On September 14, 2020, the Financial Action Task Force (FATF) releases a report on virtual assets red flag indicators to help reporting entities, including Financial Institutions (FIs), Designated Non-Financial Businesses and Professions (DNFBPs), and Virtual Asset Service Providers (VASPs) in identifying and reporting potential ML and TF threats involving virtual assets (Vas) and applying a risk-based approach to their customer due diligence (CDD) requirements.
The list of indicators, which is not exhaustive, must be considered in the specific context of each reporting entity (i.e. business lines, products, or services and interaction with customers) and includes red flags related to:
Transactions (e.g. size and frequency of the transactions)
Transactions patterns (e.g. Conducting a large initial deposit to open a new relationship with a VASP, while the amount funded is inconsistent with the customer profile or Converting a large amount of fiat currency into VAs, or a large amount of one type of VA into other types of VAs, with no logical business explanation.)
Anonymity (e.g. Transactions by a customer involving more than one type of VA involving anonymity-enhanced cryptocurrency (AEC) or privacy coins or customers that operate as an unregistered/unlicensed VASP on peer-to-peer exchange websites)
Senders or Recipients (e.g. creating separate accounts under different names to circumvent restrictions on trading or withdrawal limits imposed by VASPs. Incomplete or insufficient KYC information, or a customer declines requests for KYC documents or inquiries regarding source of funds.)
The Source of Funds or Wealth (e.g. VA transactions originating from or destined to online gambling services. Bulk of a customer’s source of wealth is derived from investments in VAs, ICOs, or fraudulent ICOs, etc.)
Geographical Risks (e.g. Customer sends funds to VASPs operating in jurisdictions that have no VA regulation, or have not implemented AML/CFT controls.)
As outlined in the report, these indicators should not be the sole factor of whether or not a Suspicious Transaction Report (STR) should be filed by reporting entities.
The FATF report can be found here:
http://www.fatf-gafi.org/media/fatf/documents/recommendations/Virtual-Assets-Red-Flag-Indicators.pdf