Crypto with surmounting benefits has loopholes and related crimes within. Various International organizations such as the International Monetary Fund, World Bank and the Financial Action Task Force. With the emergence of the crypto ecosystem, these multilateral organizations are working rigorously to evaluate and assess the issues related to the development of the crypto ecosystem.
Though cryptocurrencies and digital assets are considered a new and valuable entrant in the payment settlement system. But there are numerous underlying issues including money laundering, terror financing, cyber threats etc.
The third Plenary of the FATF under the Presidency of T. Raja Kumar of Singapore concluded recently. Delegates from over 200 jurisdictions of the Global Network and observers from international organizations participated in these discussions at the FATF headquarters in Paris. The meeting highlighted that the fight against money laundering and the financing of terrorism and proliferation requires a global response.
The FATF reiterates that all jurisdictions should be vigilant to current and emerging risks from the circumvention of measures taken against the Russian Federation to protect the international financial system. FATF Members agreed to publish the fourth targeted update on the implementation of the FATF Recommendations on virtual assets and virtual asset service providers.
The associated members were updated on the progress of ongoing work, including projects on the misuse of citizenship and residency by investment schemes, money laundering and terrorist financing related to cyber-enabled fraud, and on the use of crowdfunding for terrorist financing.
Four years after the FATF strengthened its standards to address virtual assets and virtual asset service providers, global implementation of safety measures remains relatively poor. Based on FATF mutual evaluation and follow-up reports, almost three-quarters of jurisdictions are only partially compliant or not compliant with the FATF’s requirements.
Many jurisdictions have not yet implemented fundamental requirements, and more than half of survey respondents have not taken any steps towards implementing the Travel Rule, a key FATF requirement to prevent funds from being transferred to sanctioned individuals or entities. This lack of regulation creates significant loopholes for criminals to exploit. Closing the gaps in the global regulation of virtual assets is an urgent priority. The FATF calls on all countries to apply the AML/CFT rules to virtual assets service providers, without further delay.
The meeting highlighted that on 27 June, the FATF will publish a report urging countries to swiftly implement the FATF’s Recommendations on virtual assets and VASPs, including the Travel Rule, to close loopholes. The report also highlights emerging risks, including from DPRK’s illicit virtual asset-related activities, which are used to finance their WMD programme, as well as from decentralized finance, and peer-to-peer transactions.
The FATF has been closely monitoring the developments in the crypto sphere and in recent years has seen the first countries start to regulate the virtual asset sector, while others have prohibited virtual assets altogether. However, as yet, the majority of countries have not taken any action. These gaps in the global regulatory system have created significant loopholes for criminals and terrorists to abuse.
With support from the G20, the FATF has issued global, binding standards to prevent the misuse of virtual assets for money laundering and terrorist financing. The term ‘virtual asset’ refers to any digital representation of value that can be digitally traded, transferred or used for payment. It does not include the digital representation of fiat currencies.
The FATF standards ensure that virtual assets are treated fairly, applying the same safeguards as the financial sector. FATF’s rules apply when virtual assets are exchanged for fiat currency, but also when they are transferred from one virtual asset to another.
