Financial Crime World

Financial Crimes Trends in Cryptocurrencies and Virtual Assets

Financial Crimes Enforcement Network (FinCEN)

FinCEN has reported that most ransom payments are made in Bitcoin, but there has been an increase in requests for payment in highly anonymized coins like Monero. Criminals use different wallets each time to evade tracking and “chain-hop” by using mixers and exchanging virtual assets.

Red Flag Indicators

FinCEN and OFAC have published a list of red flag indicators, including:

  • Customers with no experience in crypto asset transactions suddenly attempting to purchase large amounts.
  • Attempting to use a crypto asset exchange in a jurisdiction with less stringent money laundering regulations or sending highly confidential coins to multiple wallets at once.

FATF Standards

The Financial Action Task Force (FATF) has reported that there are ongoing trends in money laundering and terrorist financing risks associated with cryptocurrencies, including:

  • Regulatory Arbitrage: uneven global implementation of the revised standards.
  • Misuse of VASPs or CESPs: not complying with regulations.
  • Misuse of Tools and Methods to Increase Anonymity.

FATF Standards: Tools and Abuse Methods

The FATF has reported on various tools and abuse methods used to increase anonymity, including:

  • Tumblers and mixers
  • Anonymity Enhanced Coins (AECs) and Privacy Coins
  • Privacy wallets
  • Chain hopping
  • Dusting
  • Use of Decentralized Applications (DApps) and Decentralized Exchanges (DEX)

P2P Transactions

The FATF has reported that P2P transactions are at a reasonably large scale, with approximately 50% or more of the transaction amount being P2P transactions for bitcoins. However, the proportion of illicit transactions is higher for P2P transactions than for transactions via CESPs.

Regulatory Approach

The FATF has concluded that there has been no significant increase in the proportion of P2P transactions since the finalization of the FATF Standards in 2019. Changing the regulatory approach through regulation on intermediaries is not necessary at this point in time, but close monitoring will be necessary if globally adopted stablecoins and other cryptocurrencies become widely adopted.

Risks Involved in Settlement of Funds

The business models of Fund Transfer Service Providers vary, including remittance and settlement services using mobile phones for online sales. There are risks involved in settlement of funds, including the potential for money laundering or terrorist financing.