 (as amended 2020). The 2020 amendments were specifically introduced to address FATF Recommendations on VAs and VASPs, including the Travel Rule obligations. This amendment requires VASPs to register, be licensed, and comply with AML/CFT obligations.
• Source:
  • Asia/Pacific Group on Money Laundering (APG) Enhanced Follow-Up Report & Technical Compliance Re-Rating - Federated States of Micronesia (July 2022). Specifically, pages 21-23 regarding Recommendations 15 (New Technologies) and 16 (Wire Transfers).
  • Link to APG Report (PDF) (Look for "Enhanced Follow-Up Report & Technical Compliance Re-Rating - Federated States of Micronesia (July 2022)")

2. Effective Date

The relevant provisions addressing virtual assets and VASPs, including the Travel Rule obligations, came into effect with the 2020 amendments to the AML/CFT Act 2011.

3. Threshold Amounts

FSM's AML/CFT framework applies the FATF-recommended thresholds for the Travel Rule:

• For cross-border transfers: The Travel Rule information must be collected and transmitted for transactions equivalent to USD 1,000 or more.
• For domestic transfers: The Travel Rule information must be collected and transmitted for transactions equivalent to USD 3,000 or more.
• Source: APG Enhanced Follow-Up Report (July 2022), page 23.

4. Which VASPs Are Covered

The FSM AML/CFT Act, as amended, defines and covers Virtual Asset Service Providers (VASPs) broadly in line with FATF definitions. This includes any natural or legal person that conducts one or more of the following activities or operations 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.
• Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets.
• Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.

This broad definition ensures that entities performing these services are subject to AML/CFT obligations, including the Travel Rule.

• Source: APG Enhanced Follow-Up Report (July 2022), page 21.

5. Technical Implementation Requirements

While the legal framework is in place, the practical and technical implementation across all VASPs in FSM is likely still maturing. The FSM Banking Commission, as the supervisory authority, is responsible for overseeing VASP compliance.

Key requirements for VASPs under the Travel Rule include:

• Originator Information: VASPs must obtain and hold the originator's name, originator's account number (or unique transaction identifier), and the originator's physical address (or national identity number, customer identification number, or date and place of birth).

• Beneficiary Information: VASPs must obtain and hold the beneficiary's name and the beneficiary's account number (or unique transaction identifier).

• Transmission: Originating VASPs must transmit this information to the beneficiary VASP. Beneficiary VASPs must receive and hold this information.

• Record Keeping: VASPs are required to keep records of this information for a specified period (typically 5 years).

• Lack of Specific Technical Mandates (Currently): The FSM legislation likely mandates the collection and transmission of data but doesn't prescribe a specific technical solution (e.g., TRISA, Shyft, OpenVASP, etc.). VASPs are generally expected to use a secure and compliant method.

• Ongoing Development: The APG report indicates that the FSM Banking Commission was in the process of developing a VASP Code of Practice at the time of the report (July 2022), which would further detail practical guidance for compliance.

• Source: APG Enhanced Follow-Up Report (July 2022), pages 22-23.

6. Penalties for Non-Compliance

The FSM AML/CFT Act 2011 (as amended 2020) provides for penalties for non-compliance with its provisions, including those related to record-keeping, reporting, and other AML/CFT obligations relevant to the Travel Rule. While the specific monetary fines or imprisonment terms for Travel Rule non-compliance are embedded within the broader AML/CFT penalty framework, they generally include:

• Fines: Significant monetary penalties for institutions and individuals.
• Imprisonment: For serious breaches or willful negligence/participation in money laundering/terrorist financing.
• License Revocation/Suspension: VASPs failing to comply may have their registration or license suspended or revoked, effectively preventing them from operating.
• Supervisory Actions: The FSM Banking Commission can impose various administrative sanctions and remedial actions.

These penalties are designed to deter non-compliance and ensure adherence to the AML/CFT framework.

• Source: General knowledge of AML/CFT legislation and implied from the APG report's assessment of FSM's overall AML/CFT framework effectiveness and sanctions regime (though not specifically itemized for Travel Rule in the provided excerpt). Accessing the full FSM AML/CFT Act 2011 (as amended 2020) would provide precise details. Finding an online, publicly accessible version of the consolidated FSM AML/CFT Act with 2020 amendments can be challenging for smaller jurisdictions.