Q&As

What money laundering and terrorist financing red flags do I need to look out for in a transaction or matter involving virtual assets?

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Published on LexisPSL on 28/09/2020

The following Practice Compliance Q&A provides comprehensive and up to date legal information covering:

  • What money laundering and terrorist financing red flags do I need to look out for in a transaction or matter involving virtual assets?
  • The transaction
  • Anonymity
  • Senders and recipients
  • Source of funds/wealth
  • Geographic risks

This Q&A describes red flag indicators for matters involving virtual assets, as set out in the Financial Action Task Force (FATF) report ‘Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing’, published September 2020.

While virtual assets (VAs) are still not widely used by the public, their use has caught on among criminals.

These indicators are specific to the nature of VAs and their associated financial activities, and are not exhaustive. Suspicious activities involving the use of VAs may also share similar traits with money laundering or terrorist financing activities involving the use of traditional (fiat) currency, or other kinds of assets. You should therefore consider the risks posed by your customers/clients, products, services and operations, as well as the presence of conventional risk indicators—see Precedent: Recognising crime—warning signs for staff, or for law firms: Recognising crime—warning signs for staff—law firms.

For more on cryptoassets and financial crime, see Practice Note: The risks of cryptoassets from a financial crime, money laundering and terrorist financing perspective.

Red flag indicators should always be considered in context. The mere presence of a red flag indicator is not necessarily a basis for a suspicion of money laundering or terrorist financing, but should prompt further examination. Ultimately, a customer/client may be able to provide an explanation to justify the red flag indicator, business or economic purposes of a transaction.

The transaction

This set

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