Earlier this yr, FATF finalized its suggestions for a way the cryptocurrency sector needs to be regulated from an AML / CFT perspective. The Electrical Coin Firm offered suggestions through the session and our head of regulatory relations, Jack Gavigan, took half within the assembly at which the suggestions have been finalised. In a earlier weblog put up, Jack described the FATF Suggestions and the way they’re more likely to affect the cryptocurrency sector. On this put up, he describes how Zcash is compliant with the FATF Suggestions. 

Zcash is completely appropriate with all necessities that come up from the FATF Suggestions.

In actual fact, when taking into consideration the “Journey Rule” requirement, Zcash is extra compliant than most different digital belongings. 

Beneath, we take an in depth take a look at the particular AML / CFT measures referenced within the FATF Suggestions, and describe each how Zcash is appropriate with them, and the way digital asset service suppliers (VASPs) are in a position to fulfil their AML / CFT obligations. 

Buyer Due Diligence (CDD) 

Beneath the FATF suggestions, VASPs are required to undertake CDD measures when establishing a enterprise relationship. The truth that a VASP helps Zcash or {that a} buyer intends to commerce Zcash doesn’t affect the VASP’s potential to hold out CDD checks. 

On this respect, Zcash is not any completely different from different digital currencies similar to Bitcoin or Ethereum, and VASPs can apply the identical CDD processes. 

Transaction monitoring

Zcash’s privacy-preserving expertise doesn’t stop a VASP from with the ability to monitor a buyer’s transactions with that VASP (e.g. deposits, withdrawals, trades), and evaluating transaction patterns and volumes with the anticipated behaviour, based mostly on the VASP’s understanding of the character of the shopper or their enterprise (as decided through the CDD checks). 

As a celebration to its clients’ Zcash transactions (both as a recipient, within the case of deposits, or a sender, within the case of withdrawals), a VASP has visibility of the transaction particulars. This enables the VASP to detect transaction patterns that don’t match that buyer’s anticipated behaviour, and examine additional to find out whether or not the sudden behaviour is suspicious. 

Zcash requires using fee addresses for all transactions. This enables VASPs to challenge a novel deposit deal with to every buyer, thus permitting Zcash deposits to be unequivocally attributed to a selected buyer. Zcash additionally requires that clients present a fee deal with to be able to obtain withdrawals, permitting VASPs to conduct sanctions screening, or limit withdrawals to whitelisted addresses.

On this respect, Zcash is not any completely different from different digital currencies, and the identical instruments and procedures for transaction monitoring may be utilized to Zcash. 

Document-keeping

In the identical manner that VASPs can monitor a buyer’s Zcash transactions, they will additionally preserve information of these transactions. 

For deposits, VASPs can file the shopper’s identification, the quantity of Zcash that was deposited, the vacation spot deal with (i.e. the deposit deal with the VASP created for that buyer), the supply deal with (the place the shopper deposits funds from a t-address), and the transaction ID. 

For withdrawals, VASPs can file the shopper’s identification, the quantity of Zcash that was withdrawn, the supply deal with (i.e. the VASPs’s deal with from which the cash are being despatched), vacation spot deal with (whether or not it’s a t-address or a z-address) and the transaction ID. 

You will need to notice that the VASP at all times is aware of the fee deal with {that a} Zcash withdrawal is distributed to. 

The one distinction between Zcash and different digital currencies when it comes to the knowledge out there to be recorded by the VASP is that if the shopper makes a deposit from a z-address, the VASP won’t robotically have visibility of the supply deal with. If it needs to take action, the VASP can request that the shopper present the supply deal with for the VASP’s information. Nevertheless, this isn’t a requirement underneath the FATF Suggestions. 

Suspicious Transaction Studies

The power to hold out transaction monitoring ensures {that a} VASP is ready to detect any suspicious exercise on the a part of its clients. The power to keep up information of its clients’ transactions ensures that the VASP possesses enough data to make suspicious transactions studies the place applicable. 

Journey Rule

Zcash was designed to be compliant with the Journey Rule. The required originator and beneficiary data may be hooked up on to a shielded transaction utilizing the encrypted memo area. Because the identify implies, the contents of this area are encrypted when the transaction is added to the blockchain, thus stopping inappropriate or unauthorised disclosure of private data. 

A mock-up of how a Zcash pockets would possibly immediate a person to connect the mandatory data to a transaction may be seen beneath:



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