Information sharing among institutions is an important way to create and sustain awareness about the high ML risk associated with virtual currencies. The Europol Financial Intelligence Public Private Partnership (EFIPPP), founded in 2017, is the first international information sharing mechanism in the fight against ML/TF and financial crime. The EFIPPP includes financial institution, Financial Intelligence Units (FIUs), and investigative bodies both within and outside the European Union. These institutions share information about any detected ML/TF cases, thus fostering a common intelligence. Recently, the Anti-Money Laundering Center (AMLC) of the Netherlands highlighted an EFIPPP document discussing ML red flags/indicators related to cryptocurrencies. Some of these red flags and indicators that can help detect financial crime are discussed below.
The first category of ML indicators comprises the indicators related to Know Your Customer (KYC) information. This category includes any behavior that raises suspicion about the source of funds used for cryptocurrency transactions. Plus, a client’s activity on open-source forums or websites linked to the darknet markets is also an ML indicator.
There are some transaction-related indicators as well. These include the payment of unusually high commissions for converting cryptocurrency to fiat currency, opting for cryptocurrency exchanges that lack AML controls like KYC, transactions of exceptionally large sums of money with the cryptocurrency platform, using cryptocurrency ATMs to launder fiat currency, among others. Sometimes, it is also possible to detect when someone is deliberately trying to make a transaction look legitimate. An example is when an account’s credits are in rounded amounts. Additionally, authorities should suspect ML in situations where a transaction involves multiple jurisdictions, third-parties are handling accounts without a reasonable explanation, or the cryptocurrency transactions involve illicit websites. Criminals also frequently use Initial Coin Offerings (ICOs) for laundering illicitly-obtained money since ICOs are unregulated.
Major red flags also come up when cryptocurrency users interact with the darknet. Particularly, the frequent conduction of transactions with darknet wallet addresses is an ML indicator. Another such indicator is darknet being the source of the majority of a user’s deposits to a cryptocurrency exchange.
Source: Anti Money Laundering Center, Netherlands
