FATF Virtual Assets red flag indicators ; A summary
The FATF released a report on how we can identify and deal with red flags with respect to virtual assets or cryptocurrency. This report highlights a number of red flags such as irregular transactions, anonymous transactions, from senders and receivers and sources of funds of the crypto users.
Another kind of red flag would be the size and frequency of transactions where a criminal could make several transactions over a period of 24 hours which are of a higher rate or inconsistent in nature and regular transactions that immediately stop after they are made. Additionally, even transfer of virtual assets to exchange portals with AML/CFT rules and KYC procedures that are not strong enough is also considered a red flag.
The report also suggests a few ways we could track illicit activities and curb them such as following anonymous users on crypto exchanges and monitor transactions of users with a criminal record. One of the most important methods, the FATF recommends, is to compare a user’s transactions with that of his or her profile, also known as user profiling. An example of this would be that the amount of these transactions are inconsistent with the user’s funds and financial history suggesting that the user could merely be making these transactions on someone else’s behalf.
The report states, “Conducting a large initial deposit to open a new relationship with a VASP and funding the entire deposit the first day it is opened, and that the customer starts to trade the total amount or a large portion of the amount on that same day or the day after, or if the customer withdraws the whole amount the day after.”
The report had previously recommended the travel rule where regulators must direct a Virtual Assets Service Provider (VASPs) to retain and share any kind of information of illicit activities and transactions made in these providers and recommended that all countries follow this in their jurisdictions. Let’s hope this report helps create the world of crypto-assets a safer space for users and regulators.
Please note that all opinions made on this blog should be treated as a guide and not legal advice.