The document in question, ‘Virtual Currencies – Key Definitions and Potential AML/CFT Risks’ both delves into the digital currency ecosystem and its potential contingent risks.
According to the official document, digital currencies have legitimate uses, with prominent venture capital firms investing in start-ups. It also grants recognition for potential in the emerging technology.
Moreover, as the paper highlights, digital currencies may set the course for viable micro-transactions which, in turn, may allow businesses and customers to monetise low-cost goods or services sold online. Digital currencies may also enable financial services in such as remittances, to the under-banked and unbanked regions of the world.
However, FATF does mention of the digital currencies’ vulnerability towards money laundering and terrorist finance abuse illegal activities due to higher anonymity as compared to traditional non-cash payment methods.
FATF also notes that being decentralized systems, digital currencies may incorporate a great degree of anonymity. Also, there is no central body or AML software currently available to monitor and identify suspicious transaction patterns.
FATF warns that centralised virtual currency systems may be involved in money laundering and could deliberately seek out jurisdictions with weak AML/CFT regimes. Decentralised, convertible virtual currencies which allow anonymous person-to-person transactions can exist in a digital universe entirely outside the reach of any particular country.
FATF also takes into consideration that criminals may use digital currency technology to set up shops beyond the reach of law enforcement and regulators. FATF points out that law enforcement is already starting to see major criminal cases involving the use of digital currency.
In the report the organisation examines the Liberty Reserve money laundering case, the rise and fall of online drug bazaar Silk Road and the demise of Western Express International.
FATF is an independent intergovernmental organisation tasked with developing policies to combat money laundering (AML) and terrorism financing (CTF). The organisation further maintains a blacklist, which highlights jurisdictions that refuse to address these issues.
In addition, the FATF issues recommendations for AML and CFT, which must be followed in order to stay off the blacklist. The FATF secretariat is located in France, at the OECD headquarters.
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