Financial Crime World

Virtual Asset Sector Exposed to Money Laundering and Terrorist Financing Risks

A recent report by the Risk Assessment Working Group has highlighted the vulnerabilities of the virtual asset sector in Mauritius, a popular hub for cryptocurrency transactions. The report reveals that various channels within the sector are susceptible to money laundering (ML) and terrorist financing (TF) threats.

The Virtual Asset Sector: An Overview

The virtual asset sector is comprised of several entities, including:

  • Virtual Asset Wallet Providers: Companies that manage and store cryptocurrencies
  • Exchanges: Platforms where cryptocurrencies can be bought, sold, and traded
  • Brokers: Intermediaries that facilitate transactions between buyers and sellers
  • Management Providers: Companies that offer investment management services for virtual assets
  • Initial Coin Offering (ICO) Providers: Companies that issue new tokens or coins through ICOs
  • Validators/Miners/Administrators: Entities that validate transactions on blockchain networks

These entities facilitate transactions involving cryptocurrencies, tokens, and other virtual assets.

Vulnerabilities in the Sector

The report identified 27 channels within the sector that are vulnerable to ML/TF threats. These channels include:

  • Fiat-to-virtual currency exchanges: Exchanges between traditional currencies and virtual currencies
  • Virtual-to-fiat currency exchanges: Exchanges between virtual currencies and traditional currencies
  • Automated Teller Machines (ATMs): Machines that dispense cash in exchange for virtual currencies
  • Merchants: Businesses that accept virtual currencies as payment
  • Cards: Virtual currency- loaded cards that can be used to make purchases
  • Fund management services: Services that manage and invest virtual assets on behalf of clients

Interactions between Sectors

The Risk Assessment Working Group found that only two sectors in Mauritius interact with seven VASP channels: the banking sector and non-banking financial institutions (NBFI). These sectors include:

  • Banks: Financial institutions that provide traditional banking services
  • Trust companies: Companies that manage trust funds and assets
  • Dealers in precious metals and stones: Businesses that buy, sell, and trade precious commodities
  • Real estate agents: Professionals who facilitate property transactions
  • Accountants: Professionals who provide accounting and financial services
  • Legal professionals: Lawyers and law firms that advise on financial matters

Recommendations for Enhanced Due Diligence and Compliance

The report emphasizes the need for enhanced due diligence and compliance measures to counter ML/TF threats. The recommendations include:

  • Assessing all VASP channels against anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations
  • Implementing effective AML/CFT measures, including customer due diligence and ongoing monitoring
  • Conducting regular audits and inspections to ensure compliance with regulatory requirements
  • Imposing penalties on non-compliant entities

Conclusion

The virtual asset sector in Mauritius is growing rapidly, but this growth also presents a risk of ML/TF activities. It is essential that authorities take immediate action to strengthen the regulatory framework governing the virtual asset sector and implement effective AML/CFT measures.

Call to Action

All stakeholders, including regulators, financial institutions, and VASP channels, must work together to ensure the integrity of the financial system and prevent the misuse of virtual assets for illegal activities. The Risk Assessment Working Group’s report highlights the need for a comprehensive approach to addressing ML/TF threats in the virtual asset sector.