navigating the tides of...

Navigating the Tides of Cryptocurrency

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Coletun E. Long February 2020


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Table of Contents

Executive Summary 3 Introduction 4 What Is Cryptocurrency? 4 The Vision Behind VC Creation 5 Rising From the Ashes of the Fallen: Bitcoin 6 Notable Abuses of VCs 8 Risk Indicators for VC Laundering 11 Modern-Day Legislation/Regulation Regarding VC 12 Upcoming Hurdles: Are We Prepared? 17 Conclusion 19 Further Reading 21


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Executive Summary: The establishment of virtual currencies (VCs) was due, in part, to providing improvements to the pre-existing money transmission methods used today. While traditional banks, FinTech companies, and third-party payment processors compose the majority of processes used to transmit money, VCs have entered the discussion as an alternative by offering six main advantages: accessibility, anonymity, efficiency, affordability, security, and decentralization. These advantages provide individuals with the ability to send and receive VCs anywhere in the world, allow transactions without the oversight of a company or bank monitoring their activity, complete transactions instantaneously without waiting for third-party approval, and lower transfer fees not predicated upon the amount of money being transferred. They also grant individuals top-level privacy and security and the decentralized nature of the VC blockchain, removing the dependency on fiat currency. These advantages yield a modern and efficient method of money transmission. Several notable abuses of VCs have been documented within their short existence. The most infamous include BTC-e, Silk Road, and Welcome to Video. All three of these criminal enterprises utilized VCs to launder funds derived from unlawful activity. The perceived anonymity and privacy of VCs led these criminals to pivot from traditional money transmission methods to digital currency. Anti-Money Laundering (AML) investigators around the world must be attentive to the risk indicators associated with VC laundering. VC laundering and “traditional” money laundering share the same end goal of making dirty money clean. However, VCs yield additional red flags that make the process of using cryptocurrency to launder funds unique. Throughout the upcoming decade, VC will likely continue earning admiration. As a result, countries, intergovernmental organizations, and financial institutions alike must take a collaborative approach in enacting and enforcing comprehensive VC regulation specifically pertinent to VC technology. Regulation has been in place for years for traditional financial institutions in respect to how they mitigate and combat AML/Counter-Terrorist Financing (CTF) risks, but VCs require further emphasis due to the fact that they primarily operate outside the reach of government oversight. Several contemporary examples exist regarding the ways in which countries and intergovernmental organizations (IGOs)i have adapted to this newer technology with examples originating from the Financial Action Task Force (FATF), the European Union (EU), Financial Crimes Enforcement Network (FinCEN), and the United States. While VCs remain in the early stages of development, there is a robust inevitability that the technology will take major steps within the next several years to enhance the favorable characteristics of these transactions. It is the job of AML professionals and organizations worldwide to forecast how they believe the financial landscape will look and how money transmission will evolve during this upcoming period. Very few predictions can be made with certainty; however, the future of VC could yield challenges to the world of AML/CTF, such as:


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Unregistered/unlicensed MSBs and crypto exchanges Privacy coins gain popularity Lenient AML/CTF laws & regulations in countries with registered crypto exchanges

With forecasting potential obstacles in the years to come, detailed solutions must also be present in order to confront said obstacles head on. The most effective solution to combatting VC laundering through VC exchanges and financial institutions around the world is to adopt a collaborative and international approach. Solutions are needed to enable law enforcement from different jurisdictions to allow the free dissemination of information among one another in order for one common goal: prevent dirty money from entering the financial system. Additionally, the formation of regulatory agencies would permit jurisdictions with more limited resources to collaborate with other regulatory organizations, so that they are well equipped to deter illicit activity in their respective financial institutions.

Introduction While an argument can be made against cryptocurrency replacing traditional money transmission practices, it can no longer be dismissed as a hypothetical “never going to happen” alternative. One of the most well-known cryptocurrencies today, Bitcoin, experienced an exponential period of market capitalizationii growth starting in Q1 of 2012 at 0.04 billion USD to a peak of 230 billion USD in Q4 of 2017.1 Over this period of time, governments and banking regulators have taken several steps to caution that Bitcoin, and all cryptocurrencies for that matter, could be the next economic bubble. In some jurisdictions, the capacity to trade cryptocurrency was even prohibited due to a lack of control and market unpredictability.2 Cryptocurrency may appear intricate, but more education, regulation, and monitoring is taking place to better position the global financial community to be able to mitigate and minimize any potential risk. This paper aims to take a comprehensive approach in understanding: the foundations of cryptocurrency; the most notorious abuses of VCs; the potential risk indicators for VC laundering; past, present, and future legislation, as well as regulation enforced throughout the world; and impending challenges the AML field can expect in cryptocurrency.

What Is Cryptocurrency? Before we dive into the deep end of the complex intricacies of virtual currencies (VCs), we must first understand how VCs are used. Cryptocurrency is any form of currency that only exists digitally, usually has no central issuing or regulating authority, uses a decentralized

1 Szmigiera, M. (2019). Cryptocurrencies - Statistics & Facts. Statista. Retrieved from https://www.statista.com/topics/4495/cryptocurrencies/ 2 Szmigiera, M. (2019). Cryptocurrencies - Statistics & Facts. Statista. Retrieved from https://www.statista.com/topics/4495/cryptocurrencies/


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system to record transactions and manage the issuance of new units, and relies on cryptography to prevent counterfeiting and fraudulent transactions.3 For those of you who are AML professionals, the above definition does not invite a warm, welcoming embrace. Instead, the very word “cryptocurrency” may elicit a fear that this paper aims to address. The popularity surrounding VCs hasn’t necessarily garnered favorable publicity. The extinction of BTC-e (Bitcoin exchange), Silk Road (online black market), and Welcome to Video (online black market) were used to help conduct and facilitate nefarious activity with VCs. As such, it would appear that the inclinations to fear VCs due to their apparent lack of transparency, as well as their real-life use in money laundering, are two things not completely unfounded.

