Back against wall, Libra turns to compliance

Compliance.

The word appears a total of 56 times within the 29-page text of the Libra Association’s new White Paper v2.0, released this month and meant to replace the original introductory information shared by the group in June 2019. Since that time, Libra says it has worked with regulators, central bankers, elected officials, and various stakeholders around the world to determine “the best way to marry blockchain technology with accepted regulatory frameworks,” the solution to which appears to be­ the use of a certain reassuring buzzword that is music to the ears of any enforcement authority.

This is not a novel idea. For example, when Live Nation was in hot water with the Department of Justice over concerns of antitrust violations regarding its ticketing practices, the event promoter was able to reach an agreement with the DOJ in December that included the appointment of an internal “antitrust compliance officer” to appease the regulator. Other specific brands of compliance officer are popping up more frequently of late; even a city council in the United Kingdom last year created the position of “performance compliance officer” in charge of reviewing CCTV systems at local strip clubs to ensure abidance with no-touching rules.

Libra’s aspirations aren’t quite as risqué, but the idea of expanding the use of cryptocurrency may still seem taboo in some regulatory circles. Not aiding the Association is its association with Facebook, the hottest Big Tech target for criticism in the areas of data privacy, governance, and, in general, trust. Facebook and its subsidiary Calibra, intended to be a digital wallet for Libra coins, were all one heard about when Libra was first announced; now Mark Zuckerberg’s company is referenced only once in the updated white paper, and in a way that downplays its influence on the project.

“While Facebook teams played a key role in the creation of the Association and the Libra Blockchain, they have no special rights within the Association,” the white paper reads.

The Libra Association, now comprised of 22 companies after Shopify signed on in February, vows to take on a life of its own when it comes to compliance. The collective group says it will “implement a comprehensive Compliance Program designed to meet or exceed relevant laws and requirements” that will include, in part, the designation of a chief compliance officer and a committee with oversight reporting responsibilities; the writing of anti-money laundering (AML), countering financing of terrorism (CFT), and sanctions compliance policies and procedures based on a risk assessment and approved by the board of directors of the Association; and the performance of risk-based due diligence on all members, designated dealers, and regulated and certified virtual asset service providers (VASPs).

The Association says it will set mandatory compliance standards for entry on the Libra network, and it will conduct due diligence on all future members to ensure “high levels of compliance, reputability, and trustworthiness.” The process of renewing membership will also take regulatory compliance requirements into account. Compliance standards will be established by the Association and/or one of its subsidiaries and need to be abided by all participants in the Libra network, including Association members, designated dealers, VASPs, and unhosted wallet users (which will be subject to additional controls).

“We believe that it is possible to combine the best aspects of blockchain-based technological innovation—distributed governance, open access, and security—with a robust compliance and regulatory framework,” Libra states. “… The Association and its subsidiaries are committed to creating a payment system that is legally compliant, safe, and consumer-friendly and to supporting efforts by regulators, central banks, and lawmakers to ensure that the Association and its subsidiaries contribute to the fight against money laundering, terrorism financing, and more.”

On privacy, Libra says it will adopt an approach that will take into account the variety of participants on the network. “The Association oversees the evolution of the Libra Blockchain protocol and network and continuously evaluates new techniques to enhance privacy compliance on the blockchain while taking into account applicable regulatory requirements,” the white paper says. Further, a financial intelligence function will be created to facilitate monitoring for potential suspicious and sanctioned activity on the Libra network and curb attempts at evading compliance.

The Swiss-based Libra is also welcoming oversight and control of its digital offerings by a group of regulators and central banks or an international organization under the guidance of the Swiss Financial Market Supervisory Authority. “Technological innovation conducted in collaboration with the financial sector, including regulators and experts across a variety of industries, is the only way to ensure that a sustainable, secure, and trusted framework underpins this new system,” the Association says.

Sustainable, secure, and trusted is the way Libra wants to be viewed, and the Association appears keen on building a compliance framework to get it there. It can likely expect regulators to keep a close eye on whether it puts its stablecoin where its mouth is.