Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) Compliance Program
Document ID: HWCD-AML-2025-08-01 Version: 1.0 Date: August 1, 2025 Status: Draft - For Internal Vetting
Introduction
The Hello World Co-Op DAO Ecosystem is unequivocally committed to establishing and maintaining the highest standards of financial integrity and regulatory compliance. Recognizing the inherent strict legal and financial liabilities in its operations within the evolving Web3 landscape, the Ecosystem has implemented a comprehensive Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) Compliance Program. This program is not retrofitted but is "built-in from the ground up" prior to the launch of any new product or service, including sanctions compliance during design and beta testing. This proactive approach addresses the expectation of regulatory supervisors that mitigation measures are in place before granting registration or licensing.
The program aligns with the international standards set by the Financial Action Task Force (FATF) and the requirements of the Financial Crimes Enforcement Network (FinCEN), specifically anticipating classification as a Virtual Asset Service Provider (VASP) and preparedness for FinCEN Money Services Business (MSB) registration.
1. Designated Compliance Officer
A dedicated Compliance Officer is designated to oversee the entire AML/CFT Compliance Program. This individual holds the responsibility for:
Continuously monitoring transactions across the Ecosystem.
Filing
Suspicious Activity Reports (SARs) or Suspicious Transaction Reports
(STRs) with the Financial Intelligence Unit (FIU) for any suspicious
activity detected.
Filing Currency
Transaction Reports (CTRs) for transfers exceeding established
thresholds.
Ensuring
adherence to stringent record-keeping requirements as per FATF
Recommendation 11.
Overseeing
compliance with all federal and international AML/CFT regulations.
2. Risk-Based Approach (RBA)
The Hello World Co-Op DAO employs a rigorous Risk-Based Approach (RBA) to effectively identify, understand, and mitigate Money Laundering (ML), Terrorist Financing (TF), and Proliferation Financing (PF) risks associated with all its Virtual Asset (VA) activities. This assessment is completed prior to the launch or use of any software or platform, ensuring that mitigation measures are proactively integrated. The RBA informs the application of all subsequent AML/CFT measures, ensuring resources are allocated effectively to areas of highest risk.
3. Customer Due Diligence (CDD) and Know Your Customer (KYC)
The Ecosystem mandates a multi-faceted CDD/KYC process:
**Mandatory for Vendors:** Identity verification and compliance
checks (KYC/AML) are *mandatory* for all DAO-vetted vendors
operating on the Co-Op Marketplace, ensuring they adhere to legal
requirements and ethical standards.
Thresholds
and Enhanced Due Diligence (EDD): CDD processes are risk-based,
applied when establishing customer relationships or for occasional
VASP transactions exceeding a threshold of USD/EUR 1,000. Enhanced
Due Diligence (EDD) is applied to higher-risk relationships, such as
those involving Politically Exposed Persons (PEPs), transactions
in/from high-risk jurisdictions, or pseudonymous/anonymous
transactions.
Ongoing Due
Diligence: The Ecosystem emphasizes continuous due diligence on
customer relationships and scrutiny of transactions to identify
changes in customer profiles or suspicious activity. Verification of
customer and beneficial ownership information is completed before or
during the establishment of the relationship. If a VASP cannot apply
appropriate CDD, it will not enter or will terminate the business
relationship and consider filing a Suspicious Transaction Report
(STR).
Technical
Implementation: Technical solutions such as "on-chain KYC
solutions" or "Decentralized Identity (DID) Protocols"
may be leveraged to balance privacy with compliance.
4. Ultimate Beneficial Owner (UBO) Transparency
The Hello World Co-Op's legal wrapper is subject to UBO reporting, necessitating KYC checks for individuals with significant voting power or control (e.g., 10-25%+). A meticulously documented process for identifying and conducting KYC on UBOs within the Cooperative LLC is in place, particularly concerning signatories of multi-signature wallets (e.g., TreasuryManager.sol, GovernanceMultisig.sol) or individuals in key oversight roles. This proactive approach is fundamental for AML/CFT compliance and maintaining regulatory transparency.