The Vision Behind VC Creation In the ever-changing global financial landscape, FinTech companies, traditional financial institutions, credit card companies, and third-party payment processors (TPPP)iii alike all attempt to be on the cutting edge of technology and development. Each faction looks to provide more modern and efficient products that can be distributed to potential customers in order to reclaim their spots at the top of the financial totem pole. Now, enter VC into the money transmission discussion. How VC differs from the traditional money transmission methods (banks and credit card companies) and even more modern money transmission methods (FinTech companies, TPPP) can be best summarized in six words: accessibility, anonymity, efficiency, affordability, security, and decentralization. Accessibility:

VC is global; there are no borders; no limits to its availability VC is available 24 hours a day, seven days a week, and 365 days a year; no

holidays Financial inclusion and financial freedom Open-source softwareiv

Anonymity: The level varies between VCs Transactions are indistinguishable (surface valuev) Enhanced privacy; personal information is well-guarded/absent from public

ledger VC company is unaware of spending habits (surface value)

Efficiency: Streamlining the online purchasing process; money transmission process No waiting for third-party approval

3 Merriam-Webster. (n.d.). Cryptocurrency. In Merriam-Webster.com dictionary. Retrieved from https://www.merriam-webster.com/dictionary/cryptocurrency


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Transactions are processed nearly instantaneously once transaction is verified in the block chain

Affordability: Lower transactional costs; little-to-no fee to receive VC (varies) Larger amount of VC sent doesn’t necessarily result in higher fees in

comparison to lower amount of VC sent (varies) Economical alternative to wire transfers and traditional banking

transmission methods; populations that have limited or no access to regular banking services

Security: Personal information is nonexistent on public ledger Unique keys/tokens assigned to users prevent unwanted charges/fraud Able to protect money by backup and/or encryption

Decentralization: Peer-to-peer network Distributed public ledger Fiat currency hedge; not reliant upon a specific country’s currency/economy

(varies) Individuals are fully in control of their money

A surplus of benefits has surfaced from the discovery and creation of VCs. In the same way that traditional financial institutions create new products to improve the customer’s overall experience, VCs have allowed users globally to transmit money across borders with minimal transparency, maximum efficiency, and indisputable levels of security.

Rising From the Ashes of the Fallen: Bitcoin Several attempts at creating a successful VC were observed throughout the 1990s; however, the failures of VCs, such as DigiCashvi (created by David Chaum), B-Moneyvii (created by Wei Dai), and Bit Goldviii4 (created by Nick Szabo) allowed the emergence of the popular VC we know today as Bitcoin. In order to be able to take up a position regarding the status of VC and how it is going to affect AML/CTF regulations for years to come, it is best to understand how a popular VC functions today. Bitcoin is “a type of digital currency in which a record of transactions is maintained, and new units of currency are generated by the computational solution of mathematical problems, and which operates independently of a central bank.”5 Most users that utilize Bitcoin access it via a mobile app or computer program in which a personal Bitcoin walletix

4 Frankenfield, J. (2019). Learn about Bit Gold. Investopedia. Retrieved from www.investopedia.com/terms/b/bit-gold.asp. 5 Faruque, A. (2019). What is Bitcoin And It’s Uses. WebScraping. Retrieved from https://wscraper.com/what-is-Bitcoin/


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is issued that allows the user to operate in the capacity of sending and receiving bitcoins. Any user that engages in transferring bitcoins must enter the recipient’s address and payment amount and simply press “send.” To access one’s funds, a two-step authentication is required in the form of a public key and private key. In theory, a public key can be representative of an account number, while a private key can be representative of a signature on a check. Without the private key, users will be unable to access their VC funds. This double-authentication process allows enhanced protection and security from potential theft and unauthorized access.

Figure 1.16

The Bitcoin network continuously shares a public ledger called the "blockchain.” This ledger comprises every transaction ever processed, allowing a user's computer to verify the validity of each transaction processed by miners.x The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have complete autonomy over sending bitcoins from their own Bitcoin addresses. A competitive and decentralized process known as “mining” generates bitcoins. This process involves individuals that are rewarded by the network for their services. Bitcoin miners are processing transactions and securing the network using specialized hardware and are collecting new bitcoins in exchange. Expressed most impressively, “Mining creates the equivalent of a competitive lottery that makes it very difficult for anyone to consecutively add new blocks of transactions into the block chain. This protects the neutrality of the network by preventing any individual from gaining the power to block certain transactions. This also prevents any individual from replacing parts of the block chain to roll back their own spends, which could be used to defraud other users.”7 It is these principles that continue to make Bitcoin and blockchain technology the successful virtual networks that they are.

6 Raman, S. (2013). Encryption and Decryption using gpg. Euphoria Reload3d. Retrieved from https://shankaraman.wordpress.com/2013/01/08/encryption-and-decryption-using-gpg/ 7 Bitcoin. (n.d.). What is Bitcoin Mining. Bitcoin. Retrieved from https://Bitcoin.org/en/faq#how-does-mining-help-secure-Bitcoin


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Figure 2.18

Notable Abuses of VCs VCs have been exploited by criminal enterprises in order to launder proceeds of illicit activity. Given the perceived anonymity and privacy of VC technology, criminals have gravitated towards utilizing VCs as opposed to traditional money transmission methods that yield greater levels of regulatory oversight. As a result, several cases of the exploitation of VCs and crypto exchanges have been documented over the past decade. BTC-e According to the U.S. Northern District of California Justice Department, the “indictment of BTC-e, founded in 2011, was one of the world’s largest and most widely used digital currency exchanges. Since its inception, Alexander Vinnik and others developed a customer base for BTC-e that was heavily reliant on criminals, including by not requiring users to validate their identity, obscuring and anonymizing transactions and source of funds, and by lacking any anti-money laundering processes. The indictment alleges BTC-e was operated to facilitate transactions for cybercriminals worldwide and received the criminal proceeds of numerous computer intrusions and hacking incidents, ransomware scams, identity theft

8 Lynx, A. (n.d.). How Long Does a Bitcoin Transaction Take. Cryptalker. Retrieved from https://cryptalker.com/send-Bitcoin-2/


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schemes, corrupt public officials, and narcotics distribution rings.”9 Most notably, the U.S. Department of Justice stated that BTC-e was found to launder funds from the hack of Mt. Gox—a legitimate Bitcoin exchange based in Shibuya, Tokyo, Japan—that eventually failed due to the security intrusion. What We Know Now:

