Custodial wallet / SaaS in Kyrgyzstan

Law of the Kyrgyz Republic on Combating the Financing of Terrorism and Legalization (Laundering) of Criminal Proceeds (No. 87, dated July 25, 2011, with subsequent amendments). This law establishes the legal and organizational framework for AML/CFT, defines the obligations of reporting entities, and outlines the role of the financial intelligence unit.

Identification and Verification:

For legal entities: Full name, legal form, registration number, legal address, tax identification number (TIN), details of beneficial owners, directors, and authorized signatories. Verification through company registration documents, articles of association, and public registries.

Beneficial Ownership Identification: VASPs must identify and take reasonable measures to verify the identity of the beneficial owner(s) of the customer, including those who ultimately own or control the customer, or the person on whose behalf a transaction is being conducted. Thresholds (e.g., 25% ownership or control) typically apply.

Purpose and Intended Nature of Business Relationship: Understanding the purpose and intended nature of the business relationship (e.g., why the customer is using virtual assets, expected transaction volumes and types).

Ongoing Monitoring: Continuously monitoring the business relationship and transactions to ensure that they are consistent with the VASP's knowledge of the customer, their business, and risk profile, including, where necessary, the source of funds.

Risk-Based Approach: VASPs must adopt a risk-based approach to CDD. This means applying enhanced due diligence (EDD) for higher-risk customers (e.g., Politically Exposed Persons (PEPs), customers from high-risk jurisdictions, complex structures, large transactions) and simplified due diligence (SDD) for lower-risk scenarios where permitted.

Obligation to Report: If a VASP has grounds to suspect that funds or other property, regardless of the amount, are related to the financing of terrorism or legalization (laundering) of criminal proceeds, it must immediately report such suspicions.

No Tipping-Off: VASPs and their employees are prohibited from disclosing to the customer or third parties that a suspicious transaction report (STR) has been filed, or that an investigation into money laundering or terrorist financing is being conducted.

Timelines: Reports should typically be filed "without delay" after the suspicion arises.

Customer Identification Data: Records of all documents obtained during CDD, including identification and verification information, beneficial ownership details, and account details.

Transaction Records: Records of all transactions conducted, including amounts, types of virtual assets, dates, sender and recipient information, and any associated messages or instructions.

Analysis of Complex/Unusual Transactions: Records of any internal findings, analysis, or documentation related to complex, unusual, large, or high-risk transactions.

Retention Period: Records must generally be kept for a minimum period of five years from the date of the transaction or the termination of the business relationship.

The State Service for Financial Intelligence (SSFI) under the Ministry of Finance of the Kyrgyz Republic.

Role: The SSFI acts as Kyrgyzstan's Financial Intelligence Unit (FIU). It is responsible for receiving, analyzing, and disseminating suspicious transaction reports to law enforcement agencies, as well as for developing and implementing AML/CFT policies and overseeing compliance by reporting entities.

Evolving Landscape: The regulatory landscape for virtual assets is constantly evolving globally and in Kyrgyzstan. VASPs should monitor for any new specific laws, regulations, or guidance related to cryptocurrencies issued by the SSFI or the National Bank of the Kyrgyz Republic.

National Bank of the Kyrgyz Republic (NBKR): While the SSFI is the primary AML/CFT supervisor, the NBKR also plays a crucial role in maintaining financial stability and overseeing the financial sector. The NBKR has historically issued warnings regarding the risks of cryptocurrencies. Any future comprehensive regulatory framework for VASPs might involve the NBKR, especially if virtual assets are classified as financial instruments or securities.

FATF Standards: Adherence to FATF recommendations is paramount. VASPs should ensure their compliance programs are aligned with the latest FATF guidance on virtual assets.

Adopted: Yes, Kyrgyzstan adopted legislation to regulate virtual assets and include VASPs within its AML/CFT framework.

Key Legislation: The primary law is the Law of the Kyrgyz Republic No. 200 "On the Turnover of Virtual Assets" dated August 10, 2022. This law provides the legal basis for the regulation of virtual assets and designates VASPs as obliged entities for AML/CFT purposes.

