On-shore VASP in Marshall Islands

Define "digital assets" and "virtual asset service providers" (VASPs).

Establish a licensing regime for VASPs.

Impose Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) obligations on VASPs.

Empower the MIIFSA to regulate and supervise the virtual asset sector.

Legal Entity: The applicant must be a properly incorporated legal entity in the Marshall Islands (e.g., an International Business Company or similar).

The Digital Assets Act generally requires VASPs to maintain adequate capital commensurate with the nature, scale, and complexity of their operations and the risks they undertake.

Specific minimum capital thresholds are typically set out in subsidiary regulations issued by the MIIFSA. These are designed to ensure financial stability and protect consumers. You would need to consult the latest MIIFSA guidance for exact figures.

This is a cornerstone requirement. VASPs must implement robust Anti-Money Laundering (AML) and Know Your Customer (KYC) policies and procedures.

These must align with the Marshall Islands Anti-Money Laundering and Counter-Financing of Terrorism Act and international FATF standards.

Customer due diligence (CDD) and enhanced CDD (EDD) for higher-risk clients.

Ongoing monitoring of transactions.

Reporting of suspicious transactions (STRs) to the Financial Intelligence Unit (FIU).

Appointment of a qualified Compliance Officer and a Money Laundering Reporting Officer (MLRO).

While MI companies can be administered by a registered agent, a licensed VASP will likely require more substantial local presence. This can include:

A registered office in the Marshall Islands.

A registered agent who is authorized to act on behalf of the company.

Potentially, a requirement for local management or key personnel, or at least clear lines of communication and control demonstrable to MIIFSA. The degree of local operational presence can depend on the scale and nature of the proposed activities.

Fit and Proper Persons: All directors, senior management, shareholders, and beneficial owners must undergo a "fit and proper" assessment. This includes background checks for criminal records, financial solvency, and professional competence.

Technology & Security: Robust cybersecurity frameworks, data protection measures, and secure operational procedures are essential to protect virtual assets and customer data. This includes audit trails, disaster recovery plans, and business continuity plans.

Anti-Money Laundering and Counter-Terrorism Financing Act 2018 (AML/CTF Act 2018): This Act forms the cornerstone of the RMI's regulatory regime. It mandates financial institutions, including VASPs, to implement robust AML/CTF programs, which explicitly cover sanctions compliance.

Financial Intelligence Unit Act 2006 (as amended): Establishes the RMI Financial Intelligence Unit (FIU), which is the primary body responsible for receiving, analyzing, and disseminating financial intelligence related to money laundering, terrorism financing, and other serious offenses, including sanctions violations.

UN Sanctions Compliance:

As a member state of the United Nations, the RMI is obligated to implement sanctions resolutions passed by the UN Security Council (UNSC).

The AML/CTF Act 2018 explicitly mandates compliance with UN sanctions. This means VASPs must screen against the UNSC Consolidated List, which includes individuals and entities designated under various UN sanctions regimes (e.g., related to terrorism, proliferation, specific countries like North Korea, Iran, etc.).

VASPs must freeze assets of sanctioned individuals/entities and report such findings to the FIU.

OFAC Sanctions Compliance:

Due to the Compact of Free Association (COFA) with the United States, the RMI's financial sector is heavily influenced by US regulations. While OFAC sanctions are primarily US law, their practical effect and the RMI's alignment with international best practices mean that compliance with OFAC (Office of Foreign Assets Control) sanctions is a critical requirement for VASPs.

Practical Necessity: Any VASP transacting in USD, dealing with US persons or entities, or having any nexus to the US financial system (e.g., through correspondent banking relationships, cloud providers, software vendors) must comply with OFAC sanctions to avoid secondary sanctions or blocking by US financial institutions.

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.

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.

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."

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."

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.

Limited Public Enforcement Record: The Marshall Islands is a smaller jurisdiction. While it has laws related to financial activities and anti-money laundering (AML) / combating the financing of terrorism (CFT), and has even explored innovative digital asset legislation (like the controversial Digital Assets Act of 2018 to create a sovereign digital currency, the SOV, which has largely stalled due to international pressure), its financial regulatory bodies do not have a robust public record of enforcement actions, particularly for complex and high-profile cryptocurrency cases, in the same way major financial hubs (like the US, UK, or EU) do.

Role as a Corporate Registry: Many cryptocurrency companies choose to incorporate in the Marshall Islands due to its flexible corporate registry (the Marshall Islands Trust Company Complex, or RMI-TCC). However, their primary operations and therefore primary regulatory oversight and enforcement actions often come from the jurisdictions where they primarily conduct business or where their customers are located, rather than from the RMI itself. For example, a company registered in RMI might face enforcement from the U.S. SEC or DOJ for activities impacting U.S. persons.