The paper trail behind the nefarious activity was never fully out of reach for law enforcement as they utilized the blockchain to trace funds back to the criminals who exploited the VCs

Despite the absence of a central oversight body, authorities employed multilateral cooperation across U.S. and international law enforcement to terminate operations of the crypto exchange

The exchange was conducting substantial business inside the United States despite not being registered as a money service business (MSB)

The apparent anonymity behind VCs was not enough, as law enforcement was able to identify transactions specific to certain individuals

Silk Road Silk Road was an online black marketplace, founded by Ross William Ulbricht, that was best known as a platform for selling illegal drugs. As part of the dark web, it was operated in a way in which online users were able to browse it anonymously and securely without potential traffic monitoring. The primary method of money transmission on the platform was Bitcoin due to the perceived anonymity and secure nature of the blockchain. By summer of 2013, Silk Road was approaching its one-millionth account, with daily commissions reaching as much as ten thousand dollars.10 Through the tireless work of an IRS agent, law enforcement made a connection between the operator of the illicit enterprise and the illicit enterprise itself. After observing a post on a Bitcoin forum in which the author described an anonymous drug marketplace with the user’s last post listing an email, [email protected], investigators discovered numerous links between Ross Ulbricht and Silk Road, namely an IP address located in San Francisco that was associated with Silk Road servers. Ultimately, the Marco Polo task force utilized the IP server to track Ulbricht’s whereabouts in a San Francisco library, where he was detained and eventually sentenced to life in prison without parole.

9 Department of Justice - U.S. Attorney’s Office - Northern District of California. (2017). Russian National And Bitcoin Exchange Charged In 21-Count Indictment For Operating Alleged International Money Laundering Scheme And Allegedly Laundering Funds From Hack Of Mt. Gox. United States Department of Justice. Retrieved from https://www.justice.gov/usao-ndca/pr/russian-national-and-Bitcoin-exchange-charged-21-count-indictment-operating-alleged 10 Adler, D. (2018). Silk Road: The Dark Side of Cryptocurrency. Fordham Journal of Corporate and Financial Law. Retrieved from news.law.fordham.edu/jcfl/2018/02/21/silk-road-the-dark-side-of-cryptocurrency/

mailto:[email protected]


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What We Know Now:

Similar to the case of BTC-e, law enforcement was able to utilize the blockchain to uncover and indict Ross William Ulbricht. According to an article titled Silk Road: “The Dark Side of Cryptocurrency” that was posted in the Fordham Journal of Corporate and Financial Law, “the blockchain enabled law enforcement to track illegal transactions, despite the lack of a name or bank account attached to Bitcoin addresses.”11

The anonymity behind the transactions was lessened due to being able to identify specific “clustering” patterns, which regularly transacted with Silk Road

Once certain addresses were considered to be associated with the drug marketplace, the blockchain provided a full transaction log of buyers and sellers that law enforcement could target

Welcome to Video Jong Woo Son, a 23-year-old South Korean national, created the largest child sexual exploitation market by volume of content known as Welcome to Video. The dark web marketplace sought out to monetize child sexual exploitation videos using Bitcoin. “Each user received a unique Bitcoin address when the user created an account on the website. Those accounts could be used to pay to download the videos. An analysis of the server revealed that the website had more than one million Bitcoin addresses, signifying that the website had the capacity for at least one million users.”12 The Internal Revenue Service – Criminal Investigation (IRS-CI) unit of the United States was able to link Bitcoin transactions on the dark web marketplace to people all over the world who utilized the site to upload and download this illicit material. Additionally, IRS-CI agents could determine the actual location of the server utilized by the Darknet website, identify the site administrator, and eventually locate the website server’s physical location in South Korea. “According to the indictment, on March 5th, 2018, agents from the IRS-CI, HSI,xi National Crime Agency in the United Kingdom, and Korean National Police in South Korea arrested Son.”13

11 Adler, D. (2018). Silk Road: The Dark Side of Cryptocurrency. Fordham Journal of Corporate and Financial Law. Retrieved from news.law.fordham.edu/jcfl/2018/02/21/silk-road-the-dark-side-of-cryptocurrency/ 12 Phillips Erb, Kelly, (2019), IRS Followed Bitcoin Transactions, Resulting In Takedown Of The Largest Child Exploitation Site On The Web, Forbes. Retrieved from https://www.forbes.com/sites/kellyphillipserb/2019/10/16/irs-followed-Bitcoin-transactions-resulting-in-takedown-of-the-largest-child-exploitation-site-on-the-web/#283e7d341ed0 13 Phillips Erb, Kelly, (2019), IRS Followed Bitcoin Transactions, Resulting In Takedown Of The Largest Child Exploitation Site On The Web, Forbes. Retrieved from https://www.forbes.com/sites/kellyphillipserb/2019/10/16/irs-followed-Bitcoin-transactions-resulting-in-takedown-of-the-largest-child-exploitation-site-on-the-web/#283e7d341ed0


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What We Know Now:

Analyzing the blockchain and “de-anonymizing” Bitcoin transactions allowed the agencies to pinpoint hundreds of predators worldwide, despite those users believing they could remain anonymous

A forfeiture complaint indicated that law enforcement traced payments of the virtual currency Bitcoin to the Darknet site by following the paper trail found on the blockchain

Through transnational cooperation, the involved agencies were able to shut down the largest child sexual exploitation marketplace in the world

IRS-CI chief Don Fort outlined the following to criminals worldwide, “You used to hide by laundering your money through shell companies around the country, but we traced you. You took your money offshore and hid around the world, but we found you. You went on the dark web thinking that your actions were anonymous, but they weren’t, and we again found you. You now deal in crypto-currency, again thinking this will make you anonymous, but our agents have once again proved that there is nowhere you can hide. We will not stop in our pursuit.”14

Risk Indicators for VC Laundering In order to identify suspicious activity indicative of VC money laundering (ML) as a financial crimes investigator, one must be mindful of the potential red flags that suggest such activity is being conducted. While the ultimate objective is analogous to “traditional” ML, VCs yield additional risk indicators that make it unique. Thus, in an effort to better equip AML professionals to combat potential ML risk, a list of prospective red flags can be found below. General Red Flags From a Financial Institution Perspective:

