he parliamentary committee of finance chaired by Hon Henry Musasizi is scrutinizing a motion for the resolution of parliament, seeking approval to amend the second schedule to the anti-money laundering Act, 2013.
Mr Sydney Asubo, the executive director of the Financial Intelligence Authority, which by law is supposed to track illicit financial flows, has backed this. Cyptocurrencies are generally classified under the virtual assets and virtual assets service providers (VASP).
In June, 2019 the Financial Action Task Force (FATF), an international agency, updated its recommendations and defined Virtual Assets (VAs) as a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes. Virtual assets, however, do not include digital representations of fiat currencies, securities and other financial assets that are already covered elsewhere in the FATF Recommendations.
The FATF further defines Virtual Asset Service Providers (VASPs), as any natural or legal person who is not covered elsewhere under the FATF Recommendations, and as a business conducts one or more of the following activities or operations for or on behalf of another natural or legal person.This amendment seeks to regulate virtual asset service providers.
Through this endeavor, government intends to monitor individuals and companies engaged in crypto currency margin trading. Mr Asubo says that the amendment will address gaps in the money laundering law, which doesn’t make provision for the regulation of the service providers. He is of the view that these providers are used for money laundering and terrorism financing.
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Early in february,the speaker Rebecca Kadaga noted that the issue of pyramid schemes had been often raised, but no action was taken. This latest initiative may have been prompted by a petition from the victims of the Dunamiscoin scam, submitted in January. The scheme is alleged to have stolen approximately $2.7 million from investors and employees. The company promised 40% returns over the initial investment.
In January, Finance minister Hon David Bahati also revealed that the Ministry of Justice sought to amend the Penal Code Act to criminalize Ponzi schemes, while also adopting clear guidelines to correctly identify the owners of a newly registered company, which explains why the Anti-Money Laundering Act is being modified to include virtual assets providers under the regulation’s umbrella.
“This will bring virtual assets service providers including providers of cryptocurrencies to be brought under the purview of the Financial Intelligence Authority,” Mr Bahati explained.
Section 139 (2) of the Anti-money laundering Act gives the finance minister powers to amend the list of accountable persons in the second schedule, but with the approval of Parliament. Being on this list means the persons have to submit certain records to the Financial Intelligence Authority. Member of Parliament Hon Mwine Mpaka accused the government of protecting the creators of Ponzi schemes in January.
“The Financial Intelligence Authority submitted a list of all companies involved in this fraudulent business and the Ministry of Finance knows them but they are quiet.” Hon Mpaka said.
These Virtual asset providers will then be required to submit and explain polices that combat money laundering and terror financing.
According to the Financial Action Task Force (FATF), an intergovernmental organization that designs and promotes policies and standards to combat financial crime, its recommendations target money laundering, terrorism financing, and other threats to the global financial system. The FATF was created in 1989 at the behest of the G7 and is headquartered in Paris. The move by Parliament appears to be in line with the recommendations by FATF.
Figures from respected bodies such as Europol and the United Nations Office on Drugs and Crime (UNODC) estimate that the amount of money laundered globally is between 2% and 5% of global GDP or $800 million – $2 trillion. Europe’s police agency estimated that 3% – 4% of the EU’s annual criminal takings, or £3bn – 4bn ($4.2bn – 5.6bn), are crypto-laundered.
In July 2019, the European Parliament called for better implementation of the Rules to further strengthen the EU’s Anti-money laundering framework. It has been well known for a while that virtual currencies have been used in online criminal payments and particularly in large-scale cyber crime and on the Dark Web. All major stakeholders involved in prevention of financial crime are reacting faster than ever, providing guidance and warning about dangerous trends they have noticed, especially in those connected to virtual assets.
The FATF is not the only body taking action. Other organizations, such as the European Securities and Markets Authority (ESMA) have also actively participated in giving guidance related to virtual assets. In July 2019, the ESMA published a report on the status of licensing regimes of FinTech firms. Their survey confirmed “that NCAs[ National Competent Authorities of member states] do not typically distinguish between FinTech and traditional business models in their authorization and licensing activities since they authorize a financial activity and not a technology.”♦