On-shore VASP 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 individuals: Full name, date and place of birth, citizenship, residential address, identification document details (e.g., passport, national ID number). Verification through reliable, independent sources (e.g., government-issued documents, utility bills).

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.

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:

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.

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.

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).

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.

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

Potential Penalties: These typically include:

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.

Virtual Asset Operators (Exchanges): Crypto exchanges operating in Kyrgyzstan are subject to a turnover tax of 0.1% on the volume of transactions they facilitate. This tax is specifically for their services related to the exchange of virtual assets.

Rate: Gains derived from the sale of virtual assets by individuals are likely treated as "other income" and are subject to the Individual Income Tax rate of 10%.

Kyrgyzstan Specifics: For licensed virtual asset operators (exchanges), the introduction of the 0.1% turnover tax on their transaction volume appears to be a specific tax regime that likely replaces or exempts them from standard VAT obligations on their core crypto exchange services.

Registration: Entities engaged in virtual asset activities (exchanges, mining farms) must register with the State Tax Service and other relevant regulatory bodies.

Virtual Asset Operators: Must submit regular tax declarations for the 0.1% turnover tax on virtual asset transactions.

State Tax Service under the Ministry of Finance of the Kyrgyz Republic (Государственная налоговая служба при Министерстве финансов Кыргызской Республики):

Regulator/Enforcing Agency: State Committee for National Security (SCNS, known as GKNB in Russian), Ministry of Internal Affairs (MVD), in cooperation with national energy companies (e.g., National Energy Holding).

December 2023: SCNS reported neutralizing a large illegal crypto mining farm in Bishkek operating in an abandoned factory.

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)