Transactional interaction with unregistered/unlicensed crypto exchanges/ICOsxii Origin of funds derive from crypto exchanges, crypto companies (privacy coinsxiii)

o Is regulatory oversight found? o Transactions involving crypto businesses and counterparties in tax haven

locations o Some VC businesses yield more inherent risk than others (VC miners, VC

exchanges, VC mixer/tumbler,xiv VC securities)15 o Presence of privacy coins in transactions

Offer enhanced services, such as privacy, mixing, IP-obscuring

14 Phillips Erb, Kelly, (2019), IRS Followed Bitcoin Transactions, Resulting In Takedown Of The Largest Child Exploitation Site On The Web, Forbes. Retrieved from https://www.forbes.com/sites/kellyphillipserb/2019/10/16/irs-followed-Bitcoin-transactions-resulting-in-takedown-of-the-largest-child-exploitation-site-on-the-web/#283e7d341ed0 15 Angotti, A. & Shea, A. (2018). Cryptocurrency Red Flags in US Dollar Transaction Monitoring. Guidehouse. Retrieved from https://www.navigant.com/-/media/www/site/insights/gic/2018/gic_cryptocurrencywhitepaper_tl_1018_rev10-(1).pdf


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No discernable business purpose behind the frequent, transactional activity between the customer and the crypto exchange

o The movement of funds to and from crypto exchanges Velocity Volume Frequency

Large numbers of transactions representing exchanges of VC into fiat exchanges without any initial purchases of VC

Following a receipt from a crypto exchange: o Customers with residences, transactions, or sources of money from countries

known to be in close proximity to substantial conflict, corruption, organized crime, or terrorist activity16

E.g., Russia, Venezuela, Lebanon, Iran, North Korea, Ukraine, Turkey o Utilization of crypto-ATMs and presence of structured withdrawls that

aggregate to a substantial amount/threshold17 Rapid outgoing cash and cash-intensive activity at retail banks and

crypto-ATM kiosks o Rapid flow-through of funds to external financial institutions, where deposit

and outflow activity appears similar in aggregate value and timeframe18 o Large purchases, such as real estate, automobiles, and boats

Suspicious or unusual behavior that is out of pattern for the customer o Inability to divulge KYCxv information to institution o A specific transaction exceeds CTRxvi threshold; thus a CTR report is required

Customer shows signs of not wanting a report filed Transaction monitoring technology that identifies anomalies and patterns of

suspicious activity via transaction identifiers, such as addresses19

Modern-Day Legislation/Regulation Regarding VC As VC continues to gain admiration, positive or negative, a growing concern for countries, financial institutions, and IGOs around the world is to enact and enforce comprehensive VC regulation that is applicable specifically to VC technologies. While regulation has already been in place for traditional financial institutions in regard to how they mitigate and combat AML/CTF risks, VCs require additional emphasis given that they operate primarily outside the realm of government oversight. As a result of this necessity, several

16 Kentouris, C. (2018). Crypto Laundering: AML Regs Tighten. FinOps Report. Retrieved from https://finopsinfo.com/investors/crypto-laundering-aml-regs-tighten/ 17 Ciccolo, J. (2019). Cryptocompliance 101: Surveillance And Monitoring For Cryptocurrency Businesses Explained. BitAML. Retrieved from https://bitaml.com/surveillance-monitoring/ 18 Fruth. J. (2018). 'Crypto-cleansing:' strategies to fight digital currency money laundering and sanctions evasion. Reuters. Retrieved from https://www.reuters.com/article/bc-finreg-aml-cryptocurrency/crypto-cleansing-strategies-to-fight-digital-currency-money-laundering-and-sanctions-evasion-idUSKCN1FX29I 19 Kentouris, C. (2018). Crypto Laundering: AML Regs Tighten. FinOps Report. Retrieved from https://finopsinfo.com/investors/crypto-laundering-aml-regs-tighten/


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contemporary examples exist regarding the ways in which countries and IGOs have adapted to this newer technology. FATF In February 2019, the FATF published a draft of an Interpretive Note to Recommendation 15, providing further clarification on how its regulation recommendations apply to virtual assets.20 These updates included:

Guiding regulatory authorities in a member country when identifying risk, sharing information, and monitoring virtual asset service providers (VASPs)xvii

VASPs will need to be registered/licensed, agree to monitoring by competent authorities, and comply with FATF recommendations 10-21 (this included policies such as customer due diligence, record-keeping, politically-exposed persons, higher-risk countries, suspicious activity reports, and confidentiality)

In June 2019, the FATF released guidelines requiring regulators and VASPs to collect and share personal data of transactions. This recommendation imposed identical standards on the crypto-sector as found and routinely followed by the banking industry.21 EU The EU responded to the growing popularity of VCs in 2018 by adopting the Fifth Anti-Money Laundering Directive (AMLD5), which enhanced the scope of the EU’s regulatory boundaries to include crypto exchanges in addition to those that provide custodian wallet services.22 The Directive also set out to give a legal definition to virtual currencies. AMLD5 was another improvement to the original regulation (AMLD1 - 1990), which sought to “prevent the misuse of the financial system for the purpose of money laundering. It provides that obliged entities shall apply customer due diligence requirements when entering into a business relationship (i.e., identify and verify the identity of clients, monitor transactions, and report suspicious transactions).”23 This regulation has been modified continuously over the years throughout AMLD2, AMLD3, and AMLD4 in order to mitigate risks that relate to ML and TF. 20 CipherTrace. (2019). Cryptocurrency Anti-Money Laundering Report, 2019 Q1. CipherTrace. Retrieved from https://ciphertrace.com/wp-content/uploads/2019/05/ciphertrace-q1-2019-cryptocurrency-anti-money-laundering-report.pdf 21 PYMNTS. (2019). FinCEN Head Warns AML Crypto Rules Will be Strictly Enforced. PYMNTS. Retrieved from https://www.pymnts.com/news/regulation/2019/fincen-head-warns-aml-crypto-rules-will-be-strictly-enforced/ 22 CipherTrace. (2019). Cryptocurrency Anti-Money Laundering Report, 2019 Q1. CipherTrace. Retrieved from https://ciphertrace.com/wp-content/uploads/2019/05/ciphertrace-q1-2019-cryptocurrency-anti-money-laundering-report.pdf 23 European Commission. (n.d.). Anti-money laundering and counter terrorist financing. European Commission. Retrieved from https://ec.europa.eu/info/policies/justice-and-fundamental-rights/criminal-justice/anti-money-laundering-and-counter-terrorist-financing_en


