In June 2022, the Final Report of the Commission of Inquiry into Money Laundering in British Columbia was published. As previously reported by us in The Cullen Commission Releases Its Final Report on Money Laundering in British Columbia—Key Takeaways, the Report of the Commission, led by B.C. Supreme Court Justice Austin Cullen, canvasses the nature and extent of money-laundering activities in British Columbia and examines multiple issues that have contributed to its precipitous rise. Included in the lengthy 1800-page Report is an analysis of the role of virtual assets, including cryptocurrencies, in money laundering and other crimes, as well as methods of investigation. The Report provides a helpful and comprehensive look into the current regulatory landscape relating to cryptocurrencies and other virtual assets in Canada, and addresses the challenges and opportunities that lie ahead for both regulators and private actors.

While the Report notes that illicit activity is becoming an increasingly smaller share of the overall virtual asset market, the Report also observes that significant challenges continue to present themselves both in terms of prevention and enforcement. In particular, the Commission found that federal regulatory efforts have to date been hampered by a failure to adequately account for the unique nature of virtual assets and the difficulties inherent in preventing their misuse.

While exploring what the Commission perceives as shortcomings of federal regulatory efforts in the virtual asset space, the Report also outlines the important role that the provincial legislature and regulatory agencies can play in addressing regulatory gaps. At present, the Commission views the patchwork of efforts to regulate digital assets as presenting significant opportunities for illicit financial activity. The Report further notes that the incomplete regulatory framework poses systemic risks for the investing public, as evidenced by the collapse of QuadrigaCX and other recent debacles in the sector. The Commission views enhanced provincial regulation, likely with the cooperation of provincial securities regulators, as being instrumental in both protecting the investing public and granting virtual asset service providers a more consistent and predictable regime within which to operate.

As the Report indicates, the federal and provincial governments are increasingly devoting attention to the virtual asset sector in order to bring a greater degree of certainty and predictability to the space for both service providers and the public. As the regulatory landscape relating to cryptocurrencies and other virtual assets continues to develop, it will be imperative for the relevant stakeholders to understand the legal landscape and ensure that they remain in compliance with this rapidly developing area of the law. The Commissioner found it encouraging that securities regulators are developing frameworks for virtual assets and providing guidance to businesses about the circumstances in which they will be subject to securities regulation.

Below we discuss several key takeaways from the Virtual Assets Chapter (Chapter 35) of the Report:

The PCMLTFA's Travel Rule

The Report explores the impact of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) on the virtual asset space and discusses the effectiveness of the requirement to comply with the "travel rule." The travel rule requires certain financial entities and "money services businesses" to keep detailed records of accounts and transactions related to the transfer of virtual currencies, particularly when receiving such transfers. The information to be collected from both the transferring party and recipient includes the relevant account numbers and any names and addresses attached to them. The travel rule also requires that those entities implement risk-based policies for determining whether and when to reject such transfers if they do not include the prescribed information.

However, the Report finds that the travel rule has suffered from challenges associated with its implementation in practice. For example, there is no single, uniformly-accepted technological solution for implementing the travel rule and despite attempts to harmonize approaches and processes in relation to customer due diligence, the industry continues to use widely disparate methods to identify and track their users' transactions. The PCMLTFA's travel rule is also limited in scope as it only applies to transfers between virtual asset service providers, and not between one provider and the private virtual wallet of a given user. The Commission also observed that the inclusion of virtual assets in the definition of "Money Service Businesses" in the PCMLTFA ignores the fact that many virtual asset service providers are highly sophisticated trading platforms that engage in activities like rapid trading and the rapid movement of funds. As noted by the Commission, such activities may raise significant red flags for traditional money services businesses but are routine in the virtual asset space. Virtual asset service providers therefore face reporting requirements that are fundamentally inconsistent with the realities surrounding their activities. As the Report indicates, federal regulatory efforts have placed virtual asset service- providers into an often ill-fitting legal regime that routinely fails to consider prevailing business realities.

Provincial Regulation

While overall the Commission looks favourably upon the inclusion of virtual assets in the PCMLTFA notwithstanding certain shortcomings, it asserts that provincial involvement will likely be essential in establishing an effective regulatory regime for virtual assets. As noted by the Commission, the PCMLTFA does not address issues like the internal activities of virtual asset service providers, nor does it provide rules surrounding investor and consumer protection or the regulation of third-party payment processors. The Report recommends that a regulatory body at the B.C. provincial level should either be appointed from existing bodies or newly established bodies in order to address such issues in consultation with regulatory authorities and stakeholders, including the AML Commissioner, the British Columbia Financial Services Authority and the British Columbia Securities Commission.

Availability of Auditing Services

According to the Report, another significant roadblock standing in the way of effective regulation of the virtual asset sector is the availability and effectiveness of auditing services. The Commission found that it has been challenging for non-traditional digital asset service providers to locate auditors with the skills and experience necessary to operate effectively in the virtual asset sector. In addition, auditing standards require further clarification from regulatory bodies in order to be applied to virtual asset service providers in a sensible and effective manner. Further, such auditing services can prove to be prohibitively expensive for new providers. In response to these issues, the Canadian Securities Administrators and Investment Industry Regulatory Organization of Canada have together prepared a joint consultation paper that aims to provide a regulatory framework for virtual asset trading platforms. The Report looks favourably on such developments, and states that the virtual asset space will likely continue to see further layers of oversight established in the future.

Cryptocurrency and Crime

The Report also addresses the extent to which virtual assets are involved in criminal activity. The Report makes reference to an annual report by Chainalysis, a prominent cryptocurrency data platform, which indicates that the percentage of cryptocurrency transactions involving illicit activity in recent years has been "low." Chainalysis reported that in 2019 only 2.1 percent of the total cryptocurrency transaction volume it analyzed was illicit, with this number falling to 0.34 percent in 2020. It is important to note, though, that the volume of money involved in these "low" percentages is still significant, totaling US$2.4 billion in 2019 and US$10 billion in 2020. We note that Chainalysis's 2022 Crime Report indicated that approximately $14 billion of virtual assets went to illicit addresses in 2021. Despite these significant dollar amounts and the rise in such amounts, the Commissioner noted that Chainalysis paints a generally optimistic picture of the cryptocurrency space with regard to containing illicit activity, stating that such unlawful activity is falling steadily as a percentage of the overall cryptocurrency marketplace.


The inclusion of the Virtual Assets Chapter within the Report highlights the rise in prominence of digital assets, the increasing scrutiny that government is placing on the sector, and the practical impediments to tackling money laundering and other crime in the space. As noted by the Commission, it is encouraging that frameworks for the regulation of virtual assets are being further developed and refined, as this will provide better guidance to businesses operating in the sector and better protection to the investing public.

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