Staying compliant with AML regulations is critical

An essential component of regulatory compliance for most ICOs and all STOs is the screening of potential token buyers, commonly referred to as the Know Your Customer (KYC) process.

Given the borderless nature of digital assets, major institutions at the international level have all focused on and issued reports addressing their perceived risks. From a government perspective, the main area of concern is said to be the potential for money laundering and the financing of terrorism. The Financial Action Task Force (FATF), an inter-governmental body established in 1989 on a G7 initiative, developed a series of recommendations that are recognized as the international standard in this regard.

However, as it’s up to each jurisdiction to implement and enforce the FATF recommendations, regulation and oversight can differ greatly from country to country. Some localities embrace a top-down approach, creating parallel structures to the FATF policies, while others let companies on the ground develop their own practices.

Therefore, depending on both the jurisdiction and the type of digital asset offering (ICO, STO, private offering, etc.), varying levels of information on the purchasers of tokens are required.

For example, for an STO in the US that is seeking the Reg D 506B securities exemption, it’s up to the issuer to make sure that all buyers are accredited investors and that only a maximum of 1,999 is allowed to contribute. If any buyers are non-US citizens, the issuer will be tasked with the burden of complying with the securities laws of each additional buyer’s country.

For all offerings, it’s the issuer’s responsibility to ensure buyers are not on blacklists for terrorism, politically exposed persons, citizens of high-risk countries, etc.

Regardless of the scope of the offering or jurisdiction, it is registered in, screening potential buyers and maintaining a database of their information is considered an important show of good faith to regulators, making the process of compliance much smoother should regulators later have questions about the offering. In addition to helping with compliance, gathering this information can help issuers better understand their investors, which can better inform future business decisions.

IBC’s global network of legal experts can help you shape your KYC processes in the way that works best for your company, creating less friction, reducing your workload, and maintaining your accordance with the rules, no matter the jurisdiction.

With experts in over 60 countries, IBC is your trusted guide for navigating the complexities of AML compliance in the new world of digital asset offerings.

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