Marshall Islands -- Travel Rule Implementation Regulatory Overview

The Marshall Islands has adopted legislation to implement the FATF Travel Rule, primarily through the Financial Services Authority (Virtual Asset Service Providers) Act 2022.

Here's a breakdown of its status:

1. Adoption Status

• Adopted: Yes, the Marshall Islands has enacted specific legislation to regulate Virtual Asset Service Providers (VASPs) and incorporate FATF AML/CFT standards, including the Travel Rule.

2. Legislation and Effective Date

• Primary Legislation:

  • Financial Services Authority (Virtual Asset Service Providers) Act 2022: This Act establishes the regulatory framework for VASPs, requiring them to be licensed and subject to AML/CFT obligations. It explicitly addresses the Travel Rule requirements.
    • URL to MFSA Laws & Regulations page where the Act can be found (Scroll down to "Virtual Asset Service Providers Act 2022")
  • Anti-Money Laundering and Countering the Financing of Terrorism Act 2019: This is the overarching AML/CFT law that applies to all reporting entities, including VASPs under the new framework.
    • URL to MFSA Laws & Regulations page where the Act can be found (Scroll down to "Anti-Money Laundering and Countering the Financing of Terrorism Act 2019")

• Effective Date: The Virtual Asset Service Providers Act 2022 was assented to on September 26, 2022, and became effective on October 1, 2022, for licensing purposes. The AML/CFT obligations, including the Travel Rule, would have become applicable to licensed VASPs from that date or as regulations/guidance are issued.

3. Threshold Amounts

• The Virtual Asset Service Providers Act 2022, particularly Section 20 ("Transfer of virtual assets"), states that a VASP must "collect and retain the required originator and beneficiary information... in accordance with the FATF Recommendations and any applicable regulations issued by the Authority."
• This phrasing indicates an intention to align with the FATF standards. The FATF Travel Rule recommends thresholds of:
  • US$1,000 (or €1,000) for cross-border transfers.
  • US$3,000 (or €3,000) for domestic transfers.
• While the Act itself defers to "applicable regulations," it strongly implies these FATF standard thresholds would be adopted. However, specific RMI-issued regulations explicitly setting these thresholds for virtual assets may still be in development or integrated into broader AML/CFT guidance.

4. Which VASPs Are Covered

• The Virtual Asset Service Providers Act 2022 (Section 2 - Interpretation) defines "virtual asset service provider" broadly, aligning with FATF definitions, to include any natural or legal person who, as a business, 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; and
  • Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.
• The Act requires all such VASPs operating in or from the Marshall Islands to be licensed by the Marshall Islands Financial Services Authority (MFSA) and comply with the AML/CFT framework.

5. Technical Implementation Requirements

• Section 20 of the VASP Act 2022 mandates that a VASP must:
  • "collect and retain the required originator and beneficiary information in respect of any transfer of virtual assets, regardless of the value of the transfer..." (subject to the thresholds mentioned above as per FATF recommendations).
  • "provide the required originator and beneficiary information to the beneficiary VASP, if any."
• The Act does not prescribe specific technical protocols (e.g., TRISA, Sygna, etc.) for the transmission of this information. Instead, it defers to "regulations and guidance issued by the Authority." This allows the MFSA flexibility to adopt industry best practices or specific technologies as they evolve. As of late 2023/early 2024, specific technical guidance from the MFSA detailing these protocols has not been widely publicized.

6. Penalties for Non-Compliance

Penalties for non-compliance are outlined in both the VASP Act 2022 and the overarching AML/CFT Act 2019.

• Virtual Asset Service Providers Act 2022:

  • Section 28 (Offences): A VASP or person who fails to comply with any provision of the Act (e.g., licensing requirements, AML/CFT obligations including the Travel Rule) commits an offence.
    • Individuals: Liable on conviction to a fine not exceeding US$250,000 or imprisonment for a term not exceeding 5 years, or both.
    • Legal Persons (Companies): Liable on conviction to a fine not exceeding US$1,000,000.
  • The Act also provides for the revocation of licenses and other enforcement actions by the MFSA.

• Anti-Money Laundering and Countering the Financing of Terrorism Act 2019:

  • This Act details penalties for more severe offenses like money laundering and terrorist financing, which would apply if a VASP's non-compliance facilitated such crimes. Penalties can include substantial fines and lengthy imprisonment terms. For example:
    • Money Laundering (Section 4): Individuals can face imprisonment for up to 20 years and/or significant fines.
    • Terrorist Financing (Section 5): Similar severe penalties.
  • The MFSA also has powers to impose administrative penalties for breaches of AML/CFT requirements.

In summary: The Marshall Islands has the legislative framework in place (VASP Act 2022) to implement the FATF Travel Rule, making it a legal requirement for licensed VASPs. While the legal obligation is clear, specific regulatory guidance on operational details, including precise thresholds and technical protocols for information transfer, may still be developing or has not been broadly published by the MFSA.