Digital Currencies Pose Money Laundering Risks in Guatemala, Experts Warn

As the global market capitalization of cryptocurrencies hovers around $1 trillion, traditional financial institutions in Guatemala are facing a daunting challenge: embracing digital assets to meet growing customer demand while ensuring compliance with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations.

The Growing Demand for Digital Assets

According to research by Raddon Research Insights, 28% of consumers in Guatemala are interested in having digital asset banking and custody services as part of their traditional banking relationship. This trend is forcing financial institutions to consider launching their own digital assets business or partnering with virtual asset service providers (VASPs) to meet customer needs.

Regulatory Uncertainty

However, regulatory uncertainty aside, experts warn that financial institutions must prioritize identifying and understanding the key threats, vulnerabilities, and illicit financing risks related to virtual assets. The Treasury’s Action Plan outlines these risks, including the potential for facilitating suspicious transactions through partnerships with VASPs or payment service providers.

Key Risks and Vulnerabilities

For instance, partnering with VASPs that offer custody and exchange services can indirectly expose financial institutions to money laundering and terrorist financing risks, while payment service providers using conventional operating bank accounts can also pose indirect ML/TF risks. These risks include:

• Indirect exposure to money laundering and terrorist financing through partnerships with VASPs or payment service providers
• Lack of transparency in the digital assets market, making it difficult to identify suspicious transactions

FATF Guidance on Virtual Assets

The Financial Action Task Force (FATF) has updated its guidance on virtual assets, outlining AML/CFT measures that can be applied when partnering with VASPs. The traditional risk-based approach recommendations in the guidance put financial institutions in a good position to adopt these practices by leveraging existing frameworks used for customer due diligence and risk assessments within functioning AML/CFT programs.

Best Practices for Partnering with VASPs

Experts recommend conducting counterparty VASP due diligence prior to partnering, as well as ongoing customer due diligence and monitoring on a periodic basis. This includes:

• Confirming whether a VASP or payment service provider has performed a thorough risk assessment of its AML/CFT program
• Performing a risk assessment of the financial institution’s own AML/CFT program, taking into account factors such as:
  • Size and structure
  • Ownership
  • Products and services
  • Geography
  • Channels

Conclusion

By performing the appropriate levels of customer due diligence regarding strategic alliances with VASPs and payment service providers, financial institutions in Guatemala 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, financial institutions must remain vigilant in their efforts to meet customer demand without compromising the integrity of their AML/CFT programs.