Syed Rahman and Ulrich Schmidt detail the Financial Action Task Force’s crypto-related money laundering warnings.
Crypto assets are one of the four key areas highlighted by the Financial Action Task Force (FATF) in its new National Risk Assessment Toolkit.
The FATF, which is the international anti-money laundering watchdog, has published the Toolkit in an attempt to help countries develop and strengthen their risk-based approach to fighting financial crime.
Crypto is identified as a priority area by the FATF, along with corruption, and what are classed as legal persons and legal arrangements, and the informal economy. According to the FATF, while there has been some progress in countries’ compliance in relation to virtual assets (VAs) and virtual asset service providers (VASPs), many jurisdictions still struggle with some aspects; particularly regarding the undertaking of risk assessments.
When conducting such a risk assessment, the FATF says countries should consider how VASPs differ to traditional financial institutions and how - and to what extent - VAs and VASPs interact with the traditional financial and non-financial sectors.
Risks
The FATF states that countries that decide to prohibit or limit VAs/VASPs should still understand the money laundering risks associated with them and any unlicensed activity. Each country should have a detailed decision-making process evidencing the basis upon which it has adopted its approach towards addressing money laundering risks associated with VASPs, whether this be outright prohibition, restricting VA/VASP activities or applying a VA/VASP authorisation process.
Every country should also include in this the analysis undertaken to assess the impact the chosen approach could have on the possible money laundering risks linked to VA/VASPs operating in or from the country. It should also consider the possibility of such risks evolving rapidly and have in place measures for continued assessment of those risks.
The FATF makes it clear that regardless of whether a country decides to prohibit VA/VASP activity, additional risk mitigating measures may be necessary. These could include including identifying VASPs that operate illegally in the jurisdiction, assessing the risk of VA services being offered in the country by a VASP based abroad, and applying “proportionate and dissuasive sanctions’’ to such entities.
Considerations
The watchdog provides a lengthy list of considerations for countries that are assessing the money laundering risks of VAs and VASPs. These include ensuring the appropriate authority leads the assessment, analysing possible threats and vulnerabilities, including the private sector, and communication of any findings that come out of the assessment.
Launching the Toolkit, the FATF said governments can use it while carrying out money laundering National Risk Assessments (NRAs) and added that it can also be used by law enforcement or the private sector.
FATF President, Elisa de Anda Madrazo, said a risk-based approach ensures “smart prioritisation of resources to combat financial crime”.
She added: “It also means a proportionate response. Which means that activity isn’t driven into the dark where we cannot see it.’’
FATF publications and toolkits set the global standard for combating money laundering. So it has to be seen as significant that virtual assets have been given their own section in this publication. While the FATF has discussed the implications of increasing use of cryptocurrencies and digital assets for a long while - with a first published Recommendations document in 2019 - it is now one of the main important points of any publication. This underlines the dramatic rise of money laundering which has affected VAs and VASPs.
