In 2019, the Financial Action Task Force asked jurisdictions worldwide to adopt its regulatory guidelines for virtual assets. At the V20 conference today, held online, David Lewis—executive secretary and G20 deputy at the organization—gave an overview of how implementation and business response have gone so far.
The FATF is an intergovernmental organization tasked with combating money laundering. Its 2019 directives for regulating crypto, which include a controversial section dubbed the “travel rule,” are designed to mitigate illicit uses of virtual assets, and to bring the sector into line with traditional banking regulations.
Lewis told conference attendees that the majority of jurisdictions have now transposed the guidelines into domestic law.
However, when it comes to crypto businesses—known formally as “virtual asset service providers,” or VASPs—Lewis said that their adaptation to the travel rule and wider FATF framework remains “relatively nascent.”
He acknowledged that progress has been made on the technical front, as firms try to improvise new solutions to help them be more efficient in their compliance measures. Yet the travel rule is “not yet being implemented globally or effectively” in the private sector, he stressed.
The organization, according to Lewis's debrief, is discerning new risks and intends to keep its eye on the corresponding regulatory challenges it faces. There has been, he says, increased use of crypto to move illicit funds during the pandemic. Moreover, there is evidence that crypto is being tapped more frequently by professional money laundering networks.
While the total value of crypto used for illicit activities remains small, it is being exploited to launder money from the sale of drugs and illicit arms, child exploitation, human trafficking and sanctions evasion, Lewis says. The organization appears particularly concerned about the various mechanisms and tools that are being used to increase privacy, including decentralized exchanges, so-called privacy coins, tumblers and mixers.
Lewis also reiterated the FATF's suspicion of so-called “jurisdiction hoppers,” or businesses that move location frequently, as the organization considers that this could provide scope for regulatory arbitrage.
Such features and phenomena form the backbone of the FATF's list of “red flags,” which it provides to businesses to help them with oversight of user activities on their platforms or services.
Lewis indicated that the FATF plans to publish a second review of the implementation of its guidelines worldwide in June 2021, following its first published review in June of this year.