What is the FATF Crypto Travel Rule?

Sometimes called the FATF rule, but more often referred to as the “crypto travel rule,” this regulation is an important aspect of understanding the monitoring that occurs on cryptocurrency exchanges.

This rule states that any cryptocurrency transaction passing a certain threshold must be reported along with personal information. As you can imagine, this makes things difficult for cryptocurrency holders. Read on to learn more about the FATF crypto travel rule.

What is the FATF Crypto Travel Rule?

The crypto travel rule was imposed by the FATF (Financial Action Task Force), which is an independent worldwide governing body that works to create global standards to help curb money laundering and the financing of terrorist organizations.

Specifically, the crypto travel rule states that any cryptocurrency transactions originating from a financial institution (such as a bank or exchange) should be reported to the FATF along with identifying personal information. This way, the FATF can monitor and track illegal and terrorist activity with the hopes of stopping the funding of these organizations.

The crypto travel rule doesn’t just apply to crypto, though, but to all virtual assets, such as NFTs. This rule is part of a larger set of recommendations, a set of 40, and is often referred to as recommendation 16. In most countries, the financial threshold for reporting is $1,000 USD or EUR, though in the United States, the threshold is $3,000 USD.

These rules were adopted first in 2016 and later updated in 2021.

In Which Countries Does the Crypto Travel Rule Apply?

The FATF is a worldwide governing body, meaning the requirement to disclose is technically present in all countries. That being said, many countries choose not to recognize or adhere to regulations pushed forth on a global level, and technically, the FATF cannot force them to comply.

Of course, the countries that choose not to participate are often financially blacklisted for numerous other reasons. But if a specific exchange chooses not to participate, according to several websites, they are setting themselves up to be investigated by local authorities (if they comply) as well as FATF for non-compliance.

Most countries, in order to ensure compliance, have their own laws, based on the crypto travel rule, with more stringent and specific requirements. Examples include AML and KYC regulations in the US, and MiCA in the EU.

What Personal Information Must Be Disclosed on the FATF Travel Rule?

Again, it is important to check local regulations, as these often require more information than the FATF. Below, however, are the personal information disclosure requirements once the transaction threshold has been met.

·      Name on originating account

·      Account number

·      Address of the individual on the account

·      National identity number of the individual on the account

·      Customer identification number

·      Date and place of birth of the account holder

·      Name of recipient

·      Account number of the recipient

As you can see, this is quite some information. But, at the same time, these informations are required to open an account on most exchange platforms anyway. That being said, we are never a fan of handing out our personal information.

Is the Crypto Travel Rule Good?

In our opinion, we always believe that more privacy is better, therefore we are not a fan of the crypto travel rule. Of course, we don’t like money laundering or terrorism either, and while we understand the idea behind these regulations, the reality is most terrorists are still using cash anyway—meaning a lot of crypto policing is for nothing.

We are also fans of using crypto legally; however, as that is the only way that it will be allowed to flourish into a major currency, so if the crypto travel rule is necessary for legality, we see it as a necessary evil—but this doesn’t mean we would consider it “good.” But we also wouldn’t consider it “bad” either.

Are There Any Ways Around the FATF Crypto Travel Rule?

We want to specify that FATF, while they do submit their recommendations on a global scale, they are not an enforcement agency. While they submit recommendations and carry out investigations, they cannot arrest or punish anyone who doesn’t adhere. That’s left up to the country where the non-complier lives. This means if the country doesn’t recommend or enforce these regulations, there’s nothing the FATF can do.

Thus, if you live in a country that doesn’t adhere to the FATF recommendations, you won’t be subject to the travel rule. Though we must say that the countries that don’t adhere tend to have other administrations that are far more invasive than the crypto travel rule, such as China, which prohibits cryptocurrency altogether, and Russia, which is blacklisted financially on a worldwide scale.

Additionally, there are some DeFi platforms that simply don’t collect sufficient customer information to adhere. These platforms are often operating outside of the legality of their country of residence, however, and they may be caught, fined, and even shut down if they are caught. While this doesn’t mean you can use these platforms, we recommend proceeding with caution and never storing any money on the platform, as you might find one day that the site is gone.

The final way around the crypto travel rule is the easiest—by sending your cryptocurrency directly to another person, without using a bank or exchange. Of course, this makes it harder to send the money, as you will have to send from a private (usually hardware wallet) to another hardware wallet, but if you are sending money to family and friends, this is generally advised anyway, as it also cuts out the platform fees.

Overall, the FATF crypto travel rule is a regulation that requires reporting by financial institutions for crypto transactions over a certain threshold. This recommendation was put forward to curb money laundering and terrorism, though it is only a recommendation and countries are required to enforce it on their own. While it is difficult to avoid, it can be done, especially if you live somewhere that doesn’t adhere to these regulations or you send it directly to family and friends.