Crypto-funded debit card in Papua New Guinea

Bank of Papua New Guinea (BPNG): BPNG has previously issued warnings to the public regarding the risks associated with cryptocurrencies, including volatility, lack of consumer protection, and potential use for illicit activities. These warnings do not constitute a regulatory framework but indicate a cautious approach.

Financial Analysis and Supervision Unit (FASU): As the AML/CTF regulator, FASU is responsible for ensuring compliance with the Anti-Money Laundering and Counter Terrorist Financing Act 2015. While VASPs are not explicitly listed as "reporting entities" under this Act yet, the FATF standards imply that they should be.

Cryptocurrency Exchanges: Would fall into this gap. If a business sought to offer traditional securities exchange services, it would require licenses under the Securities Commission of Papua New Guinea (if established for this purpose) or relevant financial market laws. However, crypto assets are not typically classified as securities under existing PNG law.

Payment Processors: While payment services generally require licensing under BPNG (e.g., National Payment Systems Act 2013), this applies to fiat currency payments and remittances. Processing crypto-to-crypto or crypto-to-fiat payments without being a licensed traditional financial institution operating in fiat would be in a grey area.

Currently, neither a specific registration nor a licensing regime exists for VASPs.

Anticipated Future: Based on FATF recommendations, it is highly probable that PNG will eventually adopt a licensing regime for VASPs. The FATF standards recommend that VASPs be licensed or registered, and subject to effective systems for monitoring and ensuring compliance with AML/CTF requirements. Licensing typically implies a more rigorous pre-approval process and ongoing supervision than simple registration.

Local Presence: For foreign entities, a local physical presence, a local board of directors, or a local registered company structure is often a requirement for financial licenses.

Most Likely: E-money/Payment Tokens: Given the purpose of stablecoins to maintain a stable value for transactions, they would most likely be classified as a form of e-money or payment tokens under the National Payment System Act 2013 and the National Payment System Regulations 2021.

1:1 Backing: The issuer must hold an equivalent amount of fiat currency (or highly liquid, low-risk assets) corresponding to the value of e-money in circulation.

Safeguarding and Segregation: These reserves must be held in segregated accounts with a licensed financial institution (e.g., a commercial bank licensed by BPNG) to protect customer funds in case of the issuer's insolvency.

Any entity wishing to issue a stablecoin that falls under the definition of e-money or operates a payment system would need to be licensed and regulated by the Bank of Papua New Guinea.

Under the National Payment System Act 2013, entities providing payment services, including e-money issuance, are typically required to obtain a Payment Service Provider (PSP) license from BPNG. This involves stringent application processes, meeting capital requirements, demonstrating robust governance, risk management, and compliance with Anti-Money Laundering/Counter-Terrorist Financing (AML/CTF) regulations.

Consistent with international best practices for e-money and payment tokens, if stablecoins are classified as e-money in PNG, users would likely have redemption rights. This means the issuer would be obligated to redeem the stablecoin for its underlying fiat currency at par value upon request by the holder, subject to reasonable terms and conditions (e.g., fees, notice periods).

Anti-Money Laundering and Counter Terrorist Financing Act 2015 (AML/CTF Act 2015): This Act provides the legal basis for identifying, freezing, and confiscating assets related to money laundering and terrorist financing. It obligates financial institutions and designated non-financial businesses and professions (DNFBPs) to implement AML/CTF measures. While it pre-dates specific crypto regulation, its broad definitions and principles are applied to virtual asset activities where deemed appropriate by regulators.

Financial Analysis and Supervision Unit (FASU): As the FIU, FASU issues guidance, receives suspicious transaction reports (STRs), and disseminates information regarding designated persons and entities subject to sanctions.

Obligations for VASPs (or entities providing similar services):

Designated Person/Entity Screening: VASPs must screen their customers (both at onboarding and on an ongoing basis) against the UN Consolidated Sanctions List, which includes individuals and entities designated under various UN sanctions regimes (e.g., terrorism, proliferation, specific country regimes).

Asset Freezing: If a VASP identifies that it holds assets (including virtual assets) belonging to a designated person or entity, it must immediately freeze those assets and report the match to FASU.

Suspicious Transaction Reporting (STR): Any transaction involving designated persons, or transactions suspected of being related to money laundering or terrorist financing, must be reported to FASU.

Extraterritorial Reach: OFAC and EU sanctions can have extraterritorial effects, particularly if transactions involve:

Correspondent Banking Relationships: PNG financial institutions (and potentially VASPs dealing with them) rely on correspondent banking relationships with US and European banks, which impose their own OFAC/EU compliance requirements.

Bank of Papua New Guinea - Public Notice on Digital Currencies, Virtual Assets and Cryptocurrencies (PDF)

Outcome: The BPNG clarified that cryptocurrencies are not legal tender in PNG. They highlighted risks such as volatility, lack of regulation, potential for scams, and use in illicit activities. The statement advised the public to exercise caution and warned that losses would not be protected by PNG laws. It also indicated the BPNG's intention to develop appropriate regulations for digital assets in the future. This warning has generally underpinned the BPNG's ongoing stance.

PNG does not impose a general Capital Gains Tax.

Gains from the sale of assets, including virtual assets, are generally not taxable unless they are considered to be:

Income from Business Activities: If an individual or entity is regularly trading cryptocurrency, mining crypto as a business, operating a crypto exchange, or providing services in exchange for crypto, the profits derived would be considered assessable income.

Identify and verify customers (KYC).

Conduct ongoing customer due diligence.

Monitor transactions for suspicious activity.

Report suspicious transactions to FASU.

Adhere to the "travel rule" for VA transfers, requiring information sharing between VASPs.

Implement robust risk-based AML/CTF programs.