By David Drake
Concerns have been raised worldwide on the potential use of cryptocurrencies to finance terrorism and aid money laundering practises. This is because the technology underlying digital currencies is characterised by individual privacy through trading of pseudonymous and/or anonymous coins.
Recent statistics by CipherTrace, a blockchain and cryptocurrency firm based in California, show an increase in these vices. According to the report, $1.2 billion worth of coins was laundered through cryptocurrencies such as Zcash and Monero in the second quarter of 2018.
Regulatory bodies have noted these threats and have been working on frameworks to minimize their occurences. One such body is the Financial Action Task Force (FATF), an outfit that develops global policies to tackle money laundering and terrorism financing.
In its latest report on anti-money laundering risk assessment in the UK, FATF noted that cryptocurrency exchanges in the country pose a low risk to money laundering and terrorist financing. The report points out that money laundering is not inherently linked to cryptocurrencies and that it is a risk that has only cropped up recently in the industry.
Although the agency did not find substantial evidence on the same, it pointed out that the UK needs to take action on potential outcomes. This will only be possible if authorities understand virtual currencies and its emerging risks.
The UK is one of the countries that vigorously monitors and prosecutes money laundering and terrorism financing. On a yearly basis, the country registers about 2000 prosecutions and 1400 convictions to tackle these vices. The report by FATF consequently, comes at a time when the agency is drafting global guidelines on cryptocurrency exchanges, cryptocurrency wallet providers and initial coin offerings.
It also comes in the wake of the G20 meeting where they urged the international community to adopt one approach with regards to cryptocurrency regulation and taxation. Additionally, it committed to monitoring the growing industry regarding vices, such as money laundering and terrorism financing.
The clean bill of health given to the UK cryptocurrency exchanges by the FATF will go a long way in growing the industry in the country. The impact of the report will be to help remove the mental model that has been associated with the industry with regards to money laundering and terrorism financing.
According to Joseph Oreste, Founder & CEO of Qupon, the report by FATF should boost confidence for investors and consumers wary of the technology in the UK.
Coupled with UK being one of the biggest financial hubs in the world, the country is strengthening its position in the financial sector by embracing the cryptocurrencies. The country currently developing a standardised approach to help agencies regulate cryptocurrency exchanges, an aspect that could result in increased investment in the industry.
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.