Are DAOs obligated to perform KYC?
In Germany, the obligation to perform a KYC arises from the general anti money laundering regulation (Money Laundering Act- Geldwäschegesetz- GwG). Consequently, a DAO may be obliged to perform a KYC, if it falls within the personal scope of the GwG. The GwG targets mainly banks, financial institutions and similar entities defined by the relevant banking and capital markets laws, in particular but not exclusively by the German Banking Act (Kreditwesengesetz – KWG). Therefore, if the DAO qualifies as such an entity, it basically falls within the scope of the AML regulations as well. Though other entities (e. g. real estate agents, insurance companies or insurance agents) may also be subject to the GwG, they are less unlikely to be relevant for DAOs. However, it is possible that in future further relevant use cases will be developed. In practice, DAOs which are involved in financial activities or offer financial services are most likely to be subject to AML regulations. However, it still depends on the circumstances of the single case, in particular on the structure and activities of the respective DAO. According to § 25i KWG, banks are obliged to perform a KYC when they issue e-money. Theoretically, if a DAO qualifies as a bank, it falls within the scope of this regulation. However, regarding the current use cases it is highly unlikely that an investment DAO fulfills these requirements.
If a DAO is involved in activities that fall under the scope of anti-money laundering (AML) and
counter-terrorism financing (CTF) regulations, it may be required to implement KYC procedures. In Poland, these regulations are largely in line with the European Union’s AML directives, which require entities like banks, financial institutions, and certain types of businesses to perform KYC checks on their customers.
For a DAO, the obligation to perform KYC procedures could arise if it:
1. Operates a platform for buying, selling, or exchanging cryptocurrencies or other digital
2. Provides financial services or products that are subject to AML and CTF regulations.
3. Acts as an intermediary in transactions that involve fiat currencies or digital assets.
In such cases, a DAO may need to establish a process for identifying and verifying the identity of its customers, conducting due diligence on the nature of their transactions, and monitoring and reporting any suspicious activities to the relevant authorities.