Financial Crime World

Aruba Faces Challenges in Curbing Cryptocurrency-Related Financial Crime

As the global market capitalization of cryptocurrencies hovers around $1 trillion, Aruba is struggling to contain financial crime related to these digital assets. The island nation’s financial institutions are being forced to adapt to the growing demand for cryptocurrency services from consumers and investors.

Growing Demand for Cryptocurrency Services

According to a recent report by Raddon Research Insights, 28% of consumers in Aruba are interested in having digital asset banking and custody services as part of their traditional banking relationship. This has led many financial institutions to consider launching their own digital assets businesses or partnering with virtual asset service providers (VASPs) and payment service providers.

Risks Associated with Cryptocurrency Services

However, this growing demand also poses significant risks for financial crime, including money laundering and terrorist financing. The Financial Action Task Force (FATF) has emphasized the importance of conducting thorough due diligence on VASPs and payments service providers to mitigate these risks.

Lack of Regulatory Clarity in Aruba

In Aruba, the lack of regulatory clarity is making it challenging for financial institutions to navigate this complex landscape. However, experts are urging institutions to prioritize identifying and understanding key threats, vulnerabilities, and illicit financing risks related to virtual assets.

Key Risks and Vulnerabilities

  • Partnering with VASPs that offer custody and exchange services can expose financial institutions to facilitating suspicious transactions through their institution.
  • Payment service providers that use conventional operating bank accounts to deposit or withdraw fiat funds pose indirect ML/TF risks to traditional financial institutions.

FATF Guidelines on Virtual Assets

To mitigate these risks, the FATF has provided guidelines on virtual assets, which highlight the importance of conducting counterparty VASP due diligence prior to partnering with them. The guidance also recommends ongoing customer due diligence and monitoring on a periodic basis.

Conducting Risk Assessments

In Aruba, financial institutions are being advised to conduct thorough risk assessments of their own AML/CFT programs and those of their VASP and payments service provider partners. This includes:

  • Verifying whether the partner has performed a thorough risk assessment of its AML/CFT program
  • Assessing factors such as size and structure, ownership, products and services, geography, and channels

By performing these assessments, financial institutions in Aruba can increase their likelihood of creating long-lasting business relationships while addressing compliance with evolving regulatory expectations. As the digital assets market continues to grow, it is crucial that institutions remain vigilant in their efforts to meet customer demand without compromising the integrity of their AML/CFT programs.