Better Due Diligence, Faster Payments: Why Are CBI Jurisdictions So Slow to Adopt Blockchain Solutions?

Governments in CBI jurisdictions have been slow to adopt cryptocurrency payment options for their investors, despite crypto’s potential to improve source of wealth transparency among applicants and ensure the timely arrival of international payments.

IMI spoke to Pavel Jakovlev, a venture capitalist with extensive experience in crypto-adoption for both the private and public sectors, about what’s stopping CBI-countries from incorporating more blockchain-based tools in their programs, both for funds transfers and due diligence purposes.


Why are governments hesitant to allow for investments via cryptocurrencies, considering the leading ones all exist on immutable ledgers, which makes proving the source of funds more reliable than with fiat?

Jakovlev: You are absolutely spot on here. Immutability is one of the key components of decentralized ledgers. Pretty much everything can be tracked on the ledger and, therefore, should have an explanation. Each and every transaction, even if it’s made via lighnting capabilities, is still recorded.

Let’s look at a situation: Someone bought Bitcoin a few years back and it grew to what it is today. Whether the purchase was made over the counter (OTC) or via an exchange, this transaction can be traced back through Bitcoin’s block explorer. All you need is a wallet address and you can easily see when the transaction was made.

From then onwards, it is easy to calculate the appreciation of the asset. What the client should explain is where he got the funds to make the initial purchase. Then again, an investment of US$ 1,000 in Bitcoin back in 2013 would be within several million today.  

What are the specific AML/KYC tools and procedures governments can use to verify the source of funds for applicants who wish to pay in crypto?

Jakovlev: There are plenty of KYC/AML service providers, capable of tracing transactions across different ledgers (blockchains). For example, Merkle Science and Chainalysls can provide in-depth analysis of a particular case.

In fact, the latter is already working and training government officials: https://www.chainalysis.com/government-agencies/. In Switzerland, the local canton police is well equipped to deal with cyber threats, including tracing crypto hacks, and is surely capable of understanding where funds come from: https://www.cybercrimepolice.ch

To what extent are the big due diligence firms able to assist in this respect? Are they ready to help governments and service providers with AML/KYC solutions for investors whose source of funds (or source of wealth) is crypto-related? Or are they unprepared for the new economy?

Jakovlev: I don’t think I have enough data points to answer your question. Distributed ledger technologies are far more transparent than fiat. From where I am sitting, there is still a certain stigma that surrounds crypto yet – at the same time – governments are pushing forward with their Central Bank Digital Currency (CBDC) initiatives.

It may be more of an emotional issue, rather than a technical one. One thing is certain, though: Crypto has created hundreds, if not thousands, of billionaires, and many more millionaires, who mostly reside in developing countries. Their newly accumulated wealth is a blessing and a curse. They have it but must remain anonymous because if they declare their wealth with local tax authorities, they may lose all of it.

There have been instances of police storming blockchain development centers and confiscating computers because they thought that “this is where the Bitcoin is”. Governments that offer CBI should get up to speed with crypto payments and storage as soon as possible. Whichever country does it first will have an incredible first-mover advantage.  

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Christian Henrik Nesheim AdministratorKeymaster

Christian Henrik Nesheim is the founder and editor of Investment Migration Insider, the #1 magazine – online or offline – for residency and citizenship by investment. He is an internationally recognized expert, speaker, documentary producer, and writer on the subject of investment migration, whose work is cited in the Economist, Bloomberg, Fortune, Forbes, Newsweek, and Business Insider. Norwegian by birth, Christian has spent the last 14 years in the United States, China, and Spain. 

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