FATF Details Virtual Asset Red Flags for Detecting Criminal Activity

This report will help VASPs, FIs, DNFBPs, and other reporting entities detect and report suspicious transactions, and national authorities detect criminal activity.

The FATF (Financial Action Task Force) has released a new report detailing red flag indicators that can help national authorities and reporting entities detect whether virtual assets are being used for criminal activity.

“Virtual assets use innovative technology to swiftly transfer value around the world and have many potential benefits, including making payments faster and cheaper,” the FATF says.

“But the anonymity associated with them also attracts criminals, who have used virtual assets to launder proceeds from a range of offences such as the drugs trade, illegal arms smuggling, fraud, tax evasion, cyber attacks, sanctions evasion, child exploitation and human trafficking.”

The report will help national authorities detect whether virtual assets are being used for criminal activity. It is based on over 100 case studies collected by members of the FATF Global Network, highlighting the most important red flag indicators that could suggest criminal behaviour.

Some of the key indicators covered in the report include:

  • Technological features that increase anonymity, such as the use of P2P exchanges, mixing or tumbling services, or anonymity-enhanced cryptocurrencies
  • Geographical risks, i.e. criminals can exploit countries with weak, or absent, national measures for virtual assets (see CoinTelegraph report)
  • Transaction patterns that are irregular, unusual or uncommon can suggest criminal activity
  • Transaction size, where the amount and frequency has no logical business explanation
  • Sender or recipient profiles and unusual behaviour which can suggest criminal activity
  • Source of funds or wealth which can relate to criminal activity

This report will also help VASPs (virtual asset service providers), financial institutions, DNFBPs (designated non-financial businesses and professions), and other reporting entities detect and report suspicious transactions.

In addition, it provides useful information to help FIUs (financial intelligence units), law enforcement agencies, prosecutors and regulators analyse suspicious transaction reports or monitor compliance with AML/CTF controls.

The full report is available here.

The report complements the FATF’s June 2019 guidance on virtual assets and VASPs, which explains the money laundering and terrorist financing risks of virtual assets, how to license and register the sector, actions sectors need to take for KYC, how to securely store customer information, and how to detect and report suspicious transactions.

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