Germany: New Ordinance Ensures Traceability of Crypto Asset Transfers

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On October 1, 2021, the Crypto Asset Transfer Ordinance (Kryptowertetransferverordnung, KryptoWTransferV) entered into force in Germany. The goal of the ordinance is to prevent money laundering and terrorism financing by imposing enhanced customer due diligence requirements on crypto asset transfers conducted by credit and financial institutions (crypto asset service providers, CASPs). (Crypto Asset Transfer Ordinance § 1.)

Content of the Crypto Asset Transfer Ordinance

The Crypto Asset Transfer Ordinance expands the duties imposed on payment service providers under European Union (EU) Regulation 2015/847 (EU Wire Transfer Regulation) to transfers of crypto assets that exclusively involve CASPs. (§ 3.) For other types of crypto asset transfers that do not exclusively involve CASPs, obligated parties must evaluate the money laundering and terrorism financing risks involved in the transfer and take appropriate measures to manage and mitigate such risks. Such measures are, among others, collecting, storing, and verifying the name and address of the transaction participants. (§ 4.)

Obligated parties that are unable to fulfill all or some of the requirements due to reasons beyond their control, such as a lack of technical capability, must inform the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) by November 30, 2021, and may request a deferral for up to 24 months. They must explain what those reasons are and how they intend to remove the obstacle. In addition, they must state what other measures they are taking in the meantime to minimize the money laundering risks when they are conducting crypto asset transfers. (§ 5.)

The FATF’s Travel Rule

The ordinance implements Financial Action Task Force (FATF) Recommendation No. 16, commonly known as the “Travel Rule.” With regard to new technologies, the FATF advises that Recommendation No. 16 be extended to virtual asset transfers. (Interpretative Note to Recommendation No. 15, point 7(b).) The EU has also issued a proposal to amend the EU Wire Transfer Regulation that would require Travel Rule compliance for crypto asset transfers. However, the legislative process is still ongoing and is slated to be completed in 2024.

Evaluation and Repeal of the Ordinance

The ordinance will be automatically repealed once the amended EU Wire Transfer Regulation enters into force. (Crypto Asset Transfer Ordinance § 7, para. 2.) If the EU Wire Transfer Regulation has not entered into force by June 30, 2024, the German Federal Ministry of Finance (Bundesfinanzministerium, BMF) must evaluate the ordinance on the basis of a report to be issued by BaFin. (§ 6.)

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