5. Transaction Monitoring
Robust systems are implemented for real-time transaction monitoring to detect suspicious activities and identify connections to sanctioned addresses.
**Tools:** This includes leveraging on-chain analytics tools and
AI-powered analytics to improve detection accuracy and reduce false
positives.
High-Risk
Transactions: The system is designed to flag high-risk
transactions, such as large sums, rapid movements, or complex
obfuscation techniques.
Adjusted
Monitoring: Monitoring depth is adjusted based on institutional
risk assessment and customer risk profiles, including transactions
to/from unhosted wallets. The system is able to flag unusual or
suspicious movements of funds regardless of asset type.
- Suspicious Activity Reports (SARs) / Suspicious Transaction Reports (STRs) and Currency Transaction Reports (CTRs)
The designated Compliance Officer is responsible for continuous transaction monitoring and filing SARs/STRs with the Financial Intelligence Unit (FIU) for any activity that appears suspicious. Currency Transaction Reports (CTRs) will be filed for transfers exceeding $10,000. Reporting mechanisms may be updated to include specific indicators associated with VA activity, such as device identifiers, IP addresses, VA wallet addresses, and transaction hashes.
7. Record-Keeping (FATF Recommendation 11)
The Hello World Co-Op DAO rigorously adheres to FATF Recommendation 11, which mandates the maintenance of all transaction records and CDD measures for at least five years. These records must be maintained in a manner that allows individual transactions to be reconstructed and provided swiftly to competent authorities. It is crucially noted that reliance solely on the blockchain for record-keeping is insufficient for these requirements. Information collected includes identifying parties, public keys (or equivalent), addresses/accounts, and the nature, date, and amount of the transaction.
8. Travel Rule (FATF Recommendation 16) Implementation Strategy
The Hello World Co-Op DAO maintains a full implementation strategy for the FATF 'Travel Rule' (Recommendation 16), which requires originating VASPs to "obtain, hold, and transmit required originator and beneficiary information, immediately and securely, when conducting VA transfers" above a USD/EUR 1,000 threshold. This rule applies to all VA transfers treated as cross-border qualifying wire transfers.
**Technical Solutions & Interoperability:** The Ecosystem is
developing and documenting specific *technological solutions*
for secure, immediate information transmission between VASPs,
ensuring interoperability of systems. This information does *not*
need to be attached directly to the VA transfer on the blockchain;
it can be submitted indirectly via various technology solutions,
provided they enable compliance. The Ecosystem actively monitors and
engages with emerging industry solutions and technical standards for
Travel Rule implementation to ensure interoperability.
Counterparty
VASP Due Diligence: Detailed protocols are in place for
conducting a three-phase due diligence on counterparty VASPs to
assess their AML/CFT controls and avoid dealing with illicit actors.
This includes determining if the transaction is with a counterparty
VASP, identifying the specific VASP (potentially using regulated
VASP lists or registries), and assessing their AML/CFT controls,
regulated status, audit reports, and ability to protect sensitive
information. This due diligence is refreshed periodically or when
risk emerges.
Screening
and Hold: VASPs may screen required VA transfer information
separately from direct settlement and may "put a wallet on hold
until screening is completed".
Addressing
Lack of Global Implementation: The Ecosystem recognizes the
challenge of varying global implementation of FATF standards and
will consider additional control measures for transactions with
VASPs based in countries with weak implementation, such as intensive
monitoring, amount restrictions, or frequent due diligence.
9. Unhosted Wallet Interaction Policy
Given that D.O.M. supports Peer-to-Peer (P2P) transactions, a clear policy is established for managing ML/TF risks associated with transactions to and from unhosted wallets. This policy may involve enhanced due diligence, limiting certain types of transactions, or utilizing blockchain analytics tools to assess risk, as recommended by the FATF. The policy specifically covers stablecoins and P2P transactions. The Ecosystem also conducts ongoing and forward-looking monitoring to anticipate potential movement of VA transactions to P2P to avoid regulation.