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FinCEN

In FinCEN’s 2013 VC Guidance, a convertible virtual currency (CVC) was defined for the purposes of outlining FinCEN regulations and reaffirmed to the public that persons not exempted from MSB status that accept and transmit either real currency or anything of value that substitutes for currency, including VC, are covered by the definition of a money transmitter; thus, CVCs are required to register as an MSB.24 Another amendment to FinCEN guidance regarding AML regulations occurred in March 2013 when the “travel rule”xviii was expanded to apply to crypto exchanges.25 The “travel rule” requires crypto exchanges to verify the identity of customers, original parties, and beneficiaries of transfers $3,000 or higher. FinCEN’s “travel rule” was first enacted back in 1996 as a part of AML standards that would govern all financial institutions in the U.S. In a statement put forth on November 15, 2019, FinCEN Director Kenneth A. Blanco stated undeniably, “AML laws will be strictly enforced in the world of cryptocurrencies.”26 United States No official federal law on VC has been passed in the U.S., leaving applications of law up to individual states. Nonetheless, the U.S. government has found the topic of VC to be worthy of considerable attention. So much so, in fact, four VC bills are currently awaiting Senate approval (H.R. 528 awaiting House approval) in order to fast-track the process of becoming law.

H.R. 502 – FIND Trafficking Act27 This bill directs the Government Accountability Office (GAO) to report on the

use of virtual currencies and online marketplaces in sex and drug trafficking. The GAO must study topics, including: o How illicit proceeds are transferred into the U.S. banking system; o state and non-state actors that participate in such activity; o preventative efforts from federal and state agencies; and o the extent to which the unique characteristics of VCs can contribute to the

tracking and prosecution of illicit funding.

24 FinCEN. (2019). Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies. FinCEN Guidance. Retrieved from https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf 25 PYMNTS. (2019). FinCEN Head Warns AML Crypto Rules Will be Strictly Enforced. PYMNTS. Retrieved from https://www.pymnts.com/news/regulation/2019/fincen-head-warns-aml-crypto-rules-will-be-strictly-enforced/ 26 PYMNTS. (2019). FinCEN Head Warns AML Crypto Rules Will be Strictly Enforced. PYMNTS. Retrieved from https://www.pymnts.com/news/regulation/2019/fincen-head-warns-aml-crypto-rules-will-be-strictly-enforced/ 27 Congressional Research Service. (n.d.). H.R.502 - FIND Trafficking Act. Congress.gov. Retrieved from https://www.congress.gov/bill/116th-congress/house-bill/502


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H.R. 428 - Homeland Security Assessment of Terrorists' Use of Virtual Currencies Act28 This bill directs the Department of Homeland Security's Office of Intelligence

and Analysis to assess the threat posed by individuals using VCs to support terrorism. The assessment shall be shared with state, local, and tribal law enforcement officials.

H.R. 56 - Financial Technology Protection Act29 This bill provides for the investigation of new financial technologies (e.g.,

digital currencies) and their use in terrorism and other illicit activities. The bill establishes the Independent Financial Technology Task Force to

Combat Terrorism and Illicit Financing, which must research terrorist and illicit use of new financial technologies and issue an annual report.

The bill directs the Department of the Treasury to provide a reward for a person who provides information leading to the conviction of an individual involved with terrorist use of digital currencies.

The bill establishes the FinTech Leadership in Innovation and Financial Intelligence Program to support the development of tools and programs to detect terrorist and illicit use of digital currencies.

H.R. 1414 - FinCEN Improvement Act of 201930

This bill amends the duties of the Financial Crimes Enforcement Network (FinCEN). FinCEN must work with tribal law enforcement agencies, protect against terrorism regardless of origin, and coordinate internationally on matters involving emerging technology and VC.

H.R. 528 - Blockchain Regulatory Certainty Act31 This bill exempts from certain financial reporting and licensing requirements

blockchain developers and providers of blockchain services that do not take control of consumer funds.

28 Congressional Research Service. (n.d.). H.R. 428 - Homeland Security Assessment of Terrorists' Use of Virtual Currencies Act. Congress.gov. Retrieved from https://www.congress.gov/bill/116th-congress/house-bill/428 29 Congressional Research Service. (n.d.). H.R. 56 - Financial Technology Protection Act. Congress.gov. Retrieved from https://www.congress.gov/bill/116th-congress/house-bill/56 30 Congressional Research Service. (n.d.). H.R. 1414 - FinCEN Improvement Act of 2019. Congress.gov. Retrieved from https://www.congress.gov/bill/116th-congress/house-bill/1414 31 Congressional Research Service. (n.d.). H.R. 528 - Blockchain Regulatory Certainty Act. Congress.gov. Retrieved from https://www.congress.gov/bill/116th-congress/house-bill/528


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Figure 3.132

Figure 4.133

32 CipherTrace. (2019). Cryptocurrency Anti-Money Laundering Report, 2019 Q1. CipherTrace. Retrieved from https://ciphertrace.com/wp-content/uploads/2019/05/ciphertrace-q1-2019-cryptocurrency-anti-money-laundering-report.pdf 33 CipherTrace. (2019). Cryptocurrency Anti-Money Laundering Report, 2019 Q1. CipherTrace. Retrieved from https://ciphertrace.com/wp-content/uploads/2019/05/ciphertrace-q1-2019-cryptocurrency-anti-money-laundering-report.pdf


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Upcoming Hurdles: Are We Prepared? VC remains in the infancy stage with potential to take a considerable leap within the next decade. As such, in forecasting the global financial landscape and how money transmission will evolve, the AML field must take steps to speculate on prospective challenges VCs will bring. While little can be predicted with certainty, the future of VC could yield the following obstacles that the field of AML must be equipped to confront head on:

Unregistered/unlicensed MSBs and crypto exchanges Privacy coins gain popularity Lax AML/CTF laws & regulations in countries with registered crypto exchanges

Unregistered/Unlicensed MSBs and Crypto Exchanges A significant amount of negative news involving VCs can be traced back to the moments in which funds were transferred through a crypto exchange. This is not to declare that the current avenues in which we interact with VCs as a consumer, financial institution, and/or governing body are infallible. However, in order to be able to fix a problem, one must unearth where that problem exists. Two well-known examples of large-scale money laundering operations that were piloted through unregistered crypto exchanges include Western Express International and Liberty Reserve.

