Vanuatu Passes Crypto Asset Regulation Bill with Penalties Up to 30 Years in Prison and $2 Million Fine

On March 26, the Parliament of Vanuatu passed the "Virtual Asset Service Providers Act," granting the Vanuatu Financial Services Commission (VFSC) authority over cryptocurrency licensing and regulation, according to a report by Cointelegraph. The legislation mandates compliance with the Financial Action Task Force (FATF) standards on anti-money laundering (AML), counter-terrorism financing (CTF), and travel rule requirements. Violations of these regulations could result in severe penalties, including fines of up to 250 million vatu (approximately $2 million) and prison sentences of up to 30 years.

The law establishes a licensing and reporting framework for entities such as cryptocurrency exchanges, non-fungible token (NFT) marketplaces, crypto custody providers, and initial coin offerings (ICOs). It also permits banks to apply for licenses to offer cryptocurrency trading and custody services. Additionally, the legislation allows the VFSC commissioner to create a regulatory sandbox, enabling approved companies to provide various crypto-related services for a renewable one-year period. Notably, stablecoins, tokenized securities, and central bank digital currencies (CBDCs) are excluded from the scope of this law.

As a small economy and offshore financial hub, Vanuatu has long been a target for illicit financial activities involving cryptocurrencies. The country's high degree of financial privacy, flexible company registration policies, and relatively lax regulatory framework have historically attracted bad actors in the crypto space, leading to issues such as fraud and money laundering.

The VFSC emphasized that this legislation presents significant opportunities for Vanuatu, particularly in enhancing financial inclusion through regulated crypto cross-border payment services. The bill's development has taken years, with VFSC stating that it involved extensive "assessing the risks associated with virtual assets." Although work on the legislation began in 2020, its progress was delayed by government changes, natural disasters, and the COVID-19 pandemic.

Loretta Joseph, a legal advisor to the regulatory body on the bill, highlighted the strictness of the new law, remarking, "God help any scammer that goes into Vanuatu because you’ll go to jail."

This move underscores Vanuatu's determination to combat illicit activities in the cryptocurrency sector. While promoting the growth of the digital asset industry, Vanuatu remains committed to maintaining a stable and healthy financial order by addressing related financial crimes.