A Bank Secrecy Act (BSA) rule [31 CFR 103.33(g)]—often called the ‘Travel Rule’—requires that a financial institution is required to obtain, hold and transmit all required originator and beneficiary information in order to identify and report suspicious transactions, monitor the availability of information, take freezing actions, and prohibit transactions with designated persons and entities.
All financial institutions in FATF member states are required to implement Travel Rule reglulations prior to June 2020. Given its far-reaching regulatory scope, all VASPs and other obligated entities should be familiar with the Travel Rule and the AML/CFT compliance obligations.
Under Recommendation 16’s Travel Rule, the originators and beneficiaries of all transfers of digital funds must exchange identifying information. The rule will apply to all VASPs, financial institutions and obliged entities. Additionally, the originators and beneficiaries involved in a transfer must be able to guarantee the accuracy of the information they send to the other.
Prior to the introduction of the Travel Rule, companies that conducted wire transfers of conventional funds already had to issue a range of reciprocal information. This new rule essentially extends that obligation to cryptocurrency transfers. In principle, the Travel Rule is similar to a number of existing global audit regulations. The United States’ Bank Secrecy Act, for example, requires an exchange of information for funds of a value equal or greater than USD $3,000.
Note: the FATF doesn’t refer to this recommendation as the travel rule. But it has a striking similarity to an earlier Bank Secrecy Act (BSA) rule with that moniker. It’s important to note that these obligations are reliant on member countries implementing the rules into their laws or regulations, as the FATF does not have any direct enforcement mechanisms. However, the FATF does carry significant moral authority, as no member wants to be seen as contributing to money laundering and international crime.