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Bane of money laundering in crypto
Recently, it was reported that Indian cryptocurrency exchanges have started tracking and blocking trading accounts, which undertake suspicious operations after government agencies raised red flags over cryptocurrencies being used for money laundering.
By
migrator
migrator
New Delhi
This has always been a cause for concern for regulators and the government, and at a time when India is yet to come out with any regulations around cryptocurrencies.
As the use of cryptocurrency becomes more widespread, service providers de with a greater number of threats from money launderers who exploit the speed and anonymity associated with the online trade of virtual assets. To buy and sell cryptocurrencies, users need access to online wallets and exchanges.
These services facilitate high volumes of crypto transactions, allowing for the speedy transfer of assets and funds globally, outside conventional banking and finance systems.Â
That lack of regulatory oversight is attractive to money launderers, who often seek to convert illegal funds into cryptocurrency to avoid the AML (anti-money laundering) checks imposed by traditional financial institutions. The scale of crypto-based money laundering is growing exponentially.Â
A recent study suggests $1 bn was laundered in crypto exchanges in 2019 and around $2.8 bn in 2020. Taking cognisance of this, the Financial Action Task Force (FATF) has researched the traits of cryptocurrency money laundering and released a report about its findings.Â
The Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing report of 2020 is intended to help both financial authorities and cryptocurrency wallets and exchange firms develop and implement their AML programmes.Â
Some virtual asset red-flag indicators of money laundering activity include transaction type, pattern, anonymity and geographical risk.
Speaking of transaction types, there are a few red flags. These include the structuring of cryptocurrency transactions in small amounts to avoid reporting thresholds.Â
Further, making a series of high-value cryptocurrency transactions in a short period of time is a red flag besides immediately withdrawing cryptocurrency deposits with no transaction activity or converting deposits to multiple types of cryptocurrency while incurring fees.Â
In some cases, patterns of unusual cryptocurrency transactions indicated that money laundering is taking place.
These included new cryptocurrency accounts funded in a manner that would be completely inconsistent with the owner's customer profile and wealth. For instance, new accounts are funded with a large initial deposit that is then traded or withdrawn in its entirety on that (or shortly same day (or early, thereafter).Â
Simi transactions involving multiple cryptocurrencies or multiple accounts with no logical business explanation must be watched. Frequent transfers of large amounts of crypto within a set period of time to the same account from more than one person should be monitored and flagged immediately.
Recently, a securities firm spotted a foreign national making two separate transactions of over $4.8 mn between cryptocurrency accounts, within six minutes of each other, from a wallet hosted in the Cayman Islands.Â
A suspicious transaction report was raised and submitted and the accounts were frozen and the funds were discovered to have been illegally obtained. These transactions spell out the need to roll out an AML policy with regard to cryptocurrency.
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