Financial Crime World

Strengthening Financial Integrity and Transparency in El Salvador’s Virtual Assets Ecosystem

El Salvador has made significant strides in embracing virtual assets, including the adoption of Bitcoin as a legal tender. However, there is a need to ensure that this ecosystem operates with financial integrity and transparency. A recent report provides several recommendations to policymakers, regulatory bodies, and industry stakeholders to achieve this goal.

Strengthening Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Regulations

  • Policymakers should adopt reforms to ensure robust oversight over Virtual Assets (VAs).
  • This includes developing a comprehensive framework for regulating VAs, including clear guidelines on customer due diligence, risk assessment, and reporting suspicious transactions.

Developing Regulations for Bitcoin Law and Digital Assets Issuance Law

  • The Government of El Salvador, BCR, and National Commission on Digital Assets should engage with the legal and business community to develop regulations and technical standards.
  • This will help ensure that VAs are used in a way that promotes financial stability and minimizes the risk of illicit activities.

Ensuring Transparency and Access to Public Information

  • All relevant government agencies should respect and guarantee transparency and access to public information.
  • This includes disclosing information on government Bitcoin investments and assets, as well as providing regular updates on VAs-related activities.

Registering Crypto Companies

  • The Superintendence of the Financial System (SSF) and BCR should require information on the management structure of these companies, including their beneficial owners.
  • This will help ensure that crypto companies operate in a transparent and accountable manner.

Operative Recommendations

Transparency Measures

  • The BCR should incorporate information on government Bitcoin investments and assets in the Balance of Payments.
  • This will provide greater visibility into the use of VAs by the government and help build trust among citizens.

Inter-Agency Commission

  • The Government of El Salvador should form an inter-agency commission to discuss and establish criteria for a legal person to open an account at Chivo Wallet and at a bank.
  • This will help ensure that there is clear guidance on how VAs can be used in a way that promotes financial stability.

Chivo Wallet Requirements

  • Chivo Wallet should no longer permit the use of expired identification documents to register or use the wallet.
  • This will help prevent identity theft and other forms of financial crime.

ATM Monitoring

  • Chivo ATMs should implement lower transaction thresholds and additional monitoring for ATMs located in geographic regions that present heightened security risks.
  • This will help reduce the risk of illicit activities associated with VAs.

Educational Recommendations

Crypto Transaction Reporting

  • The FIU of El Salvador and other government authorities should provide education and training opportunities to the financial sector regarding identification of red flag indicators in crypto transactions.
  • This will help ensure that financial institutions are equipped to detect and prevent illicit activities associated with VAs.

Public Officials’ Capacity Building

  • The government should create programs to develop the capacity of public officials from the three branches of government and other autonomous institutions to understand VAs.
  • This will help ensure that public officials have a clear understanding of VAs and can make informed decisions about their use.

VA Use in Campaign Financing

  • Training should be provided to electoral authorities, political parties, elections monitoring organizations, civil society, and citizens as a whole regarding appropriate use of VAs in campaign financing.
  • This will help ensure that VAs are used in a way that promotes transparency and accountability in the electoral process.