Effective Date: The Law No. 200 became effective shortly after its promulgation in August 2022. This integration means VASPs are now subject to the broader AML/CFT legislation of Kyrgyzstan, including reporting requirements.

While Law No. 200 designates VASPs as obliged entities, the specific threshold amounts for the FATF Travel Rule (i.e., the requirement to transmit originator and beneficiary information) are typically set by the overarching AML/CFT law or secondary regulations/guidance from the Financial Intelligence Unit (FIU).

FATF Standard Threshold: The FATF Travel Rule generally applies to virtual asset transfers (transactions) exceeding USD/EUR 1,000 (or its equivalent in virtual assets) for cross-border transfers and USD/EUR 1,000 (or its equivalent) if the transaction is domestic and not part of a pre-existing business relationship where the customer has been verified. For unhosted wallets, the guidance usually suggests due diligence for transactions above a certain threshold (e.g., USD/EUR 1,000), but the Travel Rule itself focuses on VASP-to-VASP transfers.

Local Application: It is expected that Kyrgyzstan's FIU (the State Financial Intelligence Service under the Government of the Kyrgyz Republic - ГСФР при Правительстве Кыргызской Республики) will issue specific guidance or regulations that either explicitly adopt these FATF thresholds or define their own equivalent based on the national AML/CFT law.

The Law No. 200 "On the Turnover of Virtual Assets" broadly defines and covers entities engaged in activities related to virtual assets. It defines a "Virtual Asset Service Provider" (VASP) as a legal entity carrying out one or more of the following activities for or on behalf of another natural or legal person:

Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets.

This comprehensive definition aligns with FATF recommendations, ensuring that most relevant crypto businesses are covered.

Core Requirement: VASPs in Kyrgyzstan are required to obtain, hold, and transmit required originator (sender) and beneficiary (receiver) information for virtual asset transfers that meet the specified thresholds.

Information Required (FATF Standard):

Originator Information: Name, account number (or unique transaction identifier), physical address, national identity number, customer identification number, or date and place of birth.

Beneficiary Information: Name, account number (or unique transaction identifier).

Implementation: VASPs are expected to adopt robust technical solutions and protocols (e.g., using Travel Rule solution providers like TRISA, Sygna, Veriscope, etc.) to securely transmit this information to other VASPs involved in a transaction.

Data Security and Privacy: Implementation must comply with data protection and privacy laws in Kyrgyzstan, ensuring secure handling and storage of sensitive customer data.

Record-keeping: VASPs must maintain records of all required information for a period specified by national AML/CFT laws (typically 5-7 years).

Non-compliance with AML/CFT obligations, including those related to the Travel Rule, generally falls under the existing national legislation on combating the legalization (laundering) of criminal proceeds and the financing of terrorism.

Administrative Fines: Significant monetary penalties for legal entities and responsible officials.

Suspension or Revocation of Licenses: The licensing authority (which is expected to be the State Service for Regulation and Supervision of the Financial Market under the Government of the Kyrgyz Republic or a similar body) can suspend or revoke a VASP's operating license.

Entity Targeted: Organizers and promoters of the "S-Group" financial pyramid scheme. Violation Type: Fraud, establishment of a financial pyramid, illegal enrichment. The scheme falsely promised high returns from investments in various "projects," including crypto trading. Penalty Amount: No single "fine" amount specified as it's a criminal case. The goal is asset seizure and restitution to victims. The estimated damage to victims was substantial, reaching billions of KGS. Organizers face criminal charges, which can lead to imprisonment.

Regulator Name: National Bank of the Kyrgyz Republic (NBKR)

Entity Targeted: The general public, financial institutions, and potential investors. Violation Type: N/A (warnings are preventative, not punitive). The NBKR warns against the risks associated with cryptocurrency, including high volatility, fraud, and the lack of legal tender status. They also emphasize that transactions using crypto are not regulated under Kyrgyz law, except for a specific license requirement for crypto-exchange activities. Penalty Amount: N/A (no direct penalty for warnings).