Western Express International34

Involved in global ID theft/cyber-fraud scheme The hub of the entire operation was Western Express International, a New

York corporation based in Manhattan that operated as a virtual currency exchanger and unregistered money transmitter

The criminal enterprise was composed of vendors, buyers, cybercrime services providers, and money movers located in numerous countries

The vendors sold nearly 100,000 stolen credit card numbers and other personal identification information through the Internet, taking payment mostly in e-Gold (VC) and WebMoney

They are believed to have laundered more than USD 35 million in illicit proceeds

One of the largest virtual currency exchangers in the United States, Western Express International exchanged a total of USD 15 million in WebMoney and USD 20 million in e-Gold for the cybercrime group

Liberty Reserve35

34FATF. (2014). Virtual Currencies Key Definitions and Potential AML/CFT Risks. FATF. Retrieved from https://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf


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The largest online money laundering case in history to date: USD 6 billion Established in 2006, Liberty Reserve was a Costa Rica-based money

transmitter operating as an unregistered money transmitter business Liberty Reserve was designed to avoid regulatory and law enforcement

scrutiny and help criminals distribute, store, and launder the proceeds of credit card fraud, identity theft, investment fraud, computer hacking, narcotics trafficking, and child pornography by enabling them to conduct anonymous and untraceable financial transactions

Yielded over one million users worldwide, 200,000 located inside the U.S., and handled over 55 million transactions—almost all of which were illegal

Despite having its own VC—Liberty Dollars—transfers were denominated and stored in fiat currency (US dollars)

Liberty Reserve ostensibly required basic identifying information; however, it did not validate identities—it also required users to make deposits and withdrawals through recommended third-party, unlicensed exchangers for purposes of anonymity

Privacy Coins Gain Popularity Privacy coins were created in direct response to the realization that Bitcoin wasn’t as private and anonymous as initially conceived. Criminal enterprises will turn towards such coins more often due to the very nature of what they offer: heightened levels of anonymity. As privacy coins continue to be developed, the global financial community should conduct research and enhanced due diligence measures in efforts to mitigate risk allocated to these mysterious VCs. Investigators should consider a cautious approach when analyzing transactions originating from companies that specialize in privacy coins. The global AML community will have to come to terms with the acceptance of privacy coins or garner unanimous, global support for their removal from the financial system. Lenient AML/CTF Laws & Regulations In Countries With Registered VC Exchanges Despite the beneficial work the FATF has conducted to guide global AML/CTF regulation in the financial community, lax AML/CTF regulations are still apparent throughout different parts of the world. According to The Next Web in an article titled “Here’s how criminals use Bitcoin to launder dirty money”: “…researchers found unregulated cryptocurrency exchanges receive an overwhelming majority of the internet’s dirty Bitcoin. Even worse, the exchanges in countries where there is little-to-no AML regulations actually receive 36-times more Bitcoin from money launderers than those with appropriate rules in place.” 36 More pressure must be put on these crypto exchanges to adopt robust AML programs,

35 FATF. (2014). Virtual Currencies Key Definitions and Potential AML/CFT Risks. FATF. Retrieved from https://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf 36 Canellis, D. (2018). Here’s how criminals use Bitcoin to launder dirty money. TheNextWeb. Retrieved from https://thenextweb.com/hardfork/2018/11/26/Bitcoin-money-laundering-2/


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sanction screening, and risk programs so that the exploitation of the global financial system is drastically reduced. Potential Solutions

The general decentralized nature of VCs allows it to withhold dependence on a fiat currency. As a result of this structure, regulatory oversight is often blurry with several jurisdictions being involved and sometimes minimal transmission of information across law enforcement groups. The most effective solution to combatting VC money laundering using crypto exchanges and financial institutions around the world is to adopt a collaborative and international approach that allows law enforcement from different jurisdictions to disseminate information among one another to prevent dirty money from entering the financial system. Additionally, the formation of regulatory partnerships would allow jurisdictions with more limited resources to collaborate with other regulatory organizations so that they are well equipped to deter illicit activity in their respective financial institutions. While idealistic, the collaborative approach could be the most effective way to combat ML/TF face to face.

Conclusion: The rising popularity of VC may appear frightening due to the avalanche of negative news connected to criminal enterprises using VCs to carry out illicit activity. However, it must be understood that every type of financial institution that offers money transmission services was, has, or will be a vehicle in which criminal enterprises attempt to conduct unlawful activity. We, as a society, tend to jump to conclusions too often regarding innovative developments in the financial and technological worlds. Whether we realize it consciously or sub-consciously, we may cast off such innovations and characterize them as too good to be true, short-term, or yielding no real-world application, something that leads many to fear the true capabilities of technology. Nonetheless, history has shown that the needle swings back in favor of innovation, as technology has given us the ability to speak to anyone in the world within seconds, become a passenger in a self-driving car, and successfully create cures to some of the world’s most deadly diseases. It is this very proof that suggests VCs are beginning to push through their infancy and into the world of global acceptance. This paper has addressed the most infamous and illicit uses of VCs and crypto exchanges through the examples of BTC-e, Silk Road, Welcome to Video, Western Express International, and Liberty Reserve. Despite these criminal enterprises leveraging the perceived anonymity of VCs, the perpetrators were never fully out of reach of law enforcement. The above unlawful operations were shut down due to the technology and resources in which law enforcement and investigative blockchain companies possess to combat the money laundering and terrorist financing risks. Additionally, being cognizant of risk indicators associated with VC laundering can be a critical step in preventing exponential risk to financial institutions around the world. It should be the top priority of


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FATF and its regional-style bodies to continue implementing resilient AML/CTF regulations (similar to those mentioned previously) for any and all VCs and crypto exchanges that exist in jurisdictions known to have lax or inadequate AML/CTF laws. We are currently and continuously gravitating towards a world that relies upon the ease of access and enhanced efficiency. The financial world of money transmission needs to be steadfast in its approach to ultimately reaching the goal of making global money transmission effortless and efficient, without foregoing critical AML/CTF regulations in the fight against illicit activity.


