DeFi protocol frontend 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.

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.

AML/KYC (Anti-Money Laundering / Know Your Customer): This is the most certain requirement. Future regulations will mandate VASPs to:

Identify and verify customers (KYC).

Conduct ongoing customer due diligence.

Monitor transactions for suspicious activity.

Report suspicious transactions to FASU.

Implement robust risk-based AML/CTF programs.

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

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.

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.

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.

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.

Prohibition on Dealing: VASPs are prohibited from making funds or economic resources available to, or for the benefit of, designated persons or entities.

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.

Obligations: VASPs in PNG that engage in international transactions, particularly those involving US dollars or counterparties in the US/EU, should screen against:

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.

Outcome: The BPNG continues to monitor global developments and has expressed its intention to develop a comprehensive regulatory framework for digital assets. This includes exploring options for central bank digital currencies (CBDCs) and regulating private virtual assets. The current outcome is a state of active observation and policy formulation rather than direct enforcement.

Entity Targeted: General public, financial institutions, individuals considering or engaging with cryptocurrencies. Violation Type (Implied): Engaging in unauthorized financial activities; lack of consumer protection for speculative investments; potential for financial crime. Penalty Amount: N/A (This was a public warning, not an enforcement action with a specific penalty).