Georgia’s Central Bank to Launch AML Probe into Crypto Firms
Georgia – a cryptocurrency-friendly country in the post-Soviet region, is preparing to start monitoring crypto firms to prevent money laundering and comply with sanctions in the crypto sector. The National Bank of Georgia (NBG) will launch mandatory supervision of virtual asset service providers.
Starting on September 1st 2023, the NBG has announced that it will initiate mandatory supervision of virtual asset service providers (VASPs). These steps taken by the NBG reflect its commitment and its aim to enhance the integrity and security of virtual asset transactions in Georgia.
Views on the Matter
According to a local news agency InterPressNews report on May 31 2023, the NBG acting Governor Archil Mestvirishvili highlighted that the new regulatory measures would help the country combat money laundering. Mestvirishvili noted “The NBG is among the main authorities that supervise compliance with those sanctions. The supervision was especially active last year when global jurisdictions such as the United States and European Union imposed sanctions against Russia”. He added they have “created an additional department for monitoring sanctions. The enforcement of the sanctions is very important, and the financial sector takes it very seriously”.
Expectations From VASPs
The upcoming probe into VASPs is expected to enhance Georgia’s compliance with Western sanctions against Belarus and Russia, in line with anti-money laundering considerations. In addition to VASP supervision, the NBG is gearing up to implement significant restrictions for foreign bank account holders. Starting September 1st 2023, Russian citizens will be limited to withdrawing at most 20% from their savings accounts immediately. The central bank believes such measures aim to support Georgia’s economic stability amid the increasing foreign currency deposits by Russians. The NBG reportedly stated, “Since this capital inflow may be of a temporary nature, it’s better to keep it in liquid funds’ assets”.
Georgia’s Crypto Space
The news comes amid the Georgian government’s preparations to approve cryptocurrency-related legislation in the autumn session. As previously reported, a local draft bill on crypto regulations aims to align local laws with necessary directives from the European Union and provide legal status to entities involved in digital asset trading.
On August 31st 2022, Georgia announced introducing new crypto regulations to attempt its ambitions of becoming a global crypto hub. Minister of Economy and Vice Prime Minister of Georgia Levan Davitashvili said, “A draft bill has been sent to the parliament and the amendments are expected to be passed in the autumn session”. The Minister noted, “The draft bill aims to coordinate local cryptocurrency laws with three major European Union directives, including the Payment Services Directive (PSD2), the Capital Requirements Directive (CRD), as well as the Virtual Asset Service Provider law”. Davitashvili added that “the adoption of VASP rules is crucial for Georgia to ensure sustainable regulation of the cryptocurrency industry. The Minister reportedly emphasised that it’s important to synchronise the Georgian financial legislation with associated rules in the EU” and concluded by saying “The latest framework is only the first step as Georgia aims to become a crypto hub in the future, in line with the government’s official 2022–2025 development strategy”.
On April 5 2022, experts at Cryptominded mentioned that Georgia’s central bank prepared legislation to regulate the crypto market. Governor of the NBG Koba Gvenetadze noted, “The central bank has already developed a draft of the regulatory legislation in accordance with the requirements of international agencies. Due to the lack of regulation, the size of the Georgian crypto market is unknown”. Governor Gvenetadze added, “The coming legislation complies with international Financial Action Task Force requirements and was written with assistance from the International Monetary Fund staff. Currently, financial institutions in Georgia are not allowed to provide virtual asset exchange and transfer services, and clients engaged in activities with virtual assets are considered high-risk and are subject to appropriate enhanced preventive measures”.
The Council of Europe money laundering body Moneyval estimated its monthly transaction volume at between 3.5 million and 5 million Georgian lari, or $1.09 million to $1.64 million, as of September 2020. Moneyval noted, “Georgian authorities are urged to strengthen the practical application of their measures to combat money laundering and financing of terrorism”. Despite this, the Minister did not disclose a specific date for introducing the regulatory legislation in parliament.
Georgia has long had a crypto mining sector with almost 1% of the total Bitcoin (BTC) hash rate, which is exceptional for a country with a population under 4 million. The country has plentiful hydropower, even though power shortages in the Svaneti region are attributed to illegal private crypto mining activities. According to a study by Forex, Georgia materialised as one of the most crypto-friendly regions in the world. As of July 2022, Georgia was ranked the fourth most crypto-friendly jurisdiction after the US, Switzerland and Hong Kong.
Georgia’s new crypto regulations came as tens of thousands of Russians fled to Georgia due to Western sanctions on Russia and uncertainty about the economy. The upcoming rules are designed to prevent the misuse of cryptocurrencies for terrorist financing and money laundering while helping Georgia to become a significant global cryptocurrency hub.