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Further Reading

Adler, D. (2018). Silk Road: The Dark Side of Cryptocurrency. Fordham Journal of Corporate and Financial Law. Retrieved from news.law.fordham.edu/jcfl/2018/02/21/silk-road-the-dark-side-of-cryptocurrency/

AllenOvery. (2019). Cryptocurrency AML Risk Considerations. Allen & Overy. Retrieved from www.allenovery.com/en-gb/global/news-and-insights/legal-and-regulatory-risks-for-the-finance-sector/global/cryptocurrency-aml-risk-considerations.

Angotti, A. & Shea, A. (2018). Cryptocurrency Red Flags in US Dollar Transaction Monitoring. Guidehouse. Retrieved from https://www.navigant.com/-/media/www/site/insights/gic/2018/gic_cryptocurrencywhitepaper_tl_1018_rev10-(1).pdf

Bitcoin. (n.d.). What is Bitcoin Mining. Bitcoin. Retrieved from https://Bitcoin.org/en/faq#how-does-mining-help-secure-Bitcoin

Canellis, D. (2018). Here’s how criminals use Bitcoin to launder dirty money. TheNextWeb. Retrieved from https://thenextweb.com/hardfork/2018/11/26/Bitcoin-money-laundering-2/

Ciccolo, J. (2019). Cryptocompliance 101: Surveillance And Monitoring For Cryptocurrency Businesses Explained. BitAML. Retrieved from https://bitaml.com/surveillance-monitoring/

Ciccolo, J. (2019). 5 Red Flags No Crypto Business Should Ever Ignore. BitAML. Retrieved from bitaml.com/5-red-flags-crypto/

CipherTrace. (2019). Cryptocurrency Anti-Money Laundering Report, 2019 Q1. CipherTrace. Retrieved from https://ciphertrace.com/wp-content/uploads/2019/05/ciphertrace-q1-2019-cryptocurrency-anti-money-laundering-report.pdf

Congressional Research Service. (n.d.). H.R.502 - FIND Trafficking Act. Congress.gov. Retrieved from https://www.congress.gov/bill/116th-congress/house-bill/502

Congressional Research Service. (n.d.). H.R. 428 - Homeland Security Assessment of Terrorists' Use of Virtual Currencies Act. Congress.gov. Retrieved from https://www.congress.gov/bill/116th-congress/house-bill/428

Congressional Research Service. (n.d.). H.R. 56 - Financial Technology Protection Act. Congress.gov. Retrieved from https://www.congress.gov/bill/116th-congress/house-bill/56

http://www.allenovery.com/en-gb/global/news-and-insights/legal-and-regulatory-risks-for-the-finance-sector/global/cryptocurrency-aml-risk-considerations

http://www.allenovery.com/en-gb/global/news-and-insights/legal-and-regulatory-risks-for-the-finance-sector/global/cryptocurrency-aml-risk-considerations

https://www.congress.gov/bill/116th-congress/house-bill/502


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Congressional Research Service. (n.d.). H.R. 1414 - FinCEN Improvement Act of 2019. Congress.gov. Retrieved from https://www.congress.gov/bill/116th-congress/house-bill/1414

Congressional Research Service. (n.d.). H.R. 528 - Blockchain Regulatory Certainty Act. Congress.gov. Retrieved from https://www.congress.gov/bill/116th-congress/house-bill/528

Damak, M. (2018). The Future of Banking: Cryptocurrencies Will Need Some Rules to Change the Game. S&P Global. Retrieved from www.spglobal.com/en/research-insights/articles/The-Future-of-Banking-Cryptocurrencies-Will-Need-Some-Rules-to-Change-the-Game

Department of Justice - U.S. Attorney’s Office - Northern District of California. (2017). Russian National And Bitcoin Exchange Charged In 21-Count Indictment For Operating Alleged International Money Laundering Scheme And Allegedly Laundering Funds From Hack Of Mt. Gox. United States Department of Justice. Retrieved from https://www.justice.gov/usao-ndca/pr/russian-national-and-Bitcoin-exchange-charged-21-count-indictment-operating-alleged

European Commission. (n.d.). Anti-money laundering and counter terrorist financing. European Commission. Retrieved from https://ec.europa.eu/info/policies/justice-and-fundamental-rights/criminal-justice/anti-money-laundering-and-counter-terrorist-financing_en

Faruque, A. (2019). What is Bitcoin And It’s Uses. WebScraping. Retrieved from https://wscraper.com/what-is-Bitcoin/

FATF. (2014). Virtual Currencies Key Definitions and Potential AML/CFT Risks. FATF. Retrieved from https://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf

FinCEN. (2019). Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies. FinCEN Guidance. Retrieved from https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf

FinCEN. (2013). Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies. FinCEN Guidance. Retrieved from www.fincen.gov/sites/default/files/shared/FIN-2013-G001.pdf

FinCEN Advisory. (1997). Funds ‘Travel’ Regulations: Questions & Answers. FinCEN Advisory. Retrieved from www.fincen.gov/sites/default/files/advisory/advissu7.pdf

Frankenfield, J. (2019). B-Money. Investopedia. Retrieved from www.investopedia.com/terms/b/bmoney.asp

http://www.spglobal.com/en/research-insights/articles/The-Future-of-Banking-Cryptocurrencies-Will-Need-Some-Rules-to-Change-the-Game



https://www.justice.gov/usao-ndca/pr/russian-national-and-Bitcoin-exchange-charged-21-count-indictment-operating-alleged

https://www.justice.gov/usao-ndca/pr/russian-national-and-Bitcoin-exchange-charged-21-count-indictment-operating-alleged

https://ec.europa.eu/info/policies/justice-and-fundamental-rights/criminal-justice/anti-money-laundering-and-counter-terrorist-financing_en



https://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf

https://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf

https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf

https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf

http://www.fincen.gov/sites/default/files/shared/FIN-2013-G001.pdf

http://www.fincen.gov/sites/default/files/advisory/advissu7.pdf


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Frankenfield, J. (2019). DigiCash. Investopedia. Retrieved from www.investopedia.com/terms/d/digicash.asp.

