The document outlines the sources of authority and key legislative frameworks governing anti-money laundering (AML) and counter-terrorist financing (CTF), primarily in the U.S., highlighting significant laws like the Bank Secrecy Act and the Anti-Money Laundering Act of 2020. It discusses the evolving challenges posed by virtual currencies, including their usage in illicit activities and the regulatory debates surrounding them, as well as the current trends in cryptocurrency exchanges and AML compliance requirements. The document emphasizes the need for robust internal control measures and compliance structures within regulated entities while navigating the complexities introduced by decentralized finance.

1. Who’s behind the curtain?
Sources of authority in Anti-Money Laundering (AML),
Counter-Terrorist Financing (CTF) Law, Policy and Guidelines
International organizations – The Financial Action Task Force
(FATF)
US Legislation – The “Bank Secrecy Act”, The Patriot Act, Anti-
Money Laundering Act of 2020
Enforcement Bodies – US Department of the Treasury (FinCEN,
IRS, OFAC)
FinCEN enforcement actions
United States case law

2. Getting Back To Basics – The Bank Secrecy Act
• If you are a regulated entity, the statute requires certain core programs, principles and
behaviors
• Internal Policies and Procedures
• AML / CTF controls designed to recognize and stop illicit finance
• Training of appropriate personnel – at inception with yearly follow-ups
• Designation of responsible parties that oversee the company’s compliance (often a Chief
Compliance Officer)
• External Validation
• Independent testing
• Yearly third-party audit
• Risk-Based Approach
• Customer risk factors
• Geographical risk factors
• Transaction characteristics
• Behavioral characteristics

3. The Core Programs
• Know Your Customer
• Customer Due Diligence (CDD)(Customer Identification Program)(CIP)
• Collection of ID information, including beneficial owners
• ID verification
• Recordkeeping
• Government lists
• Use your tools
• Enhanced Due Diligence (EDD)
• Born of the “risk-based approach”
• Politically Exposed Persons (PEPs)
• Source of funds
• Reporting Obligations
• Suspicious Activity Reports (SARs) - $5,000 + knowledge, reason to know, or suspicion
• Currency Transaction Reports - $10,000

4. Compliance From The Applicant’s Perspective
• Positive Mental Attitude
• Current Internal Documents
• Operating Agreement
• AML/KYC Policies and Procedures
• Business plans, process flows
• Key Pain Points and How to Resolve Them
• Understanding the business
• Heaps of documentation
• When are licenses required?

5. Virtual Currencies – New Challenges For A
New World
Two (Extreme) Perspectives
“Virtual currencies are evil and are used primarily for crime and money laundering. We should
regulate them to death.”
“Virtual currencies are perfect the way they are. Leave them well enough alone and keep all
regulation out of the way.”
The truth?
The Good The Bad
Represent significant financial innovation and
creativity
Not fully addressed by existing legislation, exposing
consumers to risk of fraud and manipulation
Seamless, 24/7, pseudo-anonymous, borderless
payment systems
Decentralized nature of crypto makes even basic
KYC difficult, allowing bad actors to use it
Deflationary store of value, not tied to any
government
Non-legal tender status has implications for use in
contracts. Monetary policies behind the coins vary

6. Money Laundering Concerns With
Cryptocurrencies
• US v. [Bitmex] (Southern District of New York) – Seychelles-based
cryptocurrency exchange that served US customers with practically
no AML/KYC policies in place. Offered up to 100x leveraged trading
and accepted cryptocurrency like Bitcoin as margin. Was required to
register as a Futures Commission Merchant and follow the BSA.
Infamous for their “coconut” claim. Takeaways: Personal liability,
jurisdictional reach.
• US v. Harmon (District of Columbia) – Violations of state and federal
money transmission statutes by operating a Bitcoin “tumbling”
service, enabling criminal activity on the Darknet. Takeaways:
Example of money laundering as a crime, federal and state licensure
as a money services business. Bitcoin as “money”.

7. Current Trends and Challenges In Crypto
• Centralized versus decentralized exchanges
• Centralized exchanges more like traditional brokers – Gemini, Kraken
• Decentralized exchanges (DEXs) are peer to peer platforms – Pancake Swap,
Sushi Swap, Uniswap
• Clashes with existing and developing areas of the law
• Tax compliance – 1099s, accounting for coins transferred to and from
exchanges, to and from wallets (“hosted” versus “unhosted” wallets), tracking
cost basis
• Travel rule
• Inability to conduct KYC – Strain on traditional banking relationships

8. Current AML Trends
• Anti-Money Laundering Act of 2020 - Dramatic expansion of AML law in the
US
• Key Provisions
• Corporate Transparency Act - Beneficial ownership (captures smaller entities not
already required to verify beneficial ownership under normal KYC principles) - $500
day / $10,000
• FinCEN database
• Concealment from financial institutions ($1M Fine / 10 years prison)
• Increased fines for BSA violations – Disgorgement bonuses / board positions
• Whistleblower program
• International money laundering – Increased investigatory powers foreign banks
• Cryptocurrency service providers (VASPs) brought within AML provisions
• New offices within the US government