Crypto regulations in Georgia (country) have not existed for a while. The relaxed governmental regulations and a 0% tax rate on trading cryptocurrency have been common. Consequently, Georgia has long been an attractive destination for crypto miners.
However, as of January 1st, new regulations have entered into force. It provides some definitions and creates a legal framework that complies with the Financial Action Task Force (FATF) recommendations.
What is the Purpose of the Changes?
Virtual Assets, and Cryptocurrency, in particular, hold unusually high risks of being used for money laundering. This is due to their high degree of anonymity and difficulty in tracing transactions. The new legal framework aims to prevent money laundering and the financing of terrorism.
What Kind of Virtual Assets Fall Under the New Regulations?
According to the new law, a Virtual Asset is a digital representation of value, which is interchangeable and not unique that can be digitally traded or transferred, and that can be used for payment or investment purposes. A Virtual Asset does not include a digital representation of cash, securities, or other financial instruments, and NFTs and collectibles are not subject to the new regulations. Cryptocurrency, however, does fall under the scope of the new regulations.
Can you Pay Using Virtual Assets (Cryptocurrency)?
It is official – a Virtual Asset is not a form of legal tender. Although, the National Bank has the power to determine exceptional cases. The only legal currency for transactions in Georgia has always been and remains the Georgian Lari. However, now the law directly indicates a provision specifically banning Virtual Assets from being used as legal tender.
But you can still use Virtual Assets (Cryptocurrency) payment. This is if you are making the payment through Virtual Asset Service Providers (“VASP”). The process would work like this:
- You make a payment through a VASP.
- The VASPS deducts cryptocurrency from your wallet.
- The VASP exchanges the cryptocurrency into fiat money.
- The addressee receives the fiat money from VASP.
What is the Definition of VASPs?
According to the new law, VASP includes anyone who does one of the following for the benefit of another person:
- Exchange a convertible Virtual Asset (including through a self-service kiosk) for national or foreign currency, another Virtual Asset, or a financial instrument.
- Transfer and/or facilitate the storage/administration of a convertible Virtual Asset or the instrument necessary for its use, which allows control over the Virtual Asset.
- Manage a portfolio of convertible Virtual Assets (except for collective portfolio management) and/or facilitate the administration of a trading platform for convertible Virtual Assets and/or the lending of such Virtual Assets and/or initial offering and/or initial offering services.
Who is Subject to the Mandatory Registration?
Under the law, VASPs shall register with the National Bank of Georgia. Otherwise, they will have to stop providing the service.
The obligation to get registered does not apply to:
- Individual crypto miners
- Individuals participating in a Bitcoin mining pool
- Individual traders
with the obligations set out by the new regulation.
- Other legal considerations?
In addition to being required to get registered, the VASPs are now considered as “Accountable Person[s]” within the meaning of Law of Georgia on Facilitating the Prevention of Money Laundering And the Financing of Terrorism.
How Does “Accountable Person” Status Affect VASPs?
The “Accountable Person” status sets legal obligations for VASPs to take preventive measures against money laundering and terrorism. The accountable person is obliged to implement preventive measures when making a one-time transaction related to the service of a convertible Virtual Asset if the transaction amount exceeds 3,000 GEL, 1,000 USD, or 1,000 EUR. The non-exhaustive list of relevant preventive measures includes:
- identifying and verifying a client based on a reliable and independent source;
- identifying a beneficial owner and taking reasonable measures for the verification thereof, based on a reliable source;
- establishing the goal and the intended nature of a business relationship;
- monitoring a business relationship – if necessary, determining the origin of the client’s property, cash, and convertible Virtual Assets, ensuring the proper periodical updating of the identification data and other information (such as documents) obtained by the implementation of the preventive measures.
The new regulation obliges the VASPs to transfer and receive accompanying information when transferring and receiving the Virtual Asset. The purpose of the new regulations is to implement the so-called “travel rule”. This enables the traceability of transactions made with the Virtual Asset.
Furthermore, VASPs have to provide preventive measures for the clients existing before the registration. The deadline for this is no later than July 1, 2024.
