28 October 2018

Financial Times: Virtual assets and financial crime now go hand in hand

The anonymity, speed and global reach of virtual currency and other digital assets have made them attractive to both criminals and terrorists. If financial activities involving virtual assets are left unregulated or under-regulated, malign actors will be able to move funds whenever, and wherever, they want.

Organised crime groups have also used virtual currencies to pay human and drug traffickers and to move the proceeds of their illicit activities across borders without detection. And there have been a few cases involving terrorists seeking and receiving donations via virtual currency.

Urgent action is needed, therefore. However, most countries do not impose measures to prevent money laundering or terrorist financing using virtual assets. Nor do they regulate businesses that operate as virtual asset service providers as they do traditional financial institutions.

Among those countries that have recognised the importance of regulating virtual asset financial activities, the approaches have differed. A few countries have taken a robust approach to regulation, supervision and enforcement but most have only just begun to regulate virtual asset exchanges. Some countries have prohibited certain virtual assets altogether, rather than regulate them.

In July 2018, the finance ministers and central bank governors of the G20 countries acknowledged the absence of a consistent global regulatory and supervisory regime. They called on the Financial Action Task Force to clarify how its standards apply to virtual assets and related service providers.

The FATF is an intergovernmental body responsible for promoting effective implementation of legal, regulatory and operational measures to combat money laundering, terrorist financing and the financing of weapons of mass destruction. Its role is to prevent criminals, terrorists, and other bad actors from misusing the financial system. It also promotes implementation of effective measures to protect the integrity of the international financial system.

The FATF amended the organisation’s standards as they apply to financial activities involving virtual assets and also to businesses which deal in them — including virtual currency exchanges and some “wallet” providers. It has agreed that all countries must supervise and monitor these businesses, and that they should also ensure they apply key controls against money laundering and terrorist financing, including customer due diligence and suspicious transaction reporting.

Countries should understand their obligation to act to prevent illicit activity using virtual assets. They must learn how virtual asset providers operate, help them to strengthen internal controls and, if necessary, shut down those that do not comply. This work is vital if we are to make the international financial system safer.

Full article on Financial Times (subscription required)

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