According to CipherTrace’s Cryptocurrency Anti-Money Laundering Report of Q3 2018, cryptocurrency products and services have a high potential for abuse by criminals. As the crypto industry grows so too does the potential for crime.

Kenneth Blanco, Director of the Financial Crimes Enforcement Network (FinCen), stated that international regulatory authorities “must be cognizant that financial crime evolves right along with it [new technologies], or indeed sometimes because of it, creating opportunities for criminals and bad actors, including terrorists and rogue states”.

According to Director Blanco, it is, therefore, the responsibility of international regulatory authorities to “hold companies and individuals accountable when they disregard their obligations and allow the financial system to be exploited by criminal actors”.

Increasing Global Regulation Standards

The Financial Action Task Force (FATF) is the global standard-setting body for Anti Money Laundering (AML) and Counter-Terrorism Funding (CTF) regulations. FATF’s President, Marshall Billingslea, described the present status of global AML/CTF regimes as patchy, which is a cause for concern as this creates potential “vulnerabilities” for national and international financial systems to be exploited by criminals looking to cryptocurrencies and blockchain technology to further their criminal activities.

FATF has already criticized North Korea and Saudi Arabia for their inability to address the significant deficiencies in their AML/CTF regimes, for not being able to conduct sophisticated financial analysis, and for not investigating and prosecuting money laundering proactively.

The European Commission’s latest AML Directive, soon to become law in the European Union, is bringing crypto-related services in line with existing financial product offerings such as those offered by banks, including mandatory identity checks on new customers as well as reporting suspicious activities. While in America, domestic and foreign virtual currency operators will now have to comply with the Bank Secrecy Act and register with FinCen, in an effort to develop AML/CTF capabilities and reporting programs.

World-Wide Regulatory Activities

While it is true that US President Trump has signed an executive order establishing a new task force dedicated to digital currency fraud and other digitally enabled financial crimes. There are also several other countries around the world that are attempting to prevent the exploitation of the digital asset sector by criminals.

Malta’s Financial Services Authority has developed extensive regulations and licensing requirements for cryptocurrency businesses, which are about to go into effect. Canada is updating its Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations. Japan’s regulatory clampdown on exchanges and digital asset businesses is ongoing, while its Financial Services Agency is busy expanding its team. The South Korean government has set up a separate business sector for crypto activities and has requested more cooperation between countries worldwide in the regulation of cryptocurrencies and ICOs. While Mexico’s cryptocurrency bill has strict requirements for cryptocurrency businesses wishing to obtain permits to operate in an attempt to prevent digital asset financial crimes.

According to CipherTrace, the goal of these various regulations and international authorities is to decrease the threat of digital asset financial crimes which poses a threat to the integrity of the international financial system. The international community is focused on the fight against crypto crime in order to prevent criminals from profiting from their criminal activities, such as global drug cartels that launder their illegal profits through cryptocurrencies. It is also the focus of the international community to protect its citizens by cutting off the financial resources available to terrorist organizations and rogue nations.

Do you believe international regulations will prevent the financing of terrorism or money laundering by criminal groups? Give us your thoughts in the comments below.

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