The U.S. Financial Crimes Enforcement Network (FinCEN) director Kenneth Blanco has warned banks to think seriously about their cryptocurrency risk exposure.
Current FinCEN regulations (FIN-2019-A003) state that it is the responsibility of all financial institutions to identify and report suspicious activity concerning how criminals and other bad actors exploit card verification checks for money laundering, sanctions evasion, and other illicit financing purposes. For many banks, it is still unclear how virtual currencies affect their institutions.
The director emphasized the need for banks to have another look at their AML policies and procedures, especially in relation to cryptocurrencies, adding that “if banks are not thinking about these issues, it will be apparent when examiners visit.”
“To be clear, exchanges are not the only ones with crypto risk exposure. These risks are not unique to money services businesses or virtual currency exchanges; banks must be thinking about their crypto exposure as well. These are areas your examiners, and FinCEN, will ask you about when assessing the effectiveness of your AML program.”
According to research by crypto analytics firm CipherTrace Labs in 2019, eight of the ten major U.S. retail banks had dealings with illicit crypto money service businesses (MSBs). These MSBs accept cash payments in exchange for crypto, essentially running as unregistered P2P exchanges.
In addition many P2P exchanges have no AML or know-your-customer (KYC) programs in place, resulting in extensive money laundering risks to banks and other financial institutes.
Banks have long been criticized for failing to maintain robust AML and KYC programs. The International Consortium of Investigative Journalists (ICJI) report that more than $2 trillion of processed transactions have been identified by banks as suspicious and should be frozen. The amount of suspicious money not identified by banks could be many times larger.