Croatia — DeFi h(e)aven
It is safe to say that DeFi is the big thing in crypto at the moment. Actually, this moment has been lasting for some time but with every new project comes a new record breaking figure of how much money is locked in the decentralized finance ecosystem.
Croatian regulator: There is no obligation to perform any AML checks if you are running a business of exchanging one cryptocurrency for another.
It all began with a realization that the only central point in the otherwise decentralized world of cryptocurrencies were exchanges (CEX = Centralized EXchanges). Thus began the development of DEXs (Decentralized EXchanges) which are basically platforms that allow users to exchange one token for another through interaction with their smart contract. The main difference between the two? No company, no intermediary but also no AML/KYC (Anti-Money Laundering / Know Your Customer) rules.
It may be true that there isn’t any particular company “running” a certain DEX but it is also safe to say that somebody is responsible for building it and in some cases handing it over to the community by distributing governance tokens of which they may as well hold a substantial amount. Having this in mind, as well as the fact that not adhering to AML regulation may get you in run-in with the law, fair share of developers are reluctant to divulge their real identity and/or uncertain where to incorporate a company.
Why not just perform AML checks?
Because it’s virtually impossible (pun intended). Using DeFi protocols usually doesn’t involve having an account because they are non-custodial. Your identifier (and the way of connecting) is an Ethereum address which comes from your wallet or Metamask which are again non-custodial.
AML regulations, for instance SEC’s Source Tool or European Union’s AMLD5 (5th Anti-money laundering Directive), require you to establish your client’s full identification, source of income, whether they come from a high risk country… and whatnot. So if you rule out USA and EU, the only places left for you to establish a company are exotic legal islands like British Virgin or Cayman.
But there may be another “island” in the heart of the EU which is perfect for DeFi projects to incorporate.
Croatia: no fiat — no AML requirements
Croatia was among the first EU countries to implement the 5th revision of the AML Directive which was transposed into a law named Zakon o sprjecavanju pranja novca i financiranja terorizma that entered into force on 1 January 2020. This law outlines a long list of entities obliged to perform AML checks, among which seemingly crypto-projects. Article 9.2 par. 17.k) lists businesses that perform the service of exchanging virtual and fiat currencies as obliged entitites. But wait… Virtual and fiat? Does this mean “virtual to fiat”? We asked the Croatian regulator — HANFA.
They were kind to issue us their official opinion which read that there is no obligation to perform any AML checks if one is performing a service or facilitating exchange of one virtual currency to another virtual currency.
Sound familiar? Exchanging one token for another? DeFi.
So, as long as you are not dealing with fiat currencies, this very progressive stand of HANFA’s makes Croatia a unique country where you can safely establish a DeFi project without worrying that someone will try to make you chase your unknown customers in order to determine their true identities and sources of income.
