Lesotho -- Travel Rule Implementation Regulatory Overview

Lesotho has made significant strides in implementing the FATF Travel Rule requirements by integrating Virtual Asset Service Providers (VASPs) and virtual assets (VAs) into its existing Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework.

The primary legislative instrument for this is the Money Laundering and Proceeds of Crime (Amendment) Act, 2022.

Here's a breakdown of the implementation status:

1. Whether Adopted

• Adopted: Yes, Lesotho has adopted the FATF Travel Rule by amending its principal AML/CFT legislation to include virtual assets and VASPs. The Money Laundering and Proceeds of Crime (Amendment) Act, 2022 effectively brought VASPs under the regulatory scope of financial institutions, subjecting them to the same AML/CFT obligations, including those related to wire transfers which encompass the Travel Rule.
• The Central Bank of Lesotho is the primary regulator for financial institutions and is responsible for overseeing compliance.

2. Effective Date

• Effective Date: The Money Laundering and Proceeds of Crime (Amendment) Act, 2022, was assented to on 14th July 2022. This is the date from which the provisions relating to virtual assets and VASPs became law.

3. Threshold Amounts

• Lesotho's AML/CFT framework, as updated, generally requires financial institutions (now including VASPs) to conduct Customer Due Diligence (CDD) and collect originator and beneficiary information for transactions above specific thresholds.
• While the specific "Travel Rule" threshold (e.g., USD/EUR 1,000 for cross-border transfers as per FATF guidance) may not be explicitly stated in the Amendment Act itself for VA transfers, the general requirements for "wire transfers" and "electronic funds transfers" apply.
• For identifying information and CDD: The principal Money Laundering and Proceeds of Crime Act, 2008 (and its amendments) generally sets thresholds for identification and verification for transactions exceeding M20,000 (approximately USD 1,000 - 1,100 depending on exchange rates) or equivalent in foreign currency. This threshold is typically applied for triggering enhanced CDD and transaction monitoring requirements.
• It's generally understood that for cross-border virtual asset transfers, the FATF-recommended threshold of USD/EUR 1,000 (or local currency equivalent) for the collection of originator and beneficiary information would apply implicitly, as VASPs are now treated akin to other financial institutions involved in fund transfers.

4. Which VASPs Are Covered

The Money Laundering and Proceeds of Crime (Amendment) Act, 2022, defines "virtual asset service provider" broadly to cover entities that conduct any 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.

This definition aligns with the FATF's scope for VASPs, ensuring comprehensive coverage of entities operating in the virtual asset space.

5. Technical Implementation Requirements

• The legislation mandates that VASPs, as reporting institutions, must establish and maintain systems and controls to comply with AML/CFT obligations, including those related to the Travel Rule. This includes:
  • Collecting required information: Originator (sender) and beneficiary (receiver) information for VA transfers.
  • Storing information: Securely retaining this information for a specified period (typically 5-7 years).
  • Transmitting information: Ensuring the required information travels with the virtual asset transfer, or is made available to the beneficiary VASP upon request.
  • Risk assessment: Developing and implementing a risk-based approach to identify, assess, and mitigate ML/TF risks.
  • Reporting: Reporting suspicious transactions to the Financial Intelligence Unit (FIU) of Lesotho.
• The Act itself does not specify particular technological solutions (e.g., specific protocols or software). Instead, it sets the requirement for VASPs to have systems in place that enable them to meet these obligations. VASPs are expected to adopt technology solutions that facilitate the secure, efficient, and compliant exchange of information.

6. Penalties for Non-Compliance

The Money Laundering and Proceeds of Crime Act, 2008 (as amended), stipulates severe penalties for non-compliance with its provisions, including for VASPs. Penalties can vary depending on the nature and severity of the offence and whether it's committed by an individual or a body corporate.

• Individuals: Imprisonment for a term of up to 10 years and/or substantial fines.
• Body Corporates (VASPs): Significant monetary penalties, which can run into millions of Maloti, and can also lead to the revocation of licenses or operating permits.
• Specific offences related to failure to report suspicious transactions, failure to keep records, or failure to implement proper AML/CFT controls carry their own set of penalties as outlined in the Act.

References and URLs:

• Money Laundering and Proceeds of Crime (Amendment) Act, 2022: While a direct official government gazette URL can be difficult to maintain, the Act's full text can often be found through legal databases or by searching "Lesotho Money Laundering and Proceeds of Crime (Amendment) Act, 2022 pdf".
• Money Laundering and Proceeds of Crime Act, 2008 (Principal Act): This act forms the basis of Lesotho's AML/CFT framework.
• Central Bank of Lesotho: As the regulator, the CBL's website would be the primary source for any implementing regulations or guidance related to VASPs.
  • Central Bank of Lesotho Official Website: https://www.centralbank.org.ls/
  • You might find relevant directives or circulars under their "Publications" or "Legislation" sections.

Lesotho's adoption of these amendments demonstrates its commitment to aligning with international AML/CFT standards, particularly those related to virtual assets and the FATF Travel Rule.