Frankenfield, J. (2019). Learn about Bit Gold. Investopedia. Retrieved from www.investopedia.com/terms/b/bit-gold.asp.

Fruth. J. (2018). 'Crypto-cleansing:' strategies to fight digital currency money laundering and sanctions evasion. Reuters. Retrieved from https://www.reuters.com/article/bc-finreg-aml-cryptocurrency/crypto-cleansing-strategies-to-fight-digital-currency-money-laundering-and-sanctions-evasion-idUSKCN1FX29I

Hall, J. (2015). Fiat Currency: What It Is and Why It's Better Than a Gold Standard. Motley Fool. Retrieved from www.fool.com/investing/general/2015/12/06/fiat-currency-what-it-is-and-why-its-better-than-a.aspx.

Kentouris, C. (2018). Crypto Laundering: AML Regs Tighten. FinOps Report. Retrieved from https://finopsinfo.com/investors/crypto-laundering-aml-regs-tighten/

Khan, I. (2016). The virtual future of money laundering. Fraud Magazine. Retrieved from www.fraud-magazine.com/article.aspx?id=4294993747

Low, J. X. (2019). Virtual Asset Service Provider (VASP). AML-CFT. Retrieved from aml-cft.net/library/virtual-asset-service-provider-vasp/

Lynx, A. (n.d.). How Long Does a Bitcoin Transaction Take. Cryptalker. Retrieved from https://cryptalker.com/send-Bitcoin-2/

Merriam-Webster. (n.d.). Cryptocurrency. In Merriam-Webster.com dictionary. Retrieved from https://www.merriam-webster.com/dictionary/cryptocurrency

Phillips Erb, Kelly, (2019), IRS Followed Bitcoin Transactions, Resulting In Takedown Of The Largest Child Exploitation Site On The Web, Forbes. Retrieved from https://www.forbes.com/sites/kellyphillipserb/2019/10/16/irs-followed-Bitcoin-transactions-resulting-in-takedown-of-the-largest-child-exploitation-site-on-the-web/#283e7d341ed0

PYMNTS. (2019). FinCEN Head Warns AML Crypto Rules Will be Strictly Enforced. PYMNTS. Retrieved from https://www.pymnts.com/news/regulation/2019/fincen-head-warns-aml-crypto-rules-will-be-strictly-enforced/

Raman, S. (2013). Encryption and Decryption using gpg. Euphoria Reload3d. Retrieved from https://shankaraman.wordpress.com/2013/01/08/encryption-and-decryption-using-gpg/

http://www.investopedia.com/terms/b/bit-gold.asp

https://finopsinfo.com/investors/crypto-laundering-aml-regs-tighten/

http://www.fraud-magazine.com/article.aspx?id=4294993747

https://www.merriam-webster.com/dictionary/cryptocurrency

https://www.forbes.com/sites/kellyphillipserb/2019/10/16/irs-followed-Bitcoin-transactions-resulting-in-takedown-of-the-largest-child-exploitation-site-on-the-web/#283e7d341ed0




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Sykes, J. B. & and Vanatko, N. (2019). Virtual Currencies and Money Laundering: Legal Background, Enforcement Actions, and Legislative Proposals. Congressional Research Service. Retrieved from fas.org/sgp/crs/misc/R45664.pdf

Szmigiera, M. (2019). Cryptocurrencies - Statistics & Facts. Statista. Retrieved from https://www.statista.com/topics/4495/cryptocurrencies/

i Intergovernmental Organization (IGO) - an entity created by treaty, involving two or more nations, to work in good faith, on issues of common interest ii Market capitalization – the total dollar market value of a company’s outstanding shares of stock iii TPPP - a service that lets you accept online payments without a merchant account of your own (i.e. PayPal) iv Open-source software – can be located on the internet and downloaded instantly v Surface value – without applying advanced algorithms and resources to identify the users behind the transactions vi DigiCash - Founded by electronic currency pioneer David Chaum in 1989, DigiCash was one of the earliest electronic money companies. Chaum developed a number of cryptographic protocols that governed DigiCash transactions and that set his currency apart from its competitors vii B-money - one of the early-proposed cryptocurrencies was called B-money. First revealed in 1998 by computer scientist Wei Dai, B-money aimed at being an "anonymous, distributed electronic cash system" viii Bit Gold - Bit gold is a 2005 proposal by Nick Szabo for a financial system that combines different elements of cryptography and mining to accomplish decentralization ix Virtual Wallet - used to store, send, or receive cryptocurrency; also stores a private key which enables transactions to be completed x Miners - anyone who can process transactions using the computing power of specialized hardware and earn a reward in Bitcoins (or altcoins) for their service xi HSI - U.S. Immigration and Customs Enforcement’s Homeland Security Investigations xii ICOs – similar to an Initial Public Offering (IPO), an Initial Coin Offering (ICO) acts as a way to raise funds, where a company looking to raise money to create a new coin, app, or service xiii Privacy coins - a cryptocurrency that offers heighten levels of privacy of data about its users xiv Mixer/tumbler – is a type of VC exchange that combines the cryptocurrency with other users’ transactions or distributes it among hundreds of thousands of wallets that belong to the mixer/tumbler. Once the process is complete, “clean” cryptocurrency is transferred back to the sender or to the new owner xv KYC – (Know Your Customer) the process of a business verifying the identity of its clients and assessing their suitability, along with the potential risks of illegal intentions towards the business relationship xvi CTR – Currency Transaction Report: a report that U.S. financial institutions are required to file with FinCEN for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to the financial institution which involves a transaction in currency of more than $10,000. xvii VASP – According to the FATF, a VASP is any natural or legal person who is not covered elsewhere under the 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: exchange between virtual assets and fiat currencies; exchange between one or more forms of virtual assets; transfer of virtual assets; safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset xviii Travel Rule - requires all financial institutions to pass on certain information to the next financial institution, in certain funds transmittals involving more than one financial institution

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