Editorial note: The AML Academy strives to disseminate information on AML/CFT measures in the EU member states and countries seeking accession to the EU. Our aim is to share and exchange information pertaining to counter money laundering and terrorist financing processes. Edin Jahić, head of the Unit for The Detection of Organized Crime and Corruption in Bosnia and Herzegovina, is a new member of our team of lecturers. We believe that articles and webinars by this law enforcement professional from a recently “FATF blacklisted” country and his frontline experience from combating organized crime will be of interest for much wider audience but our AML/CFT professional community.
The Financial Action Task Force (FATF) defines virtual assets as follows: ”A virtual asset is a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes. Virtual assets do not include digital representations of flat currencies, securities, and other financial assets that are already covered elsewhere in the FATF Recommendations“[1]. The European Union uses the term virtual currency which is defined as “digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically“.[2]
In the Act on prevention of money laundering and terrorist financing (BiH Official Journal volume 47/14, 67/16) [3] (AML/CFT Act), legislators decided not to follow the above instruments and defined neither virtual currency nor virtual asset service provider (service provider) or any term related to virtual assets. That is why the AML/CFT Act does not guide regulation of virtual property services´ providers for the purposes of AML/CFT, i.e. neither their licensing or registration nor effective monitoring systems and compliance with relevant measures guided by FATF Recommendation 15, respectively by the EU Directive No. 2018/843 of 30 May 2018 (5th AML/CFT Directive). Furthermore, there is no other legal norm in Bosnia and Herzegovina defining activities of virtual asset service providers. Due to this absence of legal definition and legal framework, official institutions have truly little information about activities of virtual asset service providers; there is no regulatory supervision of this important sector which does actively operate in Bosnia and Herzegovina.[4] Banks in Bosnia and Herzegovina therefore perceive services related to virtual assets as a high-risk business activity and banks often refuse to enter in a business relationship with these service providers, which ultimately incumbers further development of this sector in this country.
The FATF Recommendations define virtual ownership as “property,” “proceeds,” “funds”, “funds or other assets,” or other “corresponding value”. In line with these Recommendations, authorities should introduce the notion of virtual ownership in the criminal law.
This concerns primarily the crime of money laundering, which should be extended to any type of assets, including virtual ones, irrespective of direct proceeds of crime. All assets, including virtual ones that are “laundered”, revenues or assets used or intended for use to launder money or perpetrate predicate offences, assets used or intended later use for the purpose of financing terrorism, terrorist acts or terrorist organizations, or kept perpetrating such activities, shall be temporarily or permanently confiscated. The crime of terrorist financing must be extended to ‘all means or other assets’, including virtual assets, regardless of their legal or illegal source.
Virtual currencies resulted from new technology development. Both FATF and EU definitions clearly indicate that virtual currencies are not money because they do not serve the basic functions of money. New technology and digital products have the potential to stimulate innovations in the financial services. The first Bosnia-Herzegovinian cryptocurrency called RuXCrypto (RXC) which was reported by the media as mineable as of September 25th, 2020 is a clear proof of it. There are web platforms for buying, selling, exchanging, trading, storing, and managing digital assets. New technology and digital products, however, are attractive for criminals and terrorists as tools to launder money or finance illegal activities. There have been several cases in Bosnia and Herzegovina of cryptocurrency used to perpetrate crime. [5]
There is more the Bosnian and Herzegovinian authorities should do to regulate virtual assets or currencies but their definition in the respective legislative norms. To prevent money laundering and terrorist financing, it is necessary to further define a regulatory framework to supervise this sector. Last but not least, the authorities need guidelines based on risk assessment and methodology of supervision and inspection. Successful prosecution in the absence of an adequate definition of a virtual currency in the criminal law is particularly challenging. Perpetrators abuse anonymity of the Internet to legitimise, with relatively low risk, their illegal proceeds from crime by creating false identities.
In Bosnia and Herzegovina, we definitely need to train capable personnel in both regulatory as well as law enforcement bodies to enforce, once legislated, the new measures guiding virtual assets.
[1] FATF Recommendations 2012.pdf
[3] Zakon o sprečavanju pranja novca i finansiranja terorističkih aktivnosti („Službeni glasnik BiH“ č. 47/14) a Zakon o izmjenama i dopunama Zakona o sprečavanju pranja nova i finansiranja terorističkih aktivnosti („Službeni glasnik BiH“ č. 67/16)
[4] E. g. www.dam.ba
[5] For example: https://www.dw.com/bs/haker-iz-%C5%BEivinica-digao-na-noge-evropsku-policiju/a-19135907
Head of Department for Combating Organized crime and Corruption under the Ministry of Security. Representative in MONEYVAL and FATF.