El Salvador -- Travel Rule Implementation Regulatory Overview

El Salvador has officially adopted and implemented the FATF Travel Rule for Digital Asset Service Providers (VASPs). This was a crucial step for the country, especially given its adoption of Bitcoin as legal tender, to align with international Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) standards set by the Financial Action Task Force (FATF).

Here's a breakdown of the implementation:

1. Whether Adopted

Yes, the FATF Travel Rule has been adopted in El Salvador. The relevant framework is primarily governed by:

• Reglamento para la Aplicación de las Disposiciones de Prevención del Lavado de Dinero y Activos y Financiamiento del Terrorismo para Proveedores de Servicios de Activos Digitales (Regulation for the Application of Provisions for the Prevention of Money and Asset Laundering and Terrorism Financing for Digital Asset Service Providers). This regulation was issued by the Comisión Nacional de Activos Digitales (CNAD), El Salvador's National Commission of Digital Assets.

2. Effective Date

The CNAD resolution CNAD-001-2023, which approved the aforementioned regulation, was published in the Official Gazette No. 222, Volume No. 437, of November 21, 2022. The regulation came into effect eight days after its publication, meaning around November 29, 2022.

3. Threshold Amounts

The regulation establishes a threshold amount for the Travel Rule requirements.

• VASPs are required to transmit originator and beneficiary information for transactions equal to or exceeding $1,000 USD, or its equivalent in any digital asset.

4. Which VASPs are Covered

The regulation applies to "Proveedores de Servicios de Activos Digitales" (Digital Asset Service Providers - VASPs) operating in El Salvador. This includes any natural or legal person that, as a business, conducts one or more of the following activities for or on behalf of another natural or legal person:

• Exchange between digital assets and fiat currency.
• Exchange between one or more forms of digital assets.
• Transfer of digital assets.
• Safeguarding and/or administration of digital assets or instruments enabling control over digital assets.
• Participation in and provision of financial services related to an issuer's offer and/or sale of a digital asset.

This definition aligns closely with FATF's guidance on VASPs.

5. Technical Implementation Requirements

The regulation mandates that VASPs ensure the secure and immediate transmission of specific information for transactions meeting or exceeding the threshold. This information must be transmitted to the beneficiary VASP (or held by the originating VASP for unhosted wallet transfers).

The required information includes:

For the Originator:

• Name
• Account number or unique transaction identifier
• Physical address (or national identification number, or customer identification number, or date and place of birth, as applicable)

For the Beneficiary:

• Name
• Account number or unique transaction identifier
• Physical address (or national identification number, or customer identification number, or date and place of birth, as applicable)

The regulation does not prescribe a specific technical solution or protocol (e.g., TRISA, Shyft, VerifyVASP), but it requires VASPs to implement secure, reliable, and interoperable mechanisms for information exchange. It also emphasizes the importance of verifying the accuracy of the information.

6. Penalties for Non-Compliance

Non-compliance with the CNAD AML/CFT Regulation for VASPs, including the Travel Rule provisions, can lead to significant penalties. The regulation itself refers to the penalty regimes established in:

• Ley Bitcoin (Bitcoin Law): Article 14 of the Bitcoin Law outlines sanctions for non-compliance with its provisions and related regulations. These can range from warnings to fines.
• Ley Contra el Lavado de Dinero y de Activos (Anti-Money Laundering and Asset Law): This overarching AML/CFT law in El Salvador also provides for sanctions for financial institutions and designated non-financial businesses and professions (DNFBPs) that fail to comply with their AML/CFT obligations. Penalties can include substantial fines, suspension or revocation of licenses, and even criminal prosecution for severe violations.

The specific amount of fines depends on the severity and recurrence of the violation, determined by the CNAD or other relevant authorities.

References and URLs:

• Reglamento para la Aplicación de las Disposiciones de Prevención del Lavado de Dinero y Activos y Financiamiento del Terrorismo para Proveedores de Servicios de Activos Digitales (CNAD AML/CFT Regulation for VASPs):

  • Official Publication in Diario Oficial No. 222, Tomo No. 437, November 21, 2022.
  • A copy of the regulation can often be found on the CNAD's official website or legal repositories. For instance, the CNAD's site typically announces such regulations: https://cnad.gob.sv/ (Navigate to "Normativa" or "Publicaciones").
  • A direct link to the regulation document (PDF) is often provided by the CNAD. As of a recent check, it's typically under the "Marco Normativo" or "Regulaciones" section.
    • Direct PDF Link (Example, confirm current): CNAD Normativa

• Ley Bitcoin (Bitcoin Law):

  • Diario Oficial No. 110, Tomo No. 431, June 8, 2021.
  • Often available on the official legislative website of El Salvador or via legal databases.
  • Unofficial English translation available on many crypto news sites.

• Ley Contra el Lavado de Dinero y de Activos (Anti-Money Laundering and Asset Law):

  • Diario Oficial No. 228, Tomo No. 373, December 10, 2006 (with subsequent reforms).
  • Accessible via the official legislative website of El Salvador.

El Salvador's implementation of the Travel Rule represents a significant effort to address FATF concerns regarding its crypto ecosystem, particularly in light of Bitcoin's legal tender status.