Financial Crime World

Cryptocurrency Risks: Report Highlights Key Points

Executive Summary

The following report highlights key points regarding the risks involved in cryptocurrency transactions. Regulatory bodies are taking measures to address these risks, and cooperation among all stakeholders is crucial.

  • The majority of ransom payments are made in Bitcoin, but there has been an increase in requests for payment in highly anonymized coins such as Monero.
  • Criminals use a different wallet each time to avoid tracking and “chain-hopping” to evade tracing by using mixers and exchanging virtual assets.

Red Flag Indicators

The Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) have identified red flag indicators, including:

  • Customers who suddenly attempt to purchase large amounts of virtual assets
  • Use of a crypto exchange in a jurisdiction with less stringent money laundering regulations

Global Implementation of FATF Standards

As of April 2021:

  • Only 29 jurisdictions reported that they had conducted on- or off-site inspections
  • 18 jurisdictions mentioned that they have administrative sanctions in place to address money laundering and terrorist financing risks associated with virtual assets

Tools and Methods to Increase Anonymity

The report highlights the use of:

  • Tumblers and mixers
  • Anonymity Enhanced Coins (AECs)
  • Privacy Coins
  • Privacy wallets
  • Chain hopping
  • Dusting
  • Decentralized applications (DApps) and decentralized exchanges (DEXs)

P2P Transactions

The report notes that P2P transactions are at a reasonably large scale, with approximately 50% or more of the transaction amount being P2P transactions in some cases.

Regulatory Approach

Changing the regulatory approach through regulation on intermediaries is not necessary at this point in time. The early adoption of FATF standards by jurisdictions is the most effective way to address P2P risks.

Conclusion

The report highlights the need for continued vigilance and cooperation among regulatory bodies, financial institutions, and other stakeholders to address the risks associated with cryptocurrency transactions.