Understanding the potential risks associated with digital currencies

The FATF is the global money laundering and terrorist financing watchdog. As a policy-making body, the FATF works with more than 200 countries and jurisdictions to generate the necessary political will to bring about national legislative and regulatory reforms to prevent these illegal activities.

Money laundering – the process of making illegally obtained proceeds appear legitimate – is described as the lifeblood of organised crime. Recently, money launderers have increasingly turned to digital currencies such as Bitcoin, Ether and Ripple to launder the proceeds of crime and effectively “cash out” while evading authorities. In addition to money laundering, digital currencies also provide a means to fund terrorist activities around the world.

Digital currency refers to any currency, money or money-like asset that is primarily managed, stored or exchanged over the internet, and which functions as a medium of exchange, units of account or stores of value. However, unlike ordinary currencies, digital currencies are not legal tender, and globally, law enforcement officials, regulators and courts are grappling with how virtual currencies fit into AML and CFT regimes designed principally for traditional financial institutions.

In June 2019, the FATF introduced “Recommendation 15”, providing guidelines for companies to prevent the misuse of digital currencies. These amendments place obligations on countries to “assess and mitigate their risks associated with crypto asset activities and service providers; license or register service providers and subject them to supervision or monitoring by competent national authorities”.

The FATF monitors countries to ensure that they implement the FATF standards fully and effectively and holds countries that do not comply to account.


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