VASPs Warned Over Red Flag Indicators in Transactions
A report by the Financial Intelligence Unit (FIU) Supervisor has highlighted a growing concern among Virtual Asset Service Providers (VASPs) operating in Nauru, regarding suspicious transactions that may be indicative of illicit activities.
Suspicious Transactions
According to the report, VASPs have been noticing an increase in transactions with language that suggests support for illegal activities or the purchase of illegal goods, such as drugs or stolen credit card information. Additionally, customers are repeatedly conducting transactions with a subset of individuals at significant profit or loss, which may indicate potential account takeover and attempted extraction of victim balances via trade, or money laundering schemes to obfuscate funds flow with a VASP infrastructure.
Red Flag Indicators
The FATF (Financial Action Task Force) has developed red flag indicators to assist VASPs in identifying unusual transactions where the source of funds or wealth is questionable or suspicious. These indicators include:
- Transacting with VA addresses or bank cards connected to known fraud, extortion, or ransomware schemes, sanctioned addresses, darknet marketplaces, or other illicit websites.
- VA transactions originating from or destined to online gambling services.
- The use of one or multiple credit and/or debit cards linked to a VA wallet to withdraw large amounts of fiat currency (crypto-to-plastic) or funds sourced from cash deposits into credit cards.
- Deposits into an account or VA address significantly higher than ordinary, with an unknown source of funds, followed by conversion to fiat currency, which may indicate theft of funds.
- Lack of transparency or insufficient information on the origin and owners of the funds, such as those involving shell companies or ICOs where personal data of investors may not be available.
- A customer’s funds sourced directly from third-party mixing services or wallet tumblers.
- Bulk of a customer’s source of wealth derived from investments in VAs, ICOs, or fraudulent ICOs, etc.
- A customer’s source of wealth disproportionately drawn from VASPs that lack AML/CFT controls.
Geographical Risks
The report also highlights geographical risks related to countries or places considered high-risk. These include:
- Customer funds originating from or sent to an exchange not registered in the jurisdiction where either the customer or exchange is located.
- Customer utilizing a VA exchange or foreign-located MVTS in a high-risk jurisdiction lacking, or known to have inadequate, AML/CFT regulations for VA entities.
- Customer sending funds to VASPs operating in jurisdictions that have no VA regulation, or have not implemented AML/CFT controls.
- Customer setting up offices in or moving offices to jurisdictions with no regulation or have not implemented regulations governing VAs.
Compliance and Penalties
The FIU Supervisor has emphasized the importance of reporting suspicious activities to the relevant supervisors, including the Registrar of Businesses, Registrar of Corporations, and the FIU Supervisor. Failure to comply with anti-money laundering and combating the financing of terrorism (AML/CFT) regulations can result in severe financial penalties and even prosecution.
Conclusion
As a reminder, VASPs operating in Nauru must understand that compliance with AML/CFT regulations is crucial to avoid severe penalties. The separation of penalty from the legal entity needs to be understood, and operators must ensure that they comply with the laws of Nauru to avoid any potential risks.