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FATF Issues Report On Illicit Crypto Activities

The Financial Action Task Force (FATF) detailed in a new report how illicit activity in cryptocurrencies could be identified, including an overview of exchanges in jurisdictions with weaker regulations. FATF highlighted Binance for locating in areas with weaker regulatory oversight. 

The Sept. 14 report noted activity that happens in traditional finance as well. For instance, individuals transacting suddenly in huge sums of money or transfers split into a series of transactions just shy of reporting thresholds. 

The report singled out users who use exchanges in jurisdictions with low anti-money laundering regulations in its geographical risk section. The report flags one particular exchange who relocated to avoid stricter regulations. 

“Ahead of the implementation of a policy to prohibit VASP operation in Jurisdiction A in Asia in 2017, a VASP (exchange) established in Jurisdiction A transferred its operation to Jurisdiction B in the same region. In 2018, Jurisdiction B stepped up its AML/CFT legal regime on VAs following significant hacks of some major VASPs (exchanges). In March 2018, the VASP announced its intentions to relocate its headquarters to Jurisdiction C in Europe (a jurisdiction which had not yet introduced a comprehensive AML/CFT regime in relation to VAs and VASPs at the time). Later in November 2018, Jurisdiction C introduced certain regulations on VASPs, and in February 2020, it confirmed that no authorisation was given to the corresponding VASP to operate. More recent reports in 2020 indicated that the VASP had already relocated its registration and domicile status to Jurisdiction D in Africa.”

Cointelegraph hypothesized the exchange in question was Binance, which started in China and moved to Japan and Malta. In February 2020, Maltese authorities reported surfaced that the exchange was never licensed in the country. Where exactly Binance had been incorporated became murky, with rumors surfacing it was based in Cayman Islands. FATF believed its true location was Sychelles in Africa.

The FATF report hinted that any exchange with an exchange in any country with “inadequate AML/CTF regulations” would be a potential red flag. Regulated exchanges might be expected to restrict transfers to any such exchanges. The report also outlines rules for the mixing and tumbling of funds. 

The FATF’s Travel Rule, which encompasses the cross-border regulation of cryptocurrencies, has yet to be adopted in many jurisdictions despite a June deadline to implement the regulations. The pseudonymous nature of many cryptocurrency transactions serves as an obstacle to following the rule’s requirements.