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Cryptocurrencies and Financial Crime on the Rise in Cape Verde
As the global cryptocurrency market continues to fluctuate, experts warn that the West African island nation of Cape Verde is becoming a hotbed for financial crime.
The Growing Demand for Digital Asset Services
The rise in digital assets has led to an increase in consumer demand for related services such as banking and custody. In response, traditional financial institutions are being forced to adapt, either by launching their own digital asset businesses or partnering with virtual asset service providers (VASPs) and other payment service providers.
The Risks of Financial Crime
However, this shift also poses significant risks of financial crime, including money laundering and terrorist financing. The Financial Action Task Force (FATF) has issued updated guidance on virtual assets, outlining AML/CTF measures that can be applied when partnering with VASPs.
The Dilemma in Cape Verde
In Cape Verde, where the lack of regulatory oversight has created a haven for illicit activities, traditional financial institutions are facing a dilemma. They must balance the need to meet customer demand for digital asset services with the risk of facilitating financial crime.
The Risks of Partnering with VASPs and Payment Service Providers
Experts warn that partnering with VASPs and payment service providers can indirectly expose financial institutions to suspicious transactions and money laundering risks. For example, payment service providers that use conventional operating bank accounts to deposit or withdraw fiat funds can pose indirect ML/TF risks to traditional financial institutions.
Mitigating the Risks
To mitigate these risks, financial institutions must conduct thorough due diligence on potential partners, including:
- A risk assessment of their AML/CFT program
- Confirming whether the VASP has performed a thorough risk assessment of its own AML/CFT program
- Understanding factors such as:
- Size and structure
- Ownership
- Products and services
- Geography
- Channels
The Importance of Customer Due Diligence
By performing appropriate levels of customer due diligence, financial institutions can increase their likelihood of creating long-lasting business relationships while addressing compliance with evolving regulatory expectations.
The Need for Clear Regulations in Cape Verde
The Cape Verdean government has yet to issue specific guidelines on virtual assets and related services, leaving a regulatory void that criminals are exploiting. It is imperative for authorities to establish clear regulations and guidelines to ensure the integrity of the financial system in the country.
Conclusion
As the cryptocurrency market continues to evolve, traditional financial institutions in Cape Verde must be aware of the risks associated with digital asset services and take proactive measures to prevent financial crime. Failure to do so could have severe consequences for the country’s financial stability and reputation.