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Iran Moves to Restrict Crypto Exchanges Under ‘Currency Smuggling’ Laws

The Iranian government just made conduits to cryptocurrency markets riskier, and more confusing, than ever before. 

According to Iranian news outlet ArzDigital, the parliament published a proposal this week to include cryptocurrency in existing “currency smuggling” and foreign currency exchange regulations. The result of this prospective regulation is Iranian entrepreneurs face a heightened risk of being jailed by local authorities or sanctioned by Americans. 

The law would mean Iranian crypto exchanges must be licensed by the Central Bank of Iran and follow legacy foreign currency exchange guidelines, although it’s not apparent how existing exchanges should apply for licensing or adapt those fiat norms to blockchain technology. What is clear is the Iranian government is looking to quell capital outflow by preemptively justifying any moves to shut down or penalize local crypto exchanges.

However, the Iranian market doesn’t strictly consist of homegrown, over-the-counter traders. Unlike fiat currency exchanges, several crypto operations serving Iran are legally based in other countries. It is unclear how the new licensing guidance applies to decentralized ecosystems. 

For example, the Binance-owned analytics site CoinMarketCap, officially based in the U.S. state of Delaware, listed the KingMoney token in Q1 2020. CoinMarketCap CSO Carylyne Chan said that “there were no glaring red flags that arose during the application process.” Yet, this bitcoin clone token is clearly promoted in suspicious ways. Twitter bot researcher Geoff Golberg said the date of new follows indicates “inauthentic accounts were created solely to make their Twitter community appear more robust leading up to being listed by CMC.”

Read more: Iran Concerns May Be Driving Trump Administration’s Talk of New Crypto Rules

The crypto exchange UtByte and the KingMoney token project both appear to be registered in Sweden under an umbrella firm called Sweden Invest Group AB, led by Swedish-Iranian businessman Reza Khelili Dylami. (Dylami could not be reached for comment by press time.) Some Farsi blogs labeled both these projects as an interconnected “scam.” Regardless, it was obviously marketed to Iranians for the purpose of cross-border transactions. 

According to Chainalysis, “UtByte has received about $13.8 million of BTC and has strong transactional connections to Iranian cryptocurrency services and exchanges.”

The Trump administration’s concerns about Iranians using cryptocurrency to circumnavigate sanctions appear to be correct. It’s unclear how crypto exchanges would continue to bypass sanctions if, in the future, they are tallied and registered with the Central Bank of Iran. 

On the other hand, even cryptocurrency projects that are fully based in Iran often benefit from foreign social media efforts. For example, over the past weekend Tron founder Justin Sun promoted Iranian crypto exchange operators like Cryptoland on Twitter. 

Cryptoland co-founder Hassan Golmohammadi said the company is legally based outside of Iran but operates locally. When asked about Cryptoland in January 2020, a press representative for the Tron team said it does not directly work with the Iranian company, that any Farsi-language marketing of crypto projects is done “by the China/Asia team at Tron, not Tron US,” and there is “no actual marketing done” in Iran. 

According to Babak Jalilvand, editor of the leading Farsi crypto blog CoinIran, there is a “significant” TRX community in Iran precisely because “the Tron team” uses “their marketing skills to attract people.”

Yet, it remains unclear how sanctions would apply to global crypto communities. 

Although he’s not familiar with the Tron Foundation specifically, Dan Newcomb, a compliance expert at law firm Shearman & Sterling, said in January that U.S. economic sanctions applicable to Iran apply to any individual or organization doing business in the U.S.

“Marketing in Iran is soliciting business in Iran,” Newcomb said.

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Crypto Firms Establish Messaging Standard to Deal With FATF Travel Rule

A new messaging standard released today is designed to help cryptocurrency firms comply with anti-money laundering regulations from the Financial Action Task Force (FATF).

The standard, called IVMS101, defines a uniform model for data that must be exchanged by virtual asset service providers (VASPs) alongside cryptocurrency transactions. The standard will identify the pseudonymous senders and receivers of crypto payments, with such information “traveling” with each transaction.

Getting industry players to agree upon an interoperable data standard is a significant step towards a more regulated crypto space. The standard messaging format now needs to be incorporated into the various solutions being built by VASPs to meet Travel Rule requirements.

Read more: All Global Crypto Exchanges Must Now Share Customer Data, FATF Rules

“I’m pleased to confirm that the working group approved the final text and that the IVMS101 data model standard now exists,” said Siân Jones, convener of the Joint Working Group for InterVASP Messaging Standards.

Unambiguous data allows VASPs to exchange messages in an automated fashion, reducing costs and minimizing risks, the IVMS white paper states. A universal common language, the paper continues, enables beneficiary VASPs to understand and process the required information submitted by originating VASPs.

The standard has now been commended to the Chamber of Digital Commerce (CDC), Global Digital Finance (GDF) and International Digital Asset Exchange Association (IDAXA), the three industry bodies that established the joint working group, to formally endorse it, Jones said.

“Since the FATF published the Virtual Asset guidelines in June 2019, the industry has been working hard to comply with the guidelines, but there are challenges,” IDAXA said in an emailed statement. “One of them was establishing a common standard so any Virtual Asset Service Provider can work with any compliance solution vendor with ease. Coming up with the Intervasp Messaging Standard 101 (IVMS101) as a common standard is definitely the first step in the right direction.”

Read more: Inside the Standards Race for Implementing FATF’s Travel Rule

“Our members have worked hard to create this standard and achieve consensus in advance of FATF timelines – a real achievement in such a complex area,” the Chamber of Digital Commerce told CoinDesk in an email.

The updated FATF guidance saw a myriad of proposed technical solutions for dealing with how Travel Rule data can be shared by firms. The InterVASP group’s standard already has the backing of most of the well-known solutions being touted, including CoolBitX’s Sygna Bridge, CipherTrace’s TRISA, Notabene and Securrency (with OpenVASP of Switzerland saying the standard will soon be added to its roadmap).

Despite the coronavirus lockdown, the InterVASP working group has stuck to its proposed deadline: The standard has been released in time for FATF’s one-year review of progress on Travel Rule solutions at its June 2020 plenary meeting

“Frankly, Siân Jones deserves a medal for being able to steer this absolutely bang on time,” said Malcolm Wright, head of the AML Working Group at GDF. “It’s a testament to her professionalism to have been able to do that.”

Painkiller

Having a standard in place removes a big headache for VASPs. Without a simple way for messages to be consistently formatted, firms would have to reconfigure outbound and inbound messages on a continual basis to avoid error, a costly and time-consuming business, especially if handling large transaction volumes.

The sort of wrinkle that could gum up the works is something as seemingly innocuous as the way a date of birth can be interpreted, said Wright. “So, is 12.6.20 the 12th of June or the 6th of December? That’s the simplest example, really.”

Read more: Crypto Exchanges Need Common Messaging to Comply With Travel Rule

Collaboration across the crypto space to get the standard finished in time has been complemented by a helpful and engaging dialogue with regulators, said Wright. 

One of the issues where FATF has shown understanding is the “sunrise period,” Wright said. This is the shift from planning and design to execution (and, ultimately, enforcement by regulators in each country).

“We are coming at it from opposite ends towards the same goal, and we are not quite there yet. So can a VASP that’s licensed somewhere talk to a VASP that’s in an unlicensed jurisdiction?” said Wright. “That’s an interesting challenge. But we have got a really nice dialogue with FATF at the moment talking about the sunrise period.”

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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