10. Office of Foreign Assets Control (OFAC) Sanctions Compliance
A tailored, risk-based sanctions compliance program has been developed and implemented prior to launching products. This program ensures adherence to OFAC regulations and includes:
**Management Commitment and Risk Assessment:** Senior management
is committed to the program, and sanctions risks are evaluated *prior*
to providing services or products.
Robust
Internal Controls: This includes measures such as geolocation/IP
blocking and transaction screening against the Specially Designated
Nationals (SDN) list.
Continuous
Screening: Direct customers (marketplace vendors) and available
information about individuals using its payment processing platform
are continuously screened.
Blockchain
Analytics: Leveraging blockchain analytics tools to identify and
block transactions associated with sanctioned persons or entities,
including those virtual currency addresses included on the SDN List,
and to identify links to unlisted addresses that previously
transacted with listed ones.
Ongoing
Engagement: Ongoing engagement with OFAC is maintained.
**Training:**
Effective OFAC training is provided, accounting for changes in
sanctions programs.
11. Smart Contract Compliance and Integration
AML/CFT rules are incorporated directly into smart contracts where feasible (e.g., EthicsCompliance.sol, VendorRegistry.sol), ensuring automated enforcement of ethical and compliance standards within the ecosystem.
**Audits:** The Ecosystem commits to continuous, rigorous
third-party security and compliance audits for all core smart
contracts, especially those handling funds and governance. The
roadmap explicitly includes a "Smart Contract Audit for Alpha"
in Q4 2025.
Hotfix
Protocols: Emergency hotfix protocols for critical security
patches are in place but require prompt DAO reporting and
retroactive DAO ratification, balancing immutability with necessary
adaptability.
Code-to-Text
Consistency: Strict code-to-text consistency protocols are in
place. The Terms of Service explicitly state that where smart
contracts and written terms conflict, smart contracts generally
preempt, *except for specific statutory requirements*,
necessitating vigilance to resolve discrepancies through DAO-led
community resolution.
Multi-signature
Wallets: Multi-signature wallets (e.g., TreasuryManager.sol) are
utilized for financial oversight, requiring multiple approvals for
large withdrawals, thereby reviewing and approving high-risk
transactions.
12. Associated Legal and Financial Implications
Adhering to comprehensive AML/CFT requirements involves substantial legal and financial investment, which is recognized as critical for the foundational safety and regulatory resilience of the Ecosystem.
**Legal Counsel:** Initial legal counsel for MSB/AML program
development is estimated to range from $10,000 to $50,000+,
depending on the scope of services and the number of states
requiring money transmitter licenses.
Compliance
Software: Implementing compliance software and tools for KYC/AML
screening and transaction monitoring can incur annual costs ranging
from $5,000 to $30,000+ per year.
Budget
Allocation: The initial legal and compliance setup costs for
Phase 1 are estimated to be between $67,210 and $190,360+, with an
overall project estimate of $200,000 to $310,000+ for initial setup.
These costs are fully accounted for in the expanded budget
projections, underscoring the commitment to foundational safety.
13. Roadmap Integration
The implementation of the AML/CFT Compliance Program is strategically integrated into the Hello World Co-Op DAO's detailed roadmap:
**Phase 1 (Q3 2025: August-September):** Focuses on "Legal
and Compliance Framework Reinforcement," including FinCEN MSB
registration preparedness and KYC/AML policies.
Phase 2
(Q4 2025: October-December): Further details "Risk-Based
AML/CFT Program Implementation," alongside multi-signature
wallet configuration and accounting and tax record-keeping
infrastructure.
Conclusion
The Hello World Co-Op DAO Ecosystem's AML/CFT Compliance Program represents a foundational pillar of its operational integrity. By proactively embedding these measures, designating clear responsibilities, and committing substantial resources, the Ecosystem ensures robust adherence to federal and international anti-money laundering and counter-terrorist financing standards. This meticulous approach is critical for the Ecosystem's long-term viability, user safety, and unwavering commitment to operating with integrity in the complex Web3 landscape.