Financial Crime Risk Assessment Tools Crucial for El Salvador as it Leverages Virtual Assets
October 18, 2023 - San Salvador, El Salvador
Rapid Innovation and Growth in El Salvador
As the first country in the world to adopt Bitcoin as legal tender, El Salvador has undergone significant technological change and growth over the past two years. However, this rapid innovation also brings operational and regulatory challenges that must be addressed.
Assessing Virtual Assets in El Salvador: A Report
A new report examines the use of virtual assets (VAs) in El Salvador from both a legal and regulatory perspective, as well as an anti-money laundering (AML) and counter-terrorism financing (CFT) perspective. The analysis highlights progress made by El Salvador while also identifying remaining challenges that need to be addressed.
El Salvador’s Regulatory Framework for Virtual Assets
==========================================================
Overview of Existing Laws and Regulations
El Salvador has established a regulatory framework that encompasses the Bitcoin Law, the Digital Assets Issuance Law, and the Innovation and Manufacture of Technologies Promotion Law. These laws aim to provide a supportive environment for individuals and businesses engaging in transactions involving digital currencies while fostering innovation and technology manufacturing within the nation.
Identified Areas Requiring Additional Regulation
The report identifies additional areas that may still require regulation due to the dynamic nature of the subject matter and ongoing efforts to standardize these frameworks internationally.
Financial Crime Risks Associated with Virtual Assets
=============================================================
The report assesses financial crime risks for the most common predicate offenses for money laundering (ML) in El Salvador, including:
- Drug trafficking
- Extortion
- Migrant smuggling
- Misappropriation of public funds
Understanding Financial Crime Risks is Crucial for Mitigation
Understanding these risks is crucial for countries like El Salvador to take mitigating measures and deploy limited resources effectively.
Policy Recommendations
==========================
The report concludes with policy recommendations aimed at helping El Salvador maximize the benefits and minimize the risks associated with financial innovation. Key recommendations include:
- Strengthening AML/CFT measures and ensuring robust oversight over VAs
- Engaging with the legal and business community in developing regulations and technical standards according to international best practices
- Enhancing compliance mechanisms for lawyers and law firms advising companies operating in El Salvador
- Ensuring transparency and access to public information, including contractual and operational processes, fraud and mismanagement investigations, and the use of public funds
- Requiring Chivo Wallet to collect information on legal persons opening Chivo Wallet accounts and maintain beneficial ownership information
By implementing these recommendations, El Salvador can better leverage the benefits of financial innovation while mitigating risks associated with virtual assets.