El Salvador bitcoin movement opens banks to money laundering and terrorist financing risks – Fitch

Representations of the Bitcoin cryptocurrency can be seen in this illustrative photo taken on June 7, 2021. REUTERS / Edgar Su / Illustration / File Photo

June 25 (Reuters) – Salvadoran law making bitcoin legal tender means banks face higher risks, including violating anti-money laundering and terrorist financing rules, the agency said on Friday. Fitch rating in a report.

The Bitcoin decision, which is expected to take effect on September 7, “would increase regulatory, financial and operational risks for financial institutions, including the potential for violating international anti-money laundering and terrorist financing standards,” Fitch said.

The ability to use bitcoin for all bonds, including bank loans, could funnel bitcoin traffic through the Central American country, which “could increase the chances of the proceeds of illicit activity passing through the Salvadoran financial system, ”Fitch said.

Salvadoran President Nayib Bukele said on Thursday that the use of bitcoin will be optional, meaning anyone receiving a payment in bitcoin will be able to choose to automatically convert them to US dollars, which has been legal tender in El Salvador for two decades.

Fitch added that regulations must be fully in line with global standards set by the Paris-based Financial Action Task Force, given that “bitcoin’s lack of transparency could increase the risk of money laundering.”

Bukele touted the benefits of bitcoin for international transfers which are essential in a country like El Salvador, where a fifth of gross domestic product in 2019 was tied to money returned by workers overseas according to the World Bank.

Report by Rodrigo Campos

Our standards: Thomson Reuters Trust Principles.

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