Crypto-funded debit card in Guernsey

The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2017 (as amended): These Regulations provide the detailed requirements for financial services businesses (which include VASPs for AML/CFT purposes) concerning customer due diligence, record-keeping, and internal controls.

The Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing (the AML/CFT Handbook): Issued by the GFSC, this handbook provides detailed guidance and specific requirements for regulated entities, including a dedicated section on Virtual Assets and VASPs (typically Section 11). This is where the operational details of the Travel Rule are explained.

Risk-Based Approach (RBA): VASPs must assess the money laundering and terrorist financing risks associated with their business, customers, products, services, and geographic areas. This assessment dictates the level of CDD applied. Virtual assets and related services are generally considered to carry higher inherent risks.

Standard CDD: For all customers, VASPs must:

Identify the Customer: Obtain proof of identity (e.g., passport, national ID card for individuals; incorporation documents, registers for legal entities).

Verify the Customer's Identity: Use reliable, independent source documents, data, or information. For individuals, this often involves documentary evidence and potentially non-documentary methods. For legal entities, verification of existence and legal form.

Identify the Beneficial Owner (BO): For legal persons or arrangements, identify and verify the identity of the natural person(s) who ultimately own or control the customer (typically 25% ownership threshold, or control via other means).

Understand the Purpose and Intended Nature of the Business Relationship: Gather information about why the customer wants to use the VASP's services and the expected activity levels.

Collect Source of Funds/Wealth Information: Understand where the customer's funds/virtual assets originate from.

Enhanced Due Diligence (EDD): EDD is required in situations where there is a higher risk of ML/TF. This includes, but is not limited to:

Politically Exposed Persons (PEPs).

Customers from high-risk jurisdictions.

Complex or unusually large transactions.

Transactions with no obvious economic or lawful purpose.

Non-face-to-face business relationships without additional safeguards.

Specific virtual asset activities or types that inherently carry higher risk.

EDD measures may involve obtaining additional information, increased monitoring, requiring senior management approval, or independently verifying information.

Simplified Due Diligence (SDD): SDD may be applied in specific, clearly defined low-risk scenarios (e.g., certain regulated financial institutions), but VASPs must be cautious and justify its application.

Ongoing Monitoring: VASPs must continuously monitor customer relationships and transactions to ensure they are consistent with the VASP's knowledge of the customer, their business, and risk profile. Any significant changes in customer behaviour or circumstances must trigger a review of CDD.

Sanctions Screening: All customers and transactions must be screened against applicable sanctions lists (e.g., UN, UK, EU, Guernsey).

Obligation to Report: VASPs have a legal obligation to report any knowledge, suspicion, or reasonable grounds for suspicion of money laundering or terrorist financing to the Financial Intelligence Unit (FIU). This includes attempts to launder money or finance terrorism.

No Tipping-Off: It is an offence to "tip-off" a customer or any third party that a suspicious transaction report has been or will be made.

Internal Reporting: VASPs must have internal procedures for employees to report suspicions to a designated Money Laundering Reporting Officer (MLRO) or Deputy MLRO. The MLRO is then responsible for evaluating the internal report and deciding whether to file an STR with the FIU.

Broader Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) deficiencies: These actions are usually against regulated financial services businesses (e.g., fiduciaries, banks, investment firms) for systemic failures in their AML/CFT frameworks, rather than specifically for engaging in or facilitating cryptocurrency transactions improperly. While these failures could indirectly impact virtual asset activities if the entities were involved, the enforcement isn't explicitly "crypto-focused."

Governance and operational failings: Breaches of regulatory principles, corporate governance, or data protection rules.

Unlicensed activity: The GFSC has a licensing regime for Virtual Asset Service Providers (VASPs). Enforcement might occur for operating without a license, but public records don't typically detail large fines specifically for this in recent years.