Puerto Rico -- Travel Rule Implementation Regulatory Overview

Puerto Rico, as a territory of the United States, falls under the regulatory framework of the U.S. federal government, particularly the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN). FinCEN has clarified that its existing Bank Secrecy Act (BSA) regulations, including the "Travel Rule," apply to convertible virtual currency (CVC) transactions conducted by Virtual Asset Service Providers (VASPs).

Here's a breakdown of the status of the FATF Travel Rule implementation in Puerto Rico:

1. Whether Adopted: The U.S. (and by extension, Puerto Rico) has adopted the principles of the FATF Travel Rule for virtual assets through FinCEN's interpretation and application of existing Bank Secrecy Act (BSA) regulations. FinCEN has clarified that businesses dealing in CVCs that meet the definition of a "money transmitter" are subject to the same AML/CFT obligations as traditional financial institutions, including the BSA Travel Rule.

2. Effective Date: While the underlying BSA Travel Rule (31 CFR § 1010.410(f)) has been in effect for decades, FinCEN provided specific guidance on its application to CVCs in May 2019 and further clarified expectations in October 2020. These guidances essentially made the Travel Rule effective for CVC transactions as of their publication dates, with FinCEN expecting good-faith efforts towards compliance.

   • FinCEN Guidance (May 2019): Application of FinCEN's Regulations to Certain Business Models Involving Convertible Virtual Currencies (FIN-2019-A003)
     • URL: https://www.fincen.gov/resources/statutes-regulations/guidance/application-fincens-regulations-certain-business-models
   • FinCEN Advisory (October 2020): Advisory on Illicit Activity Involving Convertible Virtual Currency (FIN-2020-A005)
     • URL: https://www.fincen.gov/resources/advisories/fincen-advisory-fincen-advisory-illicit-activity-involving-convertible

3. Threshold Amounts: FinCEN applies the existing BSA Travel Rule threshold for funds transfers to CVC transactions. This means:

   • For transfers between financial institutions (VASPs), the Travel Rule requires the transmittal of specific originator and beneficiary information for transactions greater than $3,000.
   • FinCEN has also clarified that for transactions involving a VASP and an unhosted wallet (or person-to-person transfer), additional record-keeping requirements apply for transactions greater than $3,000.

4. Which VASPs Are Covered: FinCEN's regulations cover any entity that acts as a "money transmitter" with respect to CVCs. This broadly includes:

   • Exchangers: Businesses that accept and transmit convertible virtual currency or buy and sell CVC for fiat currency or other CVCs.
   • Administrators: Businesses that put CVC into circulation and have the authority to redeem it.
   • Essentially, any business that provides services for transferring or exchanging virtual assets on behalf of a customer, similar to the FATF's definition of a VASP. This includes exchanges, brokers, and certain wallet providers.

5. Technical Implementation Requirements: FinCEN has not mandated a specific technical solution for Travel Rule compliance for CVCs. Instead, it expects VASPs to comply with the information sharing requirements using secure and reliable methods. This leaves the choice of specific technical solutions (such as TRISA, OpenVASP, Sygna, Travel Rule Universal Protocol (TRUP), etc.) to the industry. The key is that the required information must be collected, stored, and transmitted accurately and securely to the beneficiary institution.

6. Penalties for Non-Compliance: Non-compliance with FinCEN regulations, including the BSA Travel Rule, can result in severe penalties, both civil and criminal. These can include:

   • Civil Monetary Penalties: Fines of thousands or even millions of dollars, depending on the nature and severity of the violation.
   • Criminal Penalties: For willful violations, individuals and entities can face imprisonment and substantial criminal fines.
   • Enforcement Actions: Consent orders, cease-and-desist orders, and other regulatory actions that can restrict a VASP's operations.

   The Office of the Commissioner of Financial Institutions (OCFI) in Puerto Rico, while primarily regulating traditional financial institutions, would also have an interest in ensuring compliance with federal AML/CFT regulations by financial entities operating within its jurisdiction. However, direct enforcement of the BSA Travel Rule for VASPs typically falls under FinCEN and other federal law enforcement agencies.

In summary, for VASPs operating in Puerto Rico, compliance with the FATF Travel Rule means adhering to FinCEN's interpretation of the BSA Travel Rule, which requires collecting and transmitting specific originator and beneficiary information for CVC transactions exceeding $3,000.