The use of Convertible Virtual Currency (CVC) is increasing, offering an alternative transaction channel for consumers and a new transaction channel for criminals to exploit. Virtual currency activity is relevant to all financial institutions, even those that do not offer CVC products.
In 2019, FinCEN warned that “CVCs may create illicit finance vulnerabilities due to the global nature, distributed structure, limited transparency, and speed of the most widely utilized virtual currency systems.” Limiting the view of transactions and identities, while obscuring the source of funds through anonymizing features such as mixing and cryptographic enhancements, “some CVCs appear to be designed with the express purpose of circumventing anti-money laundering/countering the financing of terrorism (AML/CFT) controls, [increasing] the difficulty for law enforcement and other national security agencies’ efforts to combat money laundering, terrorist financing, and other financial crimes facilitated through CVC.”
Institutions preparing for impending guidance from the AML Act of 2020 and aligning BSA/AML programs with the AML/CFT National Priorities and the 2022 National Risk Assessments should consider how cryptocurrency can intersect with traditional banking practices and how to protect their institution from criminals leveraging virtual currencies for money laundering and other nefarious activities.
National Priorities Details Threat of Virtual Currency
“FinCEN notes that, while a substantial financial innovation, convertible virtual currencies (CVCs) also have grown as the currency of preference in a wide variety of online illicit activity”.
The Priorities caution that while virtual currencies are a “substantial financial innovation,” they have also “grown as the currency of preference in a wide variety of online illicit activity” and are widely used by global money laundering organizations. Bad actors exploit the anonymity of virtual currencies to disguise the source of illicit funds, evade detection, and move criminal proceeds through the financial system.
Financial institutions need effective and efficient BSA/AML solutions that can rapidly adapt to changing consumer behavior, emerging transaction channels, and new criminal threats, allowing investigators to focus valuable time and resources on the greatest threats to your institution to ensure illicit activity – including activities that intersect with virtual currencies – are not overlooked.
Considerations for Financial Institutions
When preparing to align BSA/AML programs to the National Priorities, financial institutions should review cryptocurrency activity in their customer base and determine the risk that activity presents. Institutions should consider a holistic view of all customer activity – from fiat transactions, to payments and receipt of funds from cryptocurrency exchanges.
- Does your transaction monitoring solution monitor cryptocurrency transfers into and out of digital wallets, with a holistic view of fiat and blockchain activity?
- Can you confidently complete Customer Due Diligence and Enhanced Due Diligence (CDD/EDD) risk assessments for virtual currency brokers, exchanges, or other virtual asset service providers (VASPs)?
- How does your institution screen sanctioned VASPs and digital addresses?
Verafin monitors customer transactions for potentially suspicious activities, including virtual currency payments, presenting you with risk-rated evidence in high-quality alerts. Our complete BSA/AML Compliance and Management solution offers financial institutions an end-to-end solution to detect, investigate and report potentially suspicious activity to keep you institution a step ahead of changing consumer behavior, an evolving regulatory landscape, and emerging financial crimes leveraging cryptocurrencies.
To learn more about how Verafin is helping thousands of institutions like yours to keep pace in the fight against financial crime, download our Financial Crime Management Brochure.