Cryptocurrencies,  Regulation

Report lists crypto red flags—don’t be old, want privacy

The powerful Financial Action Task Force has released a very broad list of reasons a cryptocurrency transaction should be scrutinized under anti-money-laundering rules

A powerful international financial oversight body has issued a list of red flags for illicit transactions that banks and cryptocurrency exchanges will have to follow. 

While some of the crypto red flags are obvious, others are very broad and could well catch legitimate investors in the net—for instance, opening an account and making a lot of transactions despite being old.

So maybe hold off on teaching grandma how to invest in bitcoin. 

A big stick

The Financial Action Task Force (FATF) is technically an advisory body, but nearly every country follows its recommendations, as failing to do so will get the nation effectively kicked out of the world economic system. Banks and financial services institutions must follow these rules very carefully as a result.

This type of regulation exists  in the fiat banking system. Among the most commonly known rule of this type requires U.S. banks to report any transaction of more than $10,000.

The FATF report is intended for regulators, banks, cryptocurrency exchanges and other organizations required to file anti-money-laundering (AML) and terrorism financing reports.

A broad definition

No one would argue with some of the red flags—for instance, sending or depositing funds to wallets or IP addresses with known connections to darknet markets, using exchanges without know-your-customer (KYC), AML and countering the financing of terrorism (CFT) checks, or opening and closing accounts after a single use.

But one of the biggest flags is not fitting a crypto user profile. Thus, being an older, active trader or making transactions larger than your financial history would support.  

However, anyone using a VPN or encrypted email to send or receive cryptocurrencies—“virtual assets” in FATF-speak—is deserving of a red flag, according to FATF. 

It should be noted that a lot of the red flag categories have a broad loophole—that the transaction is done “with no logical business explanation.” Of course, providing that explanation may take a while, during which time an account may be frozen. 

Here are some of the things banks and exchanges have been told to look out for:

  • A new account holder attempts to trade using the entire balance of their account
  • Making a crypto-to-fiat exchange at a potential loss—such as when the value of the token is fluctuating (like that’s rare) or when there are abnormally high transaction fees (we’re looking at you, ether).
  • Many small incoming transactions from different wallets all quickly transferred to another wallet or withdrawn for cash (say, running an Etsy business).
  • Converting a large amount of fiat into crypto, or one crypto to another.
  • Buying or receiving a privacy coin (like monero), or using a mixing service.
  • Using cryptocurrency ATMs in locations at a high risk for criminal activity—which sounds suspiciously like “in poor neighborhoods”—or for many small transactions.
  • If an older account holder—one significantly outside the typical age rage of a crypto user—opens an account and makes a lot of transactions. This one is aimed at stopping “elder financial exploitation”—although it also suggests older people may be mules as oppose to traders.
  • Using an exchange “operating in jurisdictions that have no [virtual asset] regulation, or have not implemented AML/CFT controls”—meaning countries not complying with the FATF’s “suggested” banking and finance regulations.

 You May Also Like

Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson owns no cryptocurrencies.

Subscribe to the
MODERN CONSENSUS Newsletter



Subscribe to the
MODERN CONSENSUS Newsletter