The Australian Transaction Reports and Analysis Center (AUSTRAC) has published a financial crime guide focusing on preventing the criminal abuse of digital currencies.
Digital currencies are fast becoming a commonly used modality for financial criminals. Criminals often convert their illicit proceeds in fiat currency to digital currencies and vice versa. Conversion services (mixers) and digital currencies that support anonymity (privacy coins) make it difficult for authorities to track such conversions. Moreover, digital currencies are increasingly being used on darknet marketplaces for illicit activities, including terrorism financing. Scams and frauds are also avenues for financial criminals to use digital currencies.
AUSTRAC has listed several behavioral and financial indicators for financial institutions to identify digital currency transactions linked to ML/TF. Some suspicious behavioral indicators include the use of fake or low-quality documentation, hesitance in providing identification documents, difficulty in establishing beneficial ownership, difficulty in contacting the customer during working hours, and general impatience or evasiveness. Financial indicators that should trigger enhanced customer due diligence include unexplained or unusual wealth, purchase of a large sum of digital currency that does not match known wealth in fiat currency, and the use of cryptocurrency ATMs.
Specific customer activity can also help identify the use of darknet marketplaces, involvement in TF, or scams. For example, conducting transactions with high-risk or sanctioned wallet addresses or in high-risk jurisdictions, sending money to fundraising websites linked with violent extremism, or receiving fiat currency in an account under a different name, are financial traits that suggest high-risk behavior. Such behavior should encourage the submission of a suspicious transaction report to AUSTRAC.
AUSTRAC has further identified non-fungible tokens, decentralized finance and staking of digital currencies as emerging risks in this sector.