32 ASIAN LEGAL BUSINESS – JANUARY-FEBRUARY 2024 WWW.LEGALBUSINESSONLINE.COM Offshore jurisdictions are an attractive prospect to virtual asset service providers (VASPs) for the same reasons they’ve always been attractive: Favourable regulatory environments, well-established financial service markets, tax-friendly policies, and strategic geographic locations. But global scrutiny over virtual assets, and lessons from economic crises across highly regulated markets have made policymakers weary of decentralised, digital finance practitioners, leading to increased regulation of VASPS in top offshore jurisdictions, including the British Virgin Islands, Cayman Islands and Jersey. The Financial Action Task Force, an intergovernmental organisation to develop policies to combat money laundering, terrorism financing and proliferation financing, has taken a keen interest in regulating VASPs in offshore jurisdictions, releasing standards to be met by business participants along with a system of checks and compliances to be put in place. Lawyers at offshore-focused international law firm Ogier are helping clients navigate new regulations and compliance burdens, associated costs and business policy changes, as well as advising incoming VASPs on the most seamless ways to do business in Jersey, the British Virgin Islands and the Cayman Islands. They say that as these offshore jurisdictions look to meet, and, in some cases, exceed these standards, the level of reliability and trust is set to increase without stifling growth or disrupting business. JERSEY In Jersey, operating a virtual asset (VA) business requires compliance with its antimoney laundering (AML), countering the financing of terrorism (CFT) and countering proliferation financing (CPF) regimes. All VA activities and VASPs are now required to apply to the regulator in Jersey, the Jersey Financial Services Commission (JFSC), for registration for supervision for AML purposes before commencing any VA activities. Alexander Curry, a Jersey-based partner at Ogier, says that applicants are required to provide a business risk assessment, policies and procedures for dealing with the AML risk and be able to demonstrate compliance readiness. “AML is, of course, not just a gating item; the JFSC has the ongoing right to visit the applicant, to review transactions, to review policies and procedures and relevant date to make sure businesses continue to comply with their AML obligations,” Curry explains. “In most cases, this will require an additional notification to the JFSC, but it will likely also mean an increase in administrative costs and ongoing compliance with recruitment and of additional personnel, training or amendments to specific policies and procedures. Relevant entities will need to implement a risk-based approach to VAs which includes collecting and analysing relevant customer data such as IP addresses and detection of IP address anonymisation, among other methods for reducing risk. Regulators will need to be shown evidence of the AML measures that entities handling virtual assets are putting in place. The use of a correctly configured blockchain analytics tool to screen wallets and monitor transactions along with improvements to CDD checks provides an important part of that evidence,” Curry adds. “Criminal penalties can be levied in Jersey for breach of the law, and there is very little flex within the system for those who do not comply,” he says. OFFSHORE SAFE HARBOURS In early 2023, offshore jurisdictions like Jersey, Cayman Islands and British Virgin Islands passed legislation that indicated they were welcoming virtual assets service providers (VASPs). Lawyers share that this will allow VASPs to anchor in the said jurisdictions despite increased regulatory burdens, compliance costs and stringent penalties. BY NIMITT DIXIT “AML is of course not just a gating item, the JFSC has the ongoing right to visit the applicant, to review transactions, to review policies and procedures and relevant date to make sure businesses continue to comply with their AML obligations.” — Alexander Curry